The disruptors are coming

Digital disruption could upend brokers’ crucial place in the industry, and adaptation is key to survival, write Michael Lyman and John Mulhall

The disruptors are coming

Opinion

By

As digital disruption continues to overturn traditional industries, insurance brokers are in line for a rude awakening. Having long enjoyed an indispensable role at the heart of the insurance industry, helping customers navigate complex decisions and provide services in times of need, brokers face a new reality where technology does the heavy lifting. As data and analytics become intelligent enough to determine risk and identify the best carriers more accurately and quickly than the most highly experienced broker, brokers need a definitive business model shift to maintain their relevance and purpose.

The trouble is, they are up against the clock. Dynamic new market entrants are disintermediating brokers by using the small and mid-sized enterprise [SME] market as a launchpad. Likewise, carriers and reinsurers are poaching larger accounts with direct-to-customer value-added services, such as analytics-driven aggregation.

The squeeze on brokers’ top lines has become intense. By 2020, Accenture Strategy estimates that disruptive models and digital platforms could account for as much as 15% to 20% of the P&C SME market. Furthermore, revenues from mid-sized and large customers could erode by up to 20%.

With so much at stake, brokers need to fundamentally change their business model – quickly. Moving fast could allow them to reap the rewards by setting new product and service offering standards. Banking and wealth management have shown the way forward – many leading companies are turning the threat of digital disruption into an opportunity to raise competitive barriers. Vanguard Group’s ‘robo-human’ money management service combines algorithm-driven asset allocation and rebalancing with access to human advisors; the service attracted more than $7 billion in new assets after its launch in 2015.

As today’s insurance customers seek greater risk prevention, ease of service, customization and value-added services, platform business models can deliver greater value by enabling highly efficient transactions that are customized and scalable. Around 83% of insurance executives expect platform-based business models to become part of their growth strategy over the next three years. An additional 81% say platforms will bring organizations together in the digital economy.

While brokers won’t disappear, they will need to protect and defend their core business while launching new, value-creating strategies. Platform business models can help them do both. While many brokers may need to buy or partner with others to create them, doing so will help secure their future relevance.

Potential new business models to explore include:

Next-generation risk placement: By making brokers better equipped to recommend the right carrier, products and insurance program structure for a given risk, automation and analytics have the potential to substantially enhance risk structuring and placement.

Outcome-driven loss prevention: Brokers can boost their risk advisory and loss prevention offerings by applying analytics to a robust and expanding universe of structured and unstructured data sources.

Risk marketplace with valued services: As trusted intermediaries with technology and analytics capabilities, brokers are uniquely positioned to aggregate multiple value-added services that holistically serve customers’ risk needs, and potentially their balance sheet management. By developing strategic partnerships with providers and enabling access through a common platform, brokers can enhance their value and boost customer loyalty.

Innovative carrier solutions: Brokers can capitalize on their access to data via customer proximity and diverse carrier relationships. This will enable them to develop high-impact offerings that synthesize information across transactions for insurers, reinsurers and alternative capital providers.

New risk services: Most new entrants lack core capabilities around risk assessment, transfer and prevention. Brokers can pre-empt disintermediation by partnering with new competitors and offering a suite of services that enhance their ability to offer risk-based services directly to customers.

By rethinking their core business model, brokers can formulate a transformational business strategy, maintain their relevance and set new standards for offerings and customer engagement.

 

Michael Lyman and John Mulhall are Senior Managing Directors of Accenture Strategy.

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