Over recent times there has been a noticeable increase in comments coming out of the insurance industry, which target the inherent tension between insurers and brokers. Many insurers seem to regard brokers as a necessary evil. On the one hand, they bring in the business, deal with the clients, provide the advice, handle a lot of the paperwork and are responsible for collecting the premium. On the other hand, in these days of increased competition, brokers are seen to simply cost too much. With commission regularly around the 25% mark, payments to brokers make a big dent in the operating budgets of intermediated insurers.
Brokers, on the other hand, view with understandable concern any moves by insurers to manage their overheads by writing direct business, or by cutting commissions.
What isn’t being seen, is discussion of whether changes to traditional business models might enable brokers and insurers to co-exist in relative harmony, each filling their own key roles in the insurance industry while still earning a decent crust.
Interestingly, innovation (the insurance buzzword of 2016) is frequently discussed as the solution to all problems – which it undoubtedly is – but there is a real sense of silo mentality (“what’s in it for me?”) rather than of any attempt to take a cohesive view of the industry as a whole.
There is, now, enough available technology to make room for everyone, particularly given the significant number of lines of business that have already been commoditised – those where the rates and rating factors are clear and documented, and where the business does not require the attention of a physical underwriter. If a broker is able to negotiate favourable policy terms for commoditisable business and then sell it using high tech, low touch systems, everyone wins.
How is that so? From the client’s point of view, a service is being provided. Not only is the client receiving great cover, it does not involve the client in manual completion of proposals or spending time on the phone in having to talk to the broker. No matter how good the relationship is between broker and client, insurance is still a grudge purchase and most people prefer to spend as little time and energy on it as possible.
What the broker sees is people procuring their insurance cover using the broker’s services, but without the broker having to physically attend to it. This means more time to do other things, and it cuts overheads by reducing the numbers of staff needed to process the business – particularly if the documentation issuing process and premium collection have been automated as well.
The insurer wins too. It doesn’t have to take on the task of marketing the product, which will remain the broker’s job (and it is in the broker’s interests to do it well), or manage the paperwork, or collect the premium. Business may well increase as a result of the broker’s use of non-traditional sales channels – and because the brokerage’s overheads have reduced, reduced commission will not have the same adverse impact as it would have had previously.
Innovation is all about adding value. If a wider view is taken of just who receives that value-add, everyone wins.
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