There is no doubt that the insurance industry is seeing many changes, particularly in regards to the role of the independent broker.
The independent insurance broker channel is fundamental to the insurance industry, having served many customers well over the past few decades. Brokers guide customers through the entire insurance process — from exploring insurance options and comparing quotes, to the subsequent purchasing process, followed by maintaining coverage over time (See Figure 1). Throughout this process, brokers also ensure that their clients’ claims are handled in a fair manner.
Recent trends are testing the limits of the existing brokerage operating model. In this article we discuss the key insurance industry trends that are changing the terrain, and their implications for how brokers will need to compete in the future.
Figure 1: Steps in the insurance journey
3 key trends impacting independent insurance brokers
There are three major trends impacting the entire insurance journey. These trends will require brokers to re-think the existing operating model, in order to remain competitive in the future.
1. Heightened demands from a new generation of customers
For Baby Boomers (1946–1964; ages 52–70), use of technology was acquired; they were born with computers on the horizon, but they didn’t get the opportunity to learn technology until after completing their formal education. In contrast, Generation X’ers and Millennials grew up with technology; Generation X’ers were the first to become computer literate, and Millennials actually began to use technology at age 3, on average.
These younger generations shop on Amazon, watch movies on Netflix and do their banking online. They are not accustomed to interacting with people in person or via phone: they rely on apps and text messaging. They live fast lifestyles, having little patience for cumbersome processes, snail mail or void cheques. As a result, the bar for ease of use and simplicity is quite high for anyone looking to win over the millennial customer, including insurance providers.
2. Entrance of new “digital” players
There are two types of “new” players to watch for: carriers launching direct channels, and technology and companies.
First, we see several carriers launching direct channel offerings. Most such moves have thus far been within personal lines, but small commercial will soon follow. Aviva (an insurance company) employed the same brand in their direct channel (Aviva Direct) while Economical (an insurance company) used the Sonnet brand for their direct channel. Several other Canadian insurance companies are also rumored to be exploring similar models.
We might see carriers acquiring an existing brokerage and funding the creation of a digital offering. If the offering succeeds, the entire brokerage and technology could be re-branded as the insurance company’s direct channel.
Second, technology companies are driving a massive shift in insurance through autonomous vehicles. This trend will take time to fully mature: 5% of Canadians are expected to purchase autonomous vehicles by 2020, and it will be another 20 years before system-wide adoption. However, the debate about who or what would be insured in this case has already begun. What is clear is that technology providers such as Apple, Google and Tesla (yes, Tesla is a tech company) are natural providers of any type of auto insurance required. Traditional carriers, and brokers, will need to reevaluate their role in insuring autonomous vehicles.
Figure 2: Forecast of motor insurance premium taking into account impact of technology (excluding impact of inflation, and assuming 100% adoption of advanced driver assistance systems. (AV=autonomous vehicles)
3. New products and pricing
In the past, insurance policies were on a one-year term, had a fixed premium amount, were for large assets (e.g., car, home, boat) and the insurance company provided the risk capital. Access to real-time data and sophisticated pricing models are completely changing this. Coverage can last for a few hours, the premium can vary based on usage, almost anything can be insured and a friend of yours could have provided the risk capital.
For instance, Trov provides on-demand insurance for almost any asset, and coverage can be turned on or off with the flip of a switch on your phone. MetroMile allows you to pay for car insurance by-the-mile, rather than a fixed monthly amount. Guevara allows a group of friends to jointly insure each other.
Many carriers have introduced telematics products for automobiles or short-term insurance products for the sharing economy (e.g., AirBNB, Uber). Increasingly, carriers are looking at products that can price commercial premiums based on usage as well.
These new products and services rely on an underlying platform connecting insurers with the insured. For brokers to remain relevant in this new world and own the customer relationship, they will have to both better understand this cutting edge technology, and adopt the necessary tech platforms needed to remain plugged in to the value chain.
Given these trends, how might the insurance brokerage industry evolve?
In the short-term, we may not see dramatic changes to the way insurance is bought and sold. Also, the critical advisory function played by brokers will always remain. However, the model by which the broker function is delivered may change, especially in major urban centers
For example, imagine a future where insurance products become so standardized that their coverage is simply bundled into the asset purchase (much like extended warrantees on home electronics). A few sensors could measure risk and communicate directly with the insurance company. In this scenario, the need for an insurance broker is entirely eliminated.
Which brokers will be affected the most, and what can they do about it?
These trends will inevitably affect the insurance industry as a whole. However, the regional broker who offers a large variety of products and services will have to seriously evaluate his/her true value proposition. Winning customers will require either 1.) clearly demonstrating true expertise and a tangible value-add, or 2.) competing on simplicity and choice.
1. Expertise and tangible value-add
Customers now have easy access to a significant amount of free information online, and have become savvy in researching their needs on their own. As a result, many customers will be unwilling to pay for generalist advice from their brokers. Customers will demand personalized products and services, which requires a much deeper level of expertise on the part of the broker. The same trend has played out in other industries such as travel and investment management. As such, brokers looking to maintain their edge will have to provide truly differentiated advice, products, and services.
For example, brokers could focus on serving large, global commercial customers or small niche industries with unique risks. Other examples of value-adds are offering a high level of personalized service to clients, or managing complex multi-line needs of busy clients.
2. Simplicity and selection focus
At the other end of the spectrum, brokers could compete on simplicity and selection of products. In this case, the target customer would be looking for an easy, online solution that streamlines the entire process. For instance, E-Trade dramatically simplified the manual, paper-intense and highly regulated process of buying stocks.
The larger insurance brokers with big technology budgets will be able to invest in building modern platforms to simplify and optimize the experience. For example, a recommendation engine could ask a few questions of a customer, leverage data sources to validate and enhance the answers, and then use analytics to recommend the optimal insurance coverage. In the simplest cases, a customer could go from start-to-finish within a few minutes. Such automation does require a large technology infrastructure and long-term investment: something smaller brokers may be challenged to afford.
The role brokers play as unbiased advisors to customers is vital, and one that should exist long into the future. However, brokers not falling into one of the two categories described above will need to figure out how to continue innovating and adding value for their customers. Luckily, many industries have faced similar challenges before, so there are plenty of examples to learn from.
Zensurance is Canada’s leading online commercial insurance broker. We offer a full range of insurance products to small businesses, with a particular focus on startups. We understand what it is to be a startup, and know the most common risks of which you should be aware. Based on that (and a lot of analytics), we recommend the ideal insurance coverage for your business.