Reports that digital technology will mean the death of insurance broking are greatly exaggerated. Whilst the traditional role of the insurance broker is being challenged, companies that are willing to adapt their business model will not only remain relevant to their customers, but can also capitalise on a greater ability to reach, engage and convert digital audiences into new customers.
Many insurance brokers treat digital technology with caution or even fear. They see the shift of the insurance industry online as a threat to their existence, and the empowerment of customers through digital technology as a move with the potential to cut their business out of the insurance value chain. This view is seemingly supported by a decline in broker usage by Australian small businesses – according to this year’s Vero SME Insurance Index, in 2014 the number of business owners and decisions makers who claimed to have used a broker for their most recent insurance purchase declined by 6% from the previous year.
There is no doubt that some insurance customers who previously turned to a broker for advice now investigate and assess their insurance options online. Today’s internet user has far greater access to products and offers, with the ability to immediately engage with insurers or intermediaries Australia-wide. They can research product options without leaving their office, compare premiums while sitting on the couch at home and adjust their cover levels using their phone during the commute into work. With the required patience and investigative skills users have the ability, at least in theory, to make more informed decisions about the products and insurers they engage with, and appear less reliant on brokers to assess the options available to them.
While these principles are far from universal, the way in which certain types of insurance is sold has undoubtedly changed in recent years. Most major insurers now provide online options for purchasing simple and commoditised insurance products like home and contents, personal motor and even small business insurance. By eliminating the human element in the sales process, the associated premiums and profit margins have been cut to the point where the involvement of a ‘human’ intermediary is often no longer commercially viable. In these cases product comparison must either be automated using technology, or performed by the customer themselves.
However, more complex commercial risk solutions are difficult to commoditise and are likely to remain serviced by brokers and risk advisors for the foreseeable future. For these products, advice has always been an integral part of the sales process, and this is likely to continue. There is however a growing segment of savvy SME and commercial middle market customers who expect to have more involvement in the risk assessment and product comparison process, and who often seek to initiate the engagement of a broker online. For intermediaries who fail to embrace and successfully implement digital technologies, retaining or growing this part of their book will prove increasingly difficult.
This creates an opportunity for progressive and opportunistic brokers who understand the role technology can play in their sales process. While some brokerage owners look to reduce cost and preserve their capital during their race towards retirement, those who embrace change rather than fight it stand to take their place, or at least consolidate their own position in the future. The use of digital technology to initiate or advance customer engagement during the sales cycle may soon prove essential, even in scenarios where offline advice is a key component.
From a customer’s perspective, a greater capacity for online ‘self-service’ means that the value proposition associated with using a broker is changing. Price will always be a key motivation for insurance customers, however the ability for brokers to compete primarily on price has been seriously undermined. Building a new value model based around expertise and service appears like an obvious way forward, but in an environment where customers are encouraged to seek their own advice online, and use digital technology to self-manage most aspects of their lives, this can appear easier said than done.
At the recent Steadfast convention, LMI Group founder Professor Allan Manning addressed the decline in broker usage in Australia, suggesting brokers too often focus on price alone in selling their service. He argued that many brokers fail to recognise and communicate the value of the expertise they hold as industry professionals:
“Fewer and fewer people are using a broker. We have taught them to buy their home and their car insurance online. We’re seeing more and more advertisements on television from the major insurers, offering business packs and professional indemnity direct. If we don’t show what our value proposition is, and price remains the sole determinant, we will not have a place in the future.”
Brokers that wish to remain relevant need to build and communicate the value of the risk management expertise they hold, and demonstrate how it applies to the specific industries or sectors that are relevant to their clients. In a time where potential customers are faced with increased amounts of information that has the potential to confuse and misinform them, the value of advice has actually increased, even if this is not apparent to all customers.
Rather than treat digital technology as a threat, brokers must adopt its use in the areas where traditional approaches are at a disadvantage. They must identify the aspects of their traditional role which are still relevant to customers and adjust their value proposition accordingly. It’s not a question of digital technology replacing brokers, but those brokers who successfully adopt it will certainly replace those who don’t.