“THERE IS A BETTER WAY TO DO IT. FIND IT.”
-THOMAS A. EDISON
I believe Edison’s statement is an imperative for P&C insurers who depend on the broker channel for product distribution. I also believe it is of equal importance to brokers.
I’m not just talking about finding a better way in order to become a little more efficient, and hence more profitable. I’m not talking about helping a company grow a little quicker. These are table stakes in today’s rapidly changing environment, and are things we all do, at least to a degree. I’m talking about changing the traditional business model. Our long term survival depends on it.
The conventional P&C insurance business model of an insurer providing its products and services through a broker intermediary is an expensive business model. This is because it is rooted in relationships. Relationships cost both time and money.
In highly commoditized businesses, customer-intimate, relationship-driven business models are highly susceptible to lower cost alternative providers or disruptors. Today, most insurance products are commodities.
Don’t get me wrong.
I am a huge believer in relationship based businesses. Our great relationships with our brokers is the primary reason we have been successful in building Trisura. I am also a big supporter and advocate of the role the broker plays in representing the interests of the client. However, in order to thrive in the future insurers and their broker partners have to work together. Costs must be driven down in order to compete effectively.
There will always be clients who want the advice, advocacy and choice represented by brokers. Brokers offer a bespoke, tailored solution, but there will be a growing percentage of clients attracted to technology-driven solutions purporting to offer the same product for a much lower cost. The majority of small to mid-size companies will have this option available soon.
In 2015, over $2.5 billion was invested globally in Insure-tech. 2016 and 2017 are likely not much different. Firms and investors see an opportunity to either disrupt or enable our business models because they see, as I do, that our business is inefficient.
Concerns about potential disruptors like Google and Amazon are real, with their excellent “customer” focus, trust, efficiency and access to data. Furthermore, consider the plans of insurers like Aviva with their “ask it never” concept of asking customers no questions when providing a quote. They can access enough information to pre-underwrite, pre-approve and provide a massive price discount (they suggest 20%).
Don’t be an ostrich
Brokers, in my opinion, cannot simply continue to consolidate their business with fewer insurers and simultaneously demand even higher commissions, thereby increasing costs to customers. It’s like the old joke that you don’t need to out-run the bear, you just have to out-run your buddy. Brokers cannot simply ignore the issue and, ostrich-like, stick their head in the sand and hope the problem goes away. It won’t.
Brokers have to partner with the right insurers and find ways to do the business more effectively and efficiently, thereby reducing costs and passing those savings on to their customers. Only in this manner can the potential gap between brokered business and direct writing be narrowed to the point where the broker value proposition (advice, advocacy, choice and relationship) clearly continues to win the day.
Edison said there is a better way to do it. We have to work together strategically in order to find it. The future of the traditional client-broker-carrier model depends on it. It’s time to get our heads out of the sand and face the challenges of our changing landscape head-on.