Another threat to Aussie insurance commissions
Commission is a big sticking point among financial intermediaries. In recent years insurance commissions in the life industry have been altered in such a way new brokers are reluctant to enter the distribution channel. And the threat of changes in short-term insurance commissions is never far from mind. Given local regulators’ propensity to implement changes made by financial services regulators in the United Kingdom and Australia we thought a recent article published on http://www.insurancenews.com.au/ would interest you.
The article is titled Innovation ‘could hit broker commissions’ and touches on increased automation in the commercial insurance space. Technological innovation such as comparative quoting could eventually cut into short-term insurance commissions and provide further impetus for the shift to direct insurance. Shaun Standfield of QBE GM Australian Intermediaries said brokers would have to think carefully about the consequences before automating their commercial insurance business.
Eroding broker advice
Standfield offered his observations at the Insight Insurance Brokers Association conference in Hobart recently. His comments were aimed at a broker cluster group called Steadfast, which offers an in-house online placement platform, which removes much of the commercial insurance decision making from brokers. “I believe any advances in automation must work to eradicate activities that don’t add value and not replace the advice component that [brokers] offer clients,” he said. Alternative forms of distribution and greater competition in sales will evolve, with automated distribution and standard policy wordings eventually devaluing broker’s advice.
Is the global trend towards process automation really harmful to insurance brokers? Stakeholders in the short-term space find themselves in a typical catch-22 situation. Each new piece of legislation increases the requirement for ‘bullet proof’ processes, whether writing new business or administering existing policies. This continued administrative burden makes it cost feasible for financial intermediaries to develop new platforms to automate the processes they would traditionally complete. Once the processes are developed, automated and tested, they can be easily adapted and implemented at any point in the insurance distribution channel.
Ironically, brokers and broker bodies, in creating systems and procedures that make it easier for direct insurers to compete in their space, are limiting their long-term prospects. Process automation is a consequence of increasing regulation, but the combination of automation and regulation could eventually drive the short-term broker out of business.
Are we missing the point of new technology?
Short-term insurance brokers face an ongoing battle for survival. Customer protection legislation has simultaneously increased the cost of doing business and reduced the opportunity to write new business. Process automation means services once provided exclusively by brokers with years of experience can be produced with a few clicks of the mouse by someone with virtually no insurance knowledge. Insurers – who already understand the value of the direct sales channel – will find the cost savings inherent in automated insurance solutions irresistible – but it could come back to haunt them. Process automation introduces an additional layer of risk due to the inflexibility of certain automated systems. If not correctly applied automated processes could lead to poorer assessment of risk at policy inception, to the industry’s detriment at claims stage. Besides – brokers have long argued that commercial insurance is too technical for the direct insurance channel.
Consumers want a better deal too. “Price over time may become the key focus [for customers] and hence the relationships that [insurance brokers] have worked hard to maintain will become secondary,” muses Standfield. As direct insurers narrow the gap between their offering and the best the traditional broker can offer, something will have to give. In the end it might be the broking community (and not the regulator) that decide to lower short-term commissions to remain price competitive and cling to their market share.
Editor’s thoughts: We’d love to debate the point raised in the final paragraph. As consumers become picky about costs – and direct insurers gain critical mass – the battle for short-term insurance business will eventually become a pricing issue. Consumers seldom compare apples with apples, and this price focus has the potential to severely affect the traditional broker selling channel. Do you think the short-term insurance broker will have to take a cut in commissions to remain competitive against direct insurers? Add your comments below, or send them to gareth@fanews.co.za
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