The six things every broker must know
The short term insurance environment is a complex ecosystem of clients, insurers and insurance brokers that is constantly evolving. Those among us who are intimately involved in the day-to-day business of giving risk advice, and even those who write frequently on the topic of insurance, are so caught up in the minutia of our daily grind that we sometimes lose track of the continuous change that the non-life industry has undergone over the past decade. A perhaps trivial example, dropped into the opening paragraph, is how the regulator’s decision to rename our industry from ‘short-term’ to ‘non-life’ is already taking hold.
A shifting model for insurance
The extent to which the short term insurance business model has evolved was starkly illustrated in a single slide, presented by Andrew Coutts, Head of Intermediated Business at Santam, to the FIA Virtual Advice Summit 2020. Coutts, who shared views on ‘the value of intermediaries in a changing risk landscape’, offered food for thought for short term insurance brokers who ply their trade during times of increasing regulatory and technological disruption. My favourite ‘snack’ was a graphic titled ‘A shifting model’, attributed to UK-based consumer experience consultants, cxpartners Limited. This image gave a perfect ‘yesterday and today’ snapshot of relationships and business models in the non-life insurance sector. It outlined six fundamental changes to the short term insurance environment that brokers must take note of.
The first change is that the short term industry has transitioned from one that ‘makes claims payments after losses’ to one that is focused on ‘protection and prevention’. “Where once the idea of repairing and reimbursing insureds after a loss was key, more and more insurance companies are investing in ways to predict and prevent losses to better meet the demands of their clients,” observed Coutts. An ability to assist your clients with risk assessment and risk mitigation has long been an underpin of the commercial underwriting process; but the emphasis has swung from simply relying on the insurer as a catch-all for every risk. The commercial broker, working with both client and insurers, must make a concerted effort to either prevent the unexpected loss event from occurring, or limit its impact should it occur.
Engaging on risk a key differentiator
Your ability to engage clients on risk, risk mitigation and risk transfer will remain a key differentiator in the human or face-to-face advice market. Insurers and their reinsurance partners have, meanwhile, had their hands full with the second change highlighted on the graphic, namely the move from ‘commoditised risk transfer’ to ‘collaborative risk management’. This trend represents a paradigm shift in risk underwriting from a focus on indistinguishable insureds in a massive risk pool, where similar risks are placed on cover on similar terms, to an environment where individual risks are assessed and managed in collaboration between all sector stakeholders.
The ongoing evolution of risk management best practice is further underlined by the fact that both insurance and reinsurance businesses models are straying from ‘actuarial risk modelling’ to ‘measuring and modelling risk for one’, our third trend shift. “Insurance companies have boosted their risk mitigation and loss prevention capabilities to gain better control over the risks they insure to help clients address their exposures head-on, being there for clients every step of the way, not just after they have filed a claim,” said Coutts. Short term brokers will have experienced these and other changes first-hand, as their insurance partners reinvent their product and service offerings.
The fourth step-change is that ‘corporate and often-distant insurance companies’ are reinventing their business models to become more ‘customer-centric, peer-led and socially engaged’. Many of the changes that exhibit in the short term insurance environment are being driven by so-called Digital Natives, consumers in the Millennial and subsequent generations, who have grown up in a digital world with unfettered access to interconnected devices. These consumers, who insist on transacting for insurance on their terms, are driving the fifth change which required insurers to repurpose their offering from ‘a distress purchase that only yields value following a crisis’ to one that ‘demonstrates its value at every step of the product life cycle’.
Cover for demanding Digital Natives
The sixth and final environmental change is one that sees insurers move from ‘fixed-term, static risk cover and pricing’ to ‘just in time cover and dynamic pricing’. This change, which is already entrenched in the personal lines environment, is an inevitable consequence of an insurance environment dominated by digital platforms. Coutts observed that the risks experienced by your clients are complex and constantly evolving and urged all insurance stakeholders to question whether their clients’ insurance covers remained relevant.
An important conclusion from the ‘shifting model’ graphic is that future clients will expect their short term insurance transactions to be hyper-personalised and experience led. It is also clear that successful short term brokers will have to satisfy clients’ needs in a hyper-connected world. “Insurers can provide tremendous value to insurance brokers and their clients, including data, risk management best practices and assistance with disaster recovery plans,” concluded Coutts. His observations will resonate with brokers who operate in the fast-paced, competitive and highly commoditised personal lines market segment, where they compete with direct insurers and a wide array of flexible platform-based digital start-ups for new business.
Those who sell risk cover to commercial clients in the small, medium and micro-enterprises (SMME) market segment will have to ensure that they add value at every step of the client interaction too; and that means repurposing your advice offering to reflect the six realities discussed in today’s article. You will have to make sure that you deliver the digital and flexible customer experience that SMMEs will demand going into the future. Their expectations will increasingly align with those of the tech-savvy Digital Natives who increasingly fit the ‘typical personal lines client’ descriptor.
Writer’s thoughts:
A short term insurance brokers’ ability to service clients during the technology age is contingent on receiving support from other industry stakeholders. Do you agree with the six points raised in today’s newsletter? And to what extent is your current risk assessment, mitigation and transfer process influenced or supported by your insurance partners? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.
