Taking TCF to a new level

The dynamics within the insurance industry has changed. Insurers are contemplating new ways of doing business and how to integrate technology within this ecosystem. Further, clients are looking at insurance and asking questions about value when weighing up what they are paying for with the products that they are working with.

This shift leaves brokers in a bit of a quandary as they are also questioning their role in a new world. Do they add value at point of sale, do they add value in risk management advice, or is it a combination of the two?  

Finally, how does this shift add value when taking Treating Customers Fairly (TCF) into consideration? 

Insurance Innovators released the 2018/19 version of the Future of General Insurance Report which discussed this new dynamic in detail. 

Towards a new income model

The influence of technology on financial services is currently one of the most talked about subjects in the industry. Risk management is an area which is receiving a lot of attention. 

The report points out that, risk reduction is good for the public. However, it presents both challenges and opportunities for insurers. 

On the one hand, fewer risks mean fewer losses. On the other hand, it will be increasingly difficult to convince customers to pay high premiums for products when technology has minimised the amount of insurable risk they face.

The report points out that 57% of the insurers that were surveyed for the report expect the consequent reduction in premium income to be significant. 

The report adds that, as risk levels fall, so too will the degree of variation among customer’s risk profiles, reducing insurers’ ability to differentiate based on pricing sophistication. New sources of both revenue and differentiation must therefore be found. 

A step towards a new role player

The report points out that the technologies that look set to undermine premium income and commoditise insurance could also unlock alternative revenue streams and value creation. 

This is being driven by insurers who use the internet of things (IoT) and advanced analytics to offer new risk management and prevention services. Big Data will be the key to opening this lock. 

The report pointed out that 74% of the survey’s respondents believe that differentiation in the insurance market will become more focused on the quality of these services than on the price of insurance products. 

This is where the value of the broker will come to the fore. They have specialised skills and the industry relationships to help clients manage risk in an effective manner.

Further, 87% of the survey’s respondents believe that if value-added services are a core proposition would give insurers a much better chance of establishing digital platforms that will draw its clients towards it. 

Mixing it up

There are a few ways in which brokers and insurers can redefine their value-added service model. 

This includes stepping forward as lifestyle partners and leveraging technology to enable customers to conveniently eliminate or manage risk. This will drive a profound shift in business models. 

Further, it will be a change that will have a relatively short time frame. The Insurance Innovators report points out that 84% of the survey’s respondents agree that  there will be a shift from product-focused innovation to business model innovation within insurance in the next five years. 

The shift towards value added services leaves the broker in no worse position than they are now. It can be argued that it puts them in a better position. For many years, brokers have been complaining that certain clients see insurance brokers as product pushers, and this number may increase as Millennials become the biggest consumers of insurance products. 

Focusing on risk management and providing advice that can be physically separated from the sale of a product means that brokers will in future be regarded as subject matter experts. 

If brokers feel that they need to differentiate themselves in a way that is not associated with the sale of a product, this shift is good news. 

Writer’s Thoughts:
The shift towards value added services is not only good for brokers and insurers from a client perspective, it puts these parties in a good light with the Financial Sector Conduct Authority (FSCA). Risk management allows brokers and insurers to focus on TCF. This is a wining situation for brokers, insurers, clients and the FSCA. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts editor@fanews.co.za.