To avoid disintermediation and remain at the forefront, intermediaries must embrace InsurTech to add value, says Ed Broking’s Marcus Taylor.
We’ve been abuzz with tech talk for years now. Intermediated industries are excited and afraid in equal measure about the potential for technology to disrupt and improve their business models.
Much of the discussion in re/insurance has focused on the disintermediation threat, but the industries experiencing the greatest change, from hotels to retail, have seen the opposite happen: Airbnb and Amazon (to name only two) have increased the role of middlemen in their respective sectors through successful, technology-driven innovation which benefits customers by increasing choice, transparency and experience.
The disintermediation argument related to traditionally intermediated markets like our own contends that it would be easier to start from scratch with new business models. To do so would eliminate the legacy issues which often form a quagmire. However, the experience so far has been different.
The financial intermediary market took its first disruptive steps early in the 21st century, when it began a move towards electronic trading by coupling in-depth broking know-how with technology, even using voice recognition to transact digitally. Those advances have pared away significant process and back-office costs but retained the human element.
More recently the intermediated real estate sector began moving towards a fully integrated platform of services that provides clients with single-source solutions for each phase of the transaction. Stripping out unnecessary processes and costs brought significant benefits throughout the value chain. In both of these industries the ‘movers’ were the established companies that created new value for clients, and therefore prospered. Only the ‘languishers’ have been disintermediated, because they no longer added value.
The re/insurance market has been slower to adapt by adopting new approaches. For that tardiness many run the risk of being left behind. To halt this trend we must go back to basics, and really understand the role of the broker. From there we can look at how we should stride forward into the 21st century as movers not laggards.
Meeting client needs
The role of a re/insurance broker is simple: Help customers to navigate intricate decisions, then deliver appropriate services. We must always be certain to match clients’ needs to relevant solutions, and take care to add value to the process at all junctures, something our market does not always manage to achieve. Technology will revolutionise this process, but the organisation that comes out on top will be the one that cracks the perfect blend of technology with the human element to ensure its analytical answers address clients’ real needs.
InsurTech firms initially set out to disrupt the industry by redefining the insurance product itself. More recent innovators have moved away from product and into process improvement. An increasing number are developing ways to help existing insurance-market players do their work more efficiently, and deliver a better service to customers. This is a most sensible shift of focus: whilst the needs for innovative thinking and solutions to emerging risks are ever-evolving, nothing, really, is intrinsically wrong with our product.
Instead, creating value in the process is the route for re/insurance intermediaries to generate the greatest bang for their technology buck. The industry hasn’t gone nearly far enough to improve the value we deliver by using technology to remove highly duplicative tasks in distribution, claims payment processes, and policy issuance. It is not about disintermediating the broker, but about redefining the value proposition we deliver to our clients.
Data lies at the centre of this challenge. Improving data access and exchange helps stakeholders throughout the decision-making process to make better-informed choices and reduce or eliminate unnecessary costs. To stave off obsolescence and deliver new, value-creating strategies, re/insurance brokers need to focus on these areas.
This is beginning to happen through several partnerships in the InsurTech arena which, for example, aim to create fit-for-purpose risk placement platforms that give brokers the information they need to recommend the right carrier, product, and structure for each risk. The market has tried multiple times to deliver such systems more broadly, but each time the solution seemed only to add to processing costs for carriers. New tools must do the opposite, and some do more.
Use of data is also central to other aspects of our business that are ripe for change. Customised analytics, for example, can deliver insights relevant to clients’ specific challenges. This approach creates much more value than older broad-brush solutions that simply provide scores of pages of graphs and numbers. To be useful, capital modelling, for example, must address each client’s specific goals. The ability to blend human and technological understanding to achieve such goals, boosts enormously the value of brokers’ risk advisory and loss prevention offerings.
To multiply the value added, brokers may aggregate multiple services and processes through technologies including machine learning, artificial intelligence, and others. For example, the output of geospatial modelling technology may be combined with modelled catastrophe outputs to develop insights into exposure management and risk selection. Innovative data-based solutions that lever such technologies can reduce transactional costs throughout the value chain, both for customers and for carriers, and have the potential to increase the overall ‘size of the pie’ for all stakeholders.
One approach is to develop partnerships with firms outside the insurance industry who are able to bring in relevant expertise that allows brokers to offer more holistic risk solutions. An example is in the cyber market, where ‘breach response’ expertise has become a regular part of the insurance offering. Third-party modelling and exposure management experts are another source of innovation.
Others may be pure-play InsurTechs with a vision to change a procedure or process by deploying advanced technology. We should not be afraid of such start-up companies. They have yet to cause significant disintermediation on their own. Instead, those brokers and carriers savvy enough to partner with them may be able to offer their customers a full suite of improved service levels, processing capabilities, and thus value.
Brokers will not disappear. Their skills and experience will remain critical for the many customers that seek independent and regular advice. It is impossible to imagine, for example, that an insurance company’s Board of Directors will ever be happy to rely entirely on machine learning to determine their appropriate ‘own view of risk’, as required by many supervisory authorities, without some human interaction and review.
That said, not all brokers will carry on successfully under the existing business model. Ours is a very traditional industry, and like the metaphorical turning tanker, change takes time. We believe that in the future, the most successful re/insurance intermediaries will be driven by data rich decisions and will collect and enrich their data continuously. This approach will be of benefit to, and an exception of, our clients. TradEd is important to that process for Ed.
The movers amongst us will be the survivors; the firms that refuse to move will become irrelevant. To remain at the forefront of our sector, the brokers of today need to become the disruptors, not the disrupted. They must become the intermediaries of the future by redefining the traditional broking process. A
Mr Marcus Taylor is head of reinsurance, Asia Pacific, Ed Broking.