Channel Surfing

Change in the property and casualty industry is inescapable, perhaps now more than ever in light of the rapid pace of technology, a leveller in the minds of some, and the ever-increasing customer demands for interaction, speed and service.

Clearly, brokers and insurers are having to change in step, albeit some more successfully than others. As two integral parts of the insurance chain, they are adjusting to strengthening and weakening links by anticipating the opportunity in new and transforming relationships, some of which could become a permanent part of the landscape moving forward.

These changing times have brought with them the desire for scale, be it regional or national in scope, and an openness to partnerships, although not necessarily with just the same old players. New partnerships promise to not only add freshness and expertise, but offer an opportunity to enhance customer engagement and build relationships able to withstand new suitors which, as relationships deepen over time, could produce a new level of understanding about customer wants and needs.

What does the future of distribution look like? What will be the role for brokers? And how important is it for the channel to view the tremendous distribution change unfolding daily as a threat or an opportunity?

BROKERS TODAY, TOMORROW

As in the past, independent insurance brokers have a role to play and will continue to have a role to play.

“The current role of the broker involves de-risking clients and adding value, expertise and competitive choice to the insurance transaction or risk solution,” says Sean Duggan, vice president, partner and practice leader of technology, fintech, cleantech and life sciences at HUB International HKMB.

John Belyea, chief operating officer of Moore McLean Insurance Group Ltd., says that only brokers offer true choice and unbiased advice to purchasers of insurance products.

“Notwithstanding significant competitive pressures, the broker channel has maintained a significant market share, which is a testament to their success on delivering this value proposition,” Belyea says. Noting that even if brokers end up losing market share in purely commodity-driven spaces, he says “the p&c industry is $40 billion, so there’s lots of business for everyone. Innovation will be key as will a focused and effective business strategy.”

Peter Morris, president of Robertson Morris Consulting, would likely agree. If a broker is truly an independent expert on insurance matters, Morris says, “he or she is in a strong position to compete in a changing world.”

That change is undeniable. The view of Jason Storah, executive vice president of broker distribution for Aviva Canada, is that, right now, brokers are largely administrating and selling. “It’s very product-led and it’s very desk-top or face-to-face attendance in terms of their relationships with their customers,” Storah suggests.

While “the mass of brokers that used to be, maybe five or 10 years ago, quite vanilla in the sense of everyone was providing some similarity of services, I think that’s now changing and you’re getting these breakaway groups (emerging, digital or semi-aggregated brokers) that are really looking to evolve what their role is as a broker,” he notes.

To Storah, this offers opportunity for brokers to provide “a lot more advocacy, a lot more facilitation, focusing on customer needs rather than the products the insurers are selling specifically.”

The pillars of choice, advice and advocacy are the cornerstone of what makes this industry work, says Sheldon Wasylenko, general manager of Rayner Agencies Ltd. and president of the Insurance Brokers Association of Saskatchewan. What is needed is for brokers to offer the same service they have in past, but just do it digitally, Wasylenko maintains.

“Traditionally, those elements have all been delivered by customers essentially coming through our front door, our physical front door,” he says. “What we’re working hard and fast to achieve is to deliver those same three elements – choice, advice, advocacy – through out digital front door,” he adds.

It is a safe bet Daniel Shum, a partner in Deloitte’s financial services practice and national insurance sector leader, agrees. Emphasizing brokers still have a very important role to play in the insurance value chain, “what they need to do is they need to adapt to the change as well, either by becoming more focused, less generalists and more niche, focusing on specific lines, or providing the same type of options to the consumers that carriers are starting to offer.”

In fact, Shum says, there is opportunity for brokers who are well-prepared in that regard to do even more than their competitors. “Here’s my site, and my site is actually better than the carrier’s site because I can offer you choices,” and different markets, he recommends as a way brokers could position themselves.

“Brokers can certainly maintain a mixed delivery product,” suggest Russell Wasnie, president of the Insurance Brokers Association of Manitoba (IBAM) and David Schioler, IBAM’s chief executive officer. “However, they will simultaneously have to determine their expertise and move towards that niche market that will allow them to be the number one service provider for their customers,” Wasnie and Schioler add.

“We need to shift along with evolving customer demands and innovate value. Certain clients will continue to demand consultative advice and advocacy, while there is growing demand for a quick, seamless digital transaction by others,” Duggan says.

Expertise will be key. While, historically, commercial and personal have been under one roof, “I see them quickly bifurcating where you’re going to become either an expert and focus yourself in the personal lines or you’re going to focus yourself in the commercial lines,” says Marshall Sadd, executive chairman of Navacord. “The ones that we’re seeing in the commercial lines space that are winning are becoming very focused, niche players in certain sectors, and have leverage of markets, helping their customers become better through better risk management practices,” Sadd says.

“It really seems as though the Canadian marketplace in personal insurance is 50% direct and 50% through broker,” notes Sean DeSantis, president and chief executive officer of Navacord. “And a lot of companies are saying, ‘I just don’t want to play in 50% of the market; I want to play in the whole market, and, therefore, I’ve got to build a direct strategy,'” DeSantis adds.

“Digital and other advancing technologies have already begun to reshape the insurance industry – both in how we service customers and in the products we insure. Their impact will only increase and speed up in the future,” contends Sylvie Paquette, senior vice president and chief executive officer of property and casualty insurance for Desjardins Group.

But even in the direct space, advice is crucial to convert shopping to buying.

Wasylenko cites Google’s recent decision to pull out of insurance (at least for now) as an example. “Because they weren’t able to convert that shopping experience to a buying experience to the degree that they thought they would be able to, I think was one of the reasons that they ended up pulling out.”

People still need advice when making purchasing decisions, Wasylenko argues. “That’s where we continue to excel and I think why this industry will continue to survive,” he suggests of brokers.

Advice will still be needed, sometimes even for a supposedly simple, commoditized type of product, he says. “There’s a reason why a lot of sites are doing well when it comes to the quoting aspect of it, but I think there’s a bit of a disconnect between the quoting and having to buy at that same point in time,” he adds.

“Purchasing an insurance policy involves nuances. Consumers must feel comfortable with certain risks, some are unknown to them. For that reason, a majority of consumers across the province want to talk to a broker,” notes Patrick Bouchard, chair of Quebec’s broker association, Regroupement des cabinets de courtage d’assurance du Quebec. “In Quebec, we note that consumers tend to acquire information and compare products online, but prefer to seek the involvement of a certified representative before making a decision,” Bouchard says.

That may be why George Hodgson, chief executive officer of the Insurance Brokers Association of Alberta, does not see the broker’s “role itself changing so much as I see it changing in terms of how it’s delivered. People tend to shop online when it comes to insurance, but purchase in person.”

“There is still a market there that doesn’t go away overnight, but would change over time, where clients and customers still look for that in-person, live voice at the other end of the line,” Shum says of personal customers.

On the commercial side, he adds, “you’ll continue to see brokers play a very important role in commercial lines. I think, over time, you’re going to find probably small- to medium commercial lines go the way of personal lines, where carriers will look to commoditize those products and bring them online, make the ease of doing business a lot easier for the consumer,” especially when carriers can package small, medium commercial line products into “more consumable and understandable products.”

Hodgson can see something like travel insurance or some auto, particularly if in a government auto province, lending itself to online purchase over time, but he is not so sure about property. “I don’t see property becoming commoditized as quickly perhaps as auto is, just because it seems to be getting more complex as opposed to less when you add in things like overland water, flood, sewer, fire.”

There is a “flight to specialization and the digital experience, depending on the customer,” suggests Duggan. “Clients are more demanding in terms of wanting product and sector expertise for their niche industries,” he adds.

“Given the digital world we’re living in and the impact of real-time communication through social media, the market’s voice is much more crystallized,” Brian Duperreault, chairman and chief executive officer of Hamilton Insurance Group, said at recent event in the U.S. “There’s an immediacy, an intimacy that we’ve never had to deal with before.”

BROKERS RESPONDING

Executing disciplined business strategies will remain vital, suggests Belyea, but success will depend on how brokers market. “The most successful brokers today are those with a strong degree of focus and this will only become more important in the future,” he maintains.

“As consumers with less complex insurance requirements become increasingly able to obtain insurance directly from insurers, it may well be the case that brokers are left with two choices: either launch their own online service to compete with the direct writers, or focus their efforts on commercial lines accounts and on personal lines clients who prefer, or require, individualized expert attention,” Morris comments.

That may be where partnerships come into play. Shum says he sees p&c carriers looking for opportunities to create partnerships and be able to offer their products through different channels, say when a person is buying a house. Brokers can do the same, he says.

They just need to figure out how they “insert themselves into that transaction chain of that broader transaction,” says Shum. “I think brokers have not necessarily taken advantage of that in the past.”

Duggan’s view is that brokers need to be “forward-thinking and proactive about opportunities to collaborate with other affinity channels to meet shifting customer demands. I suspect a number of industries, including the technology sector, are exploring opportunities to partner with insurance,” he says.

“I think there is a core group of brokers that are exploring what other companies are out there, what other partnership opportunities can give them access either to technology or to customer insight or customer touch points that are meaningful and that create meaningful relationships,” Storah says.

Some examples of moves into the digital space include the following:

• Gore Mutual has made a capital investment in technology start-up, Brokerlift Inc., which will work with brokers to integrate online quoting, credit card payment and electronic document delivery directly into their existing websites;
• Brokerage InsureMy Ltd. has launched a time-based insurance product for commercial drivers and fleets in Alberta and Ontario that uses telematics technology from Intelligent Mechatronic Systems to allow fleet operators to receive refunds based on vehicle usage; and
• Moore McLean Insurance Group collaborated with the six other members of the CBN group to create Bullfrog, an online commercial insurance brokerage.

“Not one of us on our own could have developed Bullfrog,” Belyea points out. “Moving forward, brokers will have to partner together to leverage knowledge, expertise and resources,” something he believes “will help the channel thrive.”

EFFECT OF CONSOLIDATION

“Brokers need to be concerned about disintermediation via the direct channel, but it’s also an opportunity for us to adapt, transform and innovate our role and value to the customer,” Duggan says.

Belyea says scale will become increasingly important, but this can be achieved through collaboration.

“We’re getting to a space where the top four or five insurance companies in Canada have a meaningful, material portion of the market share,” Storah says. With size, “carriers with more data (will be) able to get greater insights from their data and use more predictive analytics” to achieve price sophistication and individualized rating, he notes. Not only will that give “those insurers an advantage,” they will also have a “better network of vendors and third-party providers from a claims perspective.”

Storah does not believe that insurer-led broker consolidation is “going to stop anytime soon, but I think a lot of the low-hanging fruit is already been taken.” On the broker side, the industry is seeing a definite emergence of large, dominant regional brokers, predicting that “having scale and having scale relationships with your key markets, key insurers, gives brokers advantage.”

That is happening in Alberta, Hodgson says. He cites a case in which brokerages with personal and commercial expertise have come together. While, individually, many were relatively small, together, they have enough volume to perhaps get larger insurer policies “where they couldn’t before because they didn’t meet volume requirements. I see that happening now and I see it increasing over time.”

From the insurance company point of view, DeSantis notes, “we’re seeing a lot more attention being given by commercial carriers to large commercial brokerages because they know there’s an opportunity for them to grow there with those offices.”

TECHNOLOGY STARTER

Whatever type of broker, however, technology and keeping pace with quickly changing times is expected to be critically important. “Whether they are a local community broker or a large national or an international broker, anybody that isn’t embracing technology isn’t embracing the disruption that’s happening in other industries and the obvious area that it’s going to happen in insurance, I think is really going to struggle in the next few years,” Storah expects.

“Many brokers are well-advanced in their use of technology, but many more need to adapt and shift to a digital, multi-channel model to stay in sync with evolving real-time customer demands, particularly among Millennials,” Duggan says.

“A lot of people worry about, ‘Is the role of brokers diminishing’? Is technology taking away the role of a broker? Customer trends, customer behaviours, is that creating a more challenging environment for brokers?” Storah asks.

“We look at that and think, technology is levelling the playing field for brokers to be able to compete and offer customers an experience that, in the past, may have been tough for brokers to offer,” he says. “We see brokers in the digital space, embracing different ways to engage with their customers, really maximizing digital marketing, search engine optimization, micro-sites – we see those guys growing 10%, 20%, 50% year over year.”

Technology can be a leveller, although “it may take a fair degree of investment to get there,” Shum notes. Technology becomes a leveller “when you can get scale and it’s important that brokers look at how do they work together as a unit to be able to gain that scale,” he says.

“I would challenge the broker association to say, ‘How do we build a site that each broker can make some level of customization so that they can gain the scale and leverage that they need,” he adds.

Paquette suggests that partnering with technology companies is a fast and effective way to develop and launch new innovative products and services. “This type of partnership will be critical with technologies such as drones, the connected home, big data and so on.”

Asked about insurer thinking behind such alliances, she says it is “quite simple: we can’t do it on our own. There’s too much technological change, happening too quickly, on too many fronts.”

Not only would developing expertise in-house take considerable time and resources, partnering for technology expertise allows for a “more open mindset these companies bring. They’re not preoccupied with our legacy systems and they aren’t blinded by our paradigms,” she says. “So they are in a better position to strip away all the legacy baggage and develop customer solutions that are simple, elegant and in tune with customer needs and preferences.”

Denise Garth, senior vice president of strategic marketing at Majesco, said in February “if insurers are not able to overcome the barriers created by their legacy business models, outdated systems, siloed data and limited analytic capabilities, they run the risk of being supplanted by the new, attractive options being offered to consumers by well-funded start-ups who come to the game without any of this baggage to hold them back.”

Noting that the p&c insurance industry’s main products (home and auto insurance) are largely commoditized, “the right technology partners can provide a real edge in developing new ways to interact with customers, use various data sources and sophisticated analytical tools to evaluate risk, and develop and bundle new and innovative product offers and services,” Paquette suggests.

That said, she says she that does see partnerships changing. “With all the challenges facing the industry, distributors will benefit by expanding their product offerings to strengthen the customer relationship. For example, it makes sense to bundle emergency roadside assistance with telematics, or perhaps to offer security monitoring or even home inspections, with property insurance.”

CHANNEL THREAT

“Whatever insurers might say, the expansion of insurers into the direct channel represents a competitive threat to brokers,” Morris says. “As more and more options become available for consumers who are willing to consider dealing directly with an insurer, the pressure will build on brokers to be able to offer the technology and round-the-clock service that direct writers are able to provide.”

Belyea says insurers are pursuing a dual strategy and it is not necessarily mutually exclusive. “I continue to see insurers investing heavily in the broker channel and helping enable and empower brokers who have strong digital strategies. Intact and Aviva, both of whom have direct arms, are leading in this regard,” he adds.

“At the end of the day, insurers are in existence to sell their products and services,” Morris says. “As such, they can hardly be blamed for considering the direct model in light of the expanding number of consumers who are willing to forego the personalized attention of a broker in exchange for a lower premium and better access to technology.”

If some insurers feel their broker partners are not able to move forward quickly enough, says Wasylenko, they will take those steps on their own. “We need to be doing more; I think that’s a given.”

Aviva Canada has launched a direct business through its partnership with RBC Insurance, Storah says, but adds selling insurance through independent brokers is fundamental to its business. “The debate around distribution channel or disintermediation of distribution or choosing one distribution channel over another, those debates, in my view, are all meaningless, because the world’s moved on. What’s meaningful now is what’s important to customers and how do customers want to buy insurance, what insurance do they want to buy,” he says. “It’s not about choosing one distribution channel over the other; it’s about how do we get access to customers.”

SIZE MATTERS

“Technology costs money. In order to provide the increasing access to technology that consumers demand, size matters,” Morris points out. “It is not hard to imagine an insurance market in the future that is dominated by a small number of large players competing in the standard market, and a large number of small players competing in various niche markets,” he envisions.

“A broker that doesn’t generate at least $75 million in premiums will struggle to fund and implement strategies that will power organic growth,” Belyea notes. “However, this scale can come in two forms – collaboration and through acquisition/growth,” he reports.

“Size is important as we have seen through continued consolidation, but leveraging technology and niche expertise is still a means to be nimble, disruptive and innovative,” Duggan comments. “Effective use of technology also means that p&c players can scale and build their brand very quickly,” he adds.

Another must will be customer data. “Leveraging big data and predictive analytics tells us where our customers’ needs and demands are going, and where our industry needs to be, not only from a client service standpoint, but also in terms of opportunities for us and to proactively compete with competitive disruptors,” Duggan says. “Safeguarding this customer data is also massively important for our industry,” he notes.

“Insurers or brokerages that collect consumer data and analyze them have an advantage over their competition,” Morrison says. “This advantage can be seen when it comes to pricing products and to developing targeted marketing campaigns,” he maintains. Large players have an advantage over small players since the greater the pool of data, the more reliable the analytics, he adds.

Paquette says she has no doubt that providing timely offers, “along with risk prevention services and advice, will become increasingly important in simplifying, enriching and deepening the customer relationship.”

Shum’s take is “carriers are starting to use analytics to figure out how they can create better stickiness with their customers, and use incentives to keep their customers happy rather than just playing the pricing game,” which “just gets you so far, especially in a soft market.”

Storah says “our starting point is we want to be able to offer our products to customers through whatever channel they choose to access with them, or whatever channels engage with them the way that is most meaningful for them.”

Paquette suggests “the more diversified the business, and the more products you can provide your customers, the more opportunities for growth and the more loyal your customers will be.”

She says “smart companies will use customer information so they can anticipate customer needs and provide the appropriate product offers, service or risk prevention advice at the appropriate time.”

As for brokers, they must capitalize on the rich data within the BMSs, Shum advises. “I think they have opportunities to leverage analytics and simple customer solutions to be able to segment their customers in a way that they can go in and offer meaningful incentives and meaningful tie-ins to their products to their customers that will, again, create greater loyalty and stickiness.”

Based on a survey of 414 senior insurance executives globally, Accenture reports insurers are accelerating their plans to become more digital. “Carriers that analyze and use these new sources of customer data have a significant advantage over the competition, and will be best placed to offer ‘living services’ – which allow companies to personalize the customer experience and better respond to the evolving customer needs and desires as they develop in real time,” suggests Erik Sandquist, managing director for Accenture Distribution and Marketing Services in North America.

“The demise of the broker channel has been predicted for years, but has not happened,” say IBAM’s Wasnie and Schioler. “In fact, brokers can grow their market share by a direct-to-consumer approach if they utilize technology efficiently. Again, they key is providing extraordinary service and choice.”