5 ways brokers are playing in the online distribution space

Small and medium-sized brokerages are increasingly getting into the digital game, while larger brokerages are acquiring or partnering with insurtech-focused companies, according to an industry observer.

“At Smythe Advisory, we are increasingly seeing innovative use of technology that is either self-developed or provided by third-party platforms, amongst small to medium-sized brokerages,” the British Columbia-based P&C insurance consulting firm said in a blog Tuesday. “Larger brokers, whether in the midst of developing their own technology or not, have begun making strategic acquisitions or partnerships with insurtech-focused companies.”

In its blog Online Insurance Distribution – The Evolution, Smythe Advisory outlined five major trends it sees in online distribution:

1. White-label platforms

These are generally third-party platforms that have quote, bind and issue capability with the developer’s underwriter partners.

For brokers, one obvious area of concern is that the underwriter relationship is with the platform and not the broker, Smythe Advisory noted. “This may put the broker in a vulnerable position in terms of markets.”

The key to these platforms is that the developer has arranged an application program interface (API) with the underwriter that allows a seamless transaction. The obvious advantage is that a broker can brand it under their name and leverage the platform to offer insurance to a wide geographic area with no handling and a small acquisition cost.

But the issue is that the broker needs to drive traffic to their website, which is typically done by purchasing leads from third-party aggregators.

2. Broker-developed platforms

The question here is whether the development costs in creating your own platform as a broker will be rewarded with higher sales and lower transaction costs.

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Broker-developed platforms allow for the customer to enter their application and obtain quotes from several insurers. To be effective, these platforms require an API into the underwriter’s system and the ability to do this depends on the carrier relationship and capabilities. It might be the case that the underwriter has an API with some carriers, but not with others.

Once the customer completes the application and receives a quote, it must be reviewed and approved by a licensed broker prior to binding and issuance.

“While there are certain cost inefficiencies to having a broker involved, there is the benefit of having better front-line underwriting and relationship-building potential,” Smythe Advisory says.

3. Third-party platforms

Much like white-label platforms, developers have created online brokerages and MGAs that offer the public and brokers, respectively, access to insurance products with a digitized quote, bind and issue capabilities.

Of note, this is being offered for small commercial policies as well.

4. Automated renewals

Smythe Advisory has worked with brokers that have sufficient volume with an underwriter to justify the development of an automated renewal system.

Once the customer opts-in, the policy is automatically renewed and issued with no handling by the brokerage. This can result in significant cost savings.

5. Specialized programs

Specialized programs are quite common for specialty brokers.

The customer logs into the brokerage website and completes a short application. If underwriting criteria are met, the policy is paid for, bound, and issued immediately. Typically, the policy will be underwritten through a Lloyd’s broker or syndicate, but in some cases domestic insurers will develop programs with brokers.

Brokers investing in digital

There is a tremendous amount of investment in the development of online insurance distribution, Smythe Advisory observes. “We believe that some of these digitized underwriters and distribution platforms will be very successful in improving access and lowering transaction costs, especially [for] those who can focus on under-served segments in the marketplace.”

According to the consulting firm, it’s estimated that about 20% of Canadian insurance is purchased online. The proportion will vary based on the class of insurance, as well as whether it is a fully digitized offering (about 12%) or an online transaction that requires interaction with a licensed broker (about 8%).

“While this is certainly a point of friction, there are lots of advantages as well,” the blog said of brokers making digital investments.

One is that the broker will generally have a much higher closing ratio, Smythe Advisory observes. Also, “the broker is able to provide professional advice, potentially cross-sell.”

Finally, the personal contact between a broker and client is a good protection against fraud.

“There is little doubt that technology enables brokers more time to focus on delivering an improved customer experience when the documentation and transactional execution process are automated,” Smythe Advisory states.

Certain classes of insurance might naturally migrate to a digitized issuance model (such as renters, pet, individual assets, and auto policies). But brokers will have many opportunities to adjust, the blog observes.

“If appropriate, [brokers] can introduce online platforms, improve their online presence, and develop multichannel access to both information and documents,” says Smythe Advisory. “Online insurance distribution is going to continue to evolve and take market share, but there is no reason why brokers cannot play an important role and thrive during the evolution.”

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