Opinion: Will COVID-19 kill the traditional brokerage model?
April 24, 2020 by Craig Rowe, CEO and Founder, ClearRisk Inc.
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The insurance industry has a lot of work to do to rebuild consumer confidence. The insurance product is a necessity, so insurers will survive this, but will brokers?
Consumer confidence in commercial insurance has never been lower: Companies are suffering on a mass scale because of a business interruption (BI), and yet their BI cover is useless. This comes on the heels of a massive price correction during the first hard market in 15 years.
Brokers have seen a lot of disruption over the past decade as insurtechs take over a larger share of the insurance distribution pipeline. At first, only personal lines were becoming online digital commodities; now that’s increasingly true of commercial products as well. This trend will continue because of:
- artificial intelligence
- increased computing power
- a growing acceptance of digital and data-driven services being adopted by technology natives such as millennials, who are moving into decision-making positions.
The COVID-19 pandemic has exacerbated exponentially the technology disruption faced by brokers. The business shut-downs and remote work have forced adoption of modern technological tools and business practices by many of the traditional businesses that had been resisting them (Zoom’s share priced has doubled since mid-February). This increased tech adoption should greatly concern brokers! It’s always been a risk for the brokerage model, but it’s just been accelerated by 10 years.
The disruption risk to brokers will be further compounded by the “new normal” existing through and beyond this pandemic. Business failures and down-sizing will be massive. Whole industries may become obsolete, new ones will emerge, and just about every business and their industry will change after this. The risk profile for just about every class of business will change and brokers need to be able to keep up. Many commercial brokers have not been keeping up with the new risks presented in our technological world.
Broken down to its core, a broker’s job has always been to carry information between two parties, and hopefully add value along the way.
But data transfer has become incredibly easy. So, too, has the use of data analytics. Imagine if underwriters already knew everything they needed to know about an insured’s operations and risk by having a direct data link — and if an AI engine recommended coverage and applied a rate based on the data. This technology exists and it’s getting better, faster and cheaper daily. Add to that, this pandemic has forced even the world’s biggest and most traditional businesses to adopt, use and trust this technology.
If brokers are going to stay relevant, they need to face these hard truths and be willing to change. There is hope for brokers but only if they act now. Here are four things you can do as a broker:
1. Embrace technology, use it, and figure out ways to integrate it with other products and practices that make you very hard to replace. AI can’t replace an aggregated service solution that integrates the benefits of technology and data analytics with the benefits of working with a trusted advisor.
2. Help your customers be better prepared for the next crisis. Find experts, tools, resources — whatever it takes to help them.
3. Get up to speed quickly on the new and emerging risks that this pandemic has exposed and caused. Hire or retain engineers, programmers and other experts that can help your customers understand, measure, and manage their risk.
4. Educate your customers. After suffering massive losses and finding out that they weren’t covered, now more than ever, your customers are going to demand to be informed. Even if they don’t you should insist on it.
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Craig Rowe has been a veteran of the insurance and risk management industry for more than 30 years. He has established and run a commercial brokerage and ClearRisk, a risk management information systems company.
EDITOR’s NOTE: The views expressed in this piece are those of the author alone and do not necessarily reflect the views of Canadian Underwriter. We invite all submissions from P&C industry professionals who would like to share their opinions with us. Send your story pitches to David Gambrill, Editor-in-Chief, at <david@newcom.ca>
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Like everything else the poor is getting poorer and the rich is getting richer.
Brokers suffer and bear all expenses to bring in the business and deal with difficult clients and the insurance company dictates rules and benefit. Every time there is a crisis , the related association or insurers shift the responsibility of educating clients, spend more and more time explaining and face criticism of denied claims without being compensated.It is time for the Governments to interfere and put a national Insurance plan administered by Government to offer consumers hassle free service and reliable claims settlements.
Not sure where you obtain your information, but the Broker is an Independent Business, and has chosen to accept 20% (give/take) commissions to sell Insurance Company products. Insurers do not make money on insurance premiums, they make there money on investments, and since the end of the 80’s, beginning of the 90’s, insurance companies have a difficult time making profits.
I don’t know about you (maybe I do from your comments), but I would rather be insured by a company that makes money, than one that loses money. At least I know my DIRECT PHYSICAL LOSS BY AN INSURED PERIL will be paid.
There are never difficult clients, unless the Broker creates the difficult client. Prior to selling an insurance policy, you need to know your clients business in detail, provide what you recommend to protect their business with the best possible coverage, if the client chooses not to take your advice, you have them sign to that affect. If it is clearly a coverage you know they must have, and they decline, you walk away from accepting their account in its entirety.
In the end, you will not have clients that can ever say, you didn’t do you job.
This is how you earn respect and makes your life easier as a broker. DO YOU JOB AND DO IT RIGHT, REMEMBER, YOU MUST DO EVERYTHING YOU CAN THAT IS IN THE BEST INTEREST OF THE CONSUMER, INSURER AND YOUR BROKERAGE.
Keep in mind, if you don’t walk away from some clients, you are not doing what’s in their best interest.
This will make your position as a broker a lot easier.
I agree with Craig. The broker mantra has been “It’s all about relationship”. Well, relationship rules have changed! Today, what makes a relationship sustainable is the ongoing creation of value, by and for each party. To the point – if your sales process does not, in itself, create value for the client, a new relationship will be very difficult to establish. The days when brokers could succeed by being risk transfer specialists (i.e. selling insurance policies) are over. Brokers need to pivot to being risk advisors, not insurance policy vendors. That means helping clients develop a tailored risk management program that may in some aspects not involve the sale of an insurance policy at all!
This is a time of enormous opportunity for those who embrace change as Craig has set out.
This article makes a lot of blanket statements which are simply not true. This crisis, more than ever, has proven the value of brokers. Since the middle of March my commercial team has taken an additional 1000 calls from clients, a 33% increase from the month before. These calls consisted of advising clients on their coverage, presenting options, and sharing risk management best practices to mitigate further impacts on their business. We have conducted 8 webinars (so far) for our clients sharing information on how insurance coverage could respond as this crisis continues and what they can be doing today to protect their employees, customers and business. We are using technology to meet our clients face-to-face over video, we have moved all commercial and financing applications online with digital signatures, and using online payment options. Are we the only broker that has done these things? Absolutely not. I have spoken to brokers across the country that stepped up and brought tremendous value to clients in this crisis in similar ways. Is there more we would like to do? Of course, but this takes a better partnership with our insurer partners and the industry more widely embracing IBAC’s Data Exchange model for real-time connectivity. This would allow brokers to offer even better digital services and experiences to our clients.
There are some brokers that have not evolved, have not embraced technology and stuck their head in the sand. There are laggards in every industry and the market will address that as it always done. Frankly, some of the ways I have seen insurers react in this crisis has reaffirmed for me that brokers have little to fear from direct insurer models. The broker value proposition of choice and advise has frankly been magnified in this crisis and I have never been more proud of my team and my profession.
It shows that the article was written by an insurance expert, it is all about doom an gloom. The answer to the our business is not technology. Whatever form this takes it is just a tool and must be seen a just that. What our industry needs is to remember the reason that it exists, the reason for being.
Rather than all the companies coming together and stating clearly that they did not cover the pandemic, they have put their heads in the sand and pretended that it is in another world ( check the IBC website):
The hard market continues, vacancy clauses apply ( maybe not)…recommendations must be done immediately ( generously sometimes 60 days are given when we construction is closed for over a month). Insurers advertising reductions during this time without explaining them. And some taking this time to further erode the worth of the broker….even those that have managed to stay 100% operational during this crisis.
Piero, I am not certain if you understand the concept of Insurance, nor what the basic coverage in an insurance policy is. There has been no time in Insurance History that it covers, or will ever cover Pandemics. Fire, Lightening and Limited Explosion of coal, natural and manufactured gas.
Unfortunately Brokers have not done there job in advising the consumer on what the policies do cover. Because of this, more and more consumers feel Insurance Policies are maintenance contracts and no one has told them differently.
Brokers, instead of turning business away, if the consumer doesn’t take the professionals advice, you bend to whim of a non professional to increase the bottom line, thereafter, you scramble to make sure your shortfall of advising the consumer is covered by the insurance company.
TURN BUSINESS AWAY IF INSURED DOES NOT TAKE YOUR PROFESSIONAL ADVICE, AND THEY WILL COME TEN FOLD WHEN THEY REALIZE YOU ARE AN HONEST BROKER. HENCE, RESPECT FOR THE INDUSTRY OVERALL !