With tough times facing the industry, insurers and brokers have to embrace their traditional roles to be successful
The relationship between brokers and insurers is akin to global warming: just when you think you’ve got to grips with the immense scale of the problem, something worse comes along.
Insurers’ third-quarter results for 2012 triggered the realisation among many major carriers that reserves are fast disappearing and they can no longer sustain combined operating ratios above 100%. This quickly translated into a more forensic analysis of the data, which led to many major insurers being more selective of mainstream markets.
Choice is being eliminated before our very eyes, and shortly a tipping point will be reached to the detriment of the consumer as markets disappear – and with them democratic choice.
A book could be written on precisely why this has happened, but the short answer lies in the recent blurring of boundaries between insurers and brokers. The rise in online purchasing, and the rapid growth of networks and managing general agents, changed the distribution scene beyond recognition. This put an immense strain on traditional models and insurers are now facing a perfect storm of excessive commission rates and a backlog of claims, with fears of a resulting collapse of profitability. The inevitable backlash threatens to produce an even more dysfunctional model.
Battle for supremacy
This raises the question of whether there is an alternative to the traditional battle for supremacy tilting back and forth from brokers to insurers. There is and it hinges on the independent broking model. This is founded on the old-fashioned belief that the pen must stay firmly in the hand of the insurer.
However, given the critical nature of the current market, the industry has to go much further than merely refusing to blur the distinction between the roles of insurer and broker, and to start building a true strategic partnership. Indeed, both parties must share the pain as well as the gain.
By communicating as partners – from board level to the individual management strata – insurers and brokers can gain an understanding of each other’s strategic direction. Regular meetings should be highly structured with a focus on both effectiveness and profitability, based on shared data.
Frequent dialogue builds a mutual understanding. Transparency should be taken to its logical conclusion with a joint business plan with each partner. There is nothing cosy about these relationships. Sharing the pain and the gain may mean taking hard decisions if a partner falls below acceptable standards but it also means rallying behind key markets to support our partners.
Professionalism is another area in which brokers and insurers need to sing from the same hymn sheet. At Brokerbility, 20 out of the 35 companies are chartered and we’ve set a target of the end of 2014 for all our group companies to be chartered. Insurers must strive for the same to create a powerful joint platform for learning, development and mentoring initiatives including job sharing and mutual training workshops.
There are many other areas in which it is necessary for brokers and insurers to find synergy. One of the most remarkable features of working in insurance is that when clients walk through the door on a policy renewal date, firms know precisely what they want, when they want it and how much they want to spend, based on an intimate knowledge of their business. Companies such as Marks & Spencer or Mercedes-Benz would kill for that sort of certainty, but to turn this opportunity to their advantage brokers need the support of insurers in convincing clients of the merits of the product and of a long-term relationship.
Client retention should be a major focus, as should joint marketing and shared appetite for risk. While recognising that insurers have to take corrective action and that their first priority is profitability, brokers must position with them based on mutual benefit rather than constant battle.
Some insurers already buy into this approach fully and want to work with brokers to inspire customers to do business. It is a long-term vision but without it the insurance market faces an unpredictable and dangerous future.
Ian Stutz, managing director, Brokerbility
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