Brokers and insurers need to work together effectively to beat the current financial crisis. Jane Bernstein reports from a roundtable with a number of key players to discover how they can do this
One of the most pressing challenges for insurers and brokers alike is how to survive the current market turmoil. While the insurance industry has proved to be more recession-proof than others in the financial services sector, the economic slump is inevitably taking its toll - as customers look to cut their expenditure while still requiring high service standards. So, how can insurers and brokers work together more effectively and cost-efficiently and how can they prepare for better times when the economy recovers? There were strong views expressed on these issues when broker and insurer figureheads met for a round table discussion recently, hosted by Post and sponsored by Fortis.
The first item up for discussion centred on winning the trust of the customer. As financial services generally come under increasing scrutiny, how can the insurance industry reassure its customers that it will fulfil its promises? Stuart Whalley, new business development manager at Fresh Insurance, responded that good claims experience continues to be crucial in building customer confidence. Mark Cliff, managing director at Fortis Insurance, added: "People cannot afford to pay for poor service and the claims service needs to do what it says on the tin."
However, the process of gaining that all-important trust also begins much earlier on in the process. Peter Thompson, managing director at Junction, observed that it is about ensuring customers know what they are buying and managing their expectations from the start.
The question is, in their search to reduce costs, are customers in fact cutting down on the amount of insurance they are buying? Mr Cliff observed: "There is a good argument in this climate that people actually need more cover."
According to Mr Thompson, while people are certainly focussing very much on price "we are not seeing any evidence that people are cutting cover".
What customers want to avoid, observed Mark Townsend, director at Capita Insurance Distribution, are any 'nasty surprises'. He pointed out that most now do not have the capacity to cope with unscheduled financial outgoings and they need to be able to forecast monthly outgoings more accurately now than in the past.
From a commercial lines perspective, Duncan Scott, underwriting director at The Oval Group, emphasised the importance of understanding a client's business and matching the insurance product to their specific requirements. "From a broking perspective, we have got to go back to the core values of what we supply which is getting to know a customer's business, getting to understand their prices, and selling them a bespoke product that actually mirrors and matches what their requirements are and what they are trying to purchase. Too often we build products that have all and sundry thrown in but does it really match their actual requirements?"
As far as managing customer expectations are concerned, there was also much consensus that the insurance industry needs to get better at educating customers - particularly around the implications of rate and premium fluctuations. Mr Cliff explained: "There is potentially something of a dilemma during a recession. While individuals will have less disposable income and businesses will have less cash flow, as an industry, we are looking to increase rates. We need to face up to this and look at how we are explaining the process to customers."
There was a sense that the current situation should be viewed as an opportunity by the insurance industry to talk to customers and to ensure there is a greater understanding between the insurance industry and its clients. Chris Dobson, distribution and development director, Fortis Insurance went on to assert that good customer education was particularly crucial in an era of cost cutting and 'value' products. He commented: "There is a lot of discussion around reduced cover products and low value products. We need to ensure that customers really understand, particularly if they are making difficult decisions about their insurance arrangements. Do they really understand what they are buying and more importantly perhaps, what they may not be choosing to obtain cover for?"
Mr Cliff agreed that there does need to be a certain amount of 'going back to basics' to explain what value customers are getting from their cover. "I have no doubt that there will be other value products that will emerge on the market and there will be some people who will just ask for the basics."
It is also, however, important to recognise, customers' right to simply opt for the basics. "There is nothing necessarily wrong with that, as long as they understand exactly what it is that they are purchasing and the terms they are getting," observed Mr Dobson. Again, it comes down to clarity of understanding. "As long as they do it with their eyes open and they fully understand what they are getting involved in," added Mr Dobson.
In addition to educating the customer, the insurance industry itself is in need of training and promoting skills in how to operate during a credit crunch. There is evidence that brokers and insurers alike are beginning to train staff in understanding these particular issues.
Mr Scott pointed out that the industry has experienced a cycle of de-skilling and added that as the market has been soft for so long, there is a lack of awareness about how to deal with a hard market. "People are actually quite afraid of having to talk to a customer about anything else but price. How am I going to sell that proposition if it is not about price? And that is where we do need to invest - in skilling up our people and giving them the tools to really be able to sell the proposition which is centred intrinsically around service." Mr Scott added that while price continues to be hugely important to clients, is it is just one of many factors that need to be considered.
There was much agreement around the table that despite the current economic turmoil, price is not in fact the only driver for customers. Mr Thompson affirmed: "If you look at the price comparison sites, it is not necessarily the cheapest that is winning through every time." Mr Thompson pointed to the importance of brand, particular policy features and consumer confidence as other key issues driving sales.
Mr Scott emphasised that now is a good time for brokers to re-affirm their professionalism: "We need to get back to the basics of what we do, which is adding value, and a service but being prudent about what we are doing."
He went on to explain that as the insurance industry looks to change and adapt business strategies, it is important to avoid "throwing the baby out with the bath water". He commented: "There must be more care about how we move some of those propositions forward," and he warned against a 'broad brush' approach to change.
The question is, are all efforts to adapt to the current market conditions a case of 'too little, too late'? Has the insurance industry been tarred by the same brush as the rest of the financial services sector and is it, therefore, too late to win customers' confidence? Mr Cliff was confident that the insurance market has in fact managed to emerge relatively unscathed in terms of public perception. Despite the negative publicity attracted by the AIG crisis, Mr Cliff asserted that insurance companies "have shown themselves to be very well run in terms of governance, prudence and investment philosophies". He added: "People do see there is a difference between banking and insurance.
The insurance industry cannot, however, afford to rest on its laurels and there are some developments that it must address. One of the most pressing is the changing distribution patterns. "A key and dramatic shift has been towards price comparison sites," asserted Mr Thompson, adding that this has been driven by consumers.
For Mr Townsend, it is vital for brokers to focus on retaining customers. He observed: "This is becoming so important - and needs to be achieved through high levels of service, new products, excellent claims service. It is a challenge we all have to face up to and we must be absolutely committed to."
The debate over price versus value then turned to the ongoing challenge in the commoditisation of commercial lines. Mr Cliff pointed to "the emerging growth, albeit slow, of commercial being traded in a similar way to personal lines, particularly for small to medium-sized enterprises and micro-business customers". Mr Cliff also posed the question are businesses attracted to this kind of proposal because of the high profile brands behind them or because they believe it is quick and cheap?
Mr Scott agreed, observing: "It would be naive to think it is not a threat to our business models in the SME segment. We need to be looking at exactly where this settles in terms of size of premium and size of business - because I believe it does have a ceiling." There was much agreement that the 'ceiling' for commoditised commercial products would be likely to be the micro businesses, because of the complexity of the business environment. There was a consensus that, therefore, brokers would continue to be seen to be adding value in terms of understanding health and safety and statutory issues. "If the broker continues to act as the risk consultant, they will continue to add value," asserted Mr Cliff.
So, what lines of business are brokers currently excelling in? Which areas will stand them in good stead as they compete against new entrants and as they look forward to economic recovery? "It depends very much which segment they are in," asserted Mr Scott. He added that there is no clear rise in purchasing in any one area but that certainly in the commercial sector, it makes sense to develop where there is still a requirement for good solid advice. There was much consensus that it made sense to look for growth opportunities where businesses want to work with a broker and where they see value in the broker's ability to understand the business requirements.
Area for growth
Mr Whalley also identified niche business as an area for growth. "We are not a huge broker but we have always been niche and that is what we are good at," he explained, adding that without the budgets to compete with high profile TV advertising campaigns, focussing on niche areas brings significant rewards. Mr Whalley identified his firm's recent launch of a non-standard home product as a case in point, and said this has worked well. Mr Thompson agreed: "There are a number of niche players that have emerged and are very successful." He added, however, that some will find the current climate more challenging than others - depending on their particular niche.
Mr Cliff pointed to two particular areas where there has been a noted increase. "On the commercial side, demand is increasing for directors' and officers' and some are saying that they will now go into a pitch leading with D&O as the cover," he observed. Mr Cliff added: "On the consumer side, we are seeing an increase in people buying add-on products - such as identify theft cover, which has had some attention in the media."
There has been much discussion about whether insurers and brokers are working in partnership to achieve efficiencies - so are insurers and brokers working sufficiently well together currently? There was some optimism around the issue during the round table discussion, and also a general view that it was particularly important to get this right during a recession. The message was that the practice of insurers and brokers duplicating or re-typing details was no longer acceptable. Mr Scott focused on the importance of technology in achieving the right solutions. "It is essential during a recession that one area you do invest in is technology," he asserted. "Re-keying simply adds costs. We can drive out costs, we can achieve benefits for both insurers and brokers and ensure the client is getting true value for money."
Mr Townsend agreed that technology is important but also emphasised the wider context. He highlighted in particular the sheer number of parties now involved in the delivery process. Taking the private car market as a case in point, he observed that those involved could include the brand owner, the broker, the insurer, the claims provider. "Effective management of that entire supply chain is a big challenge that we do face."
Mr Whalley was keen to emphasise that: "We have to consider insurer and broker relationships as partnerships." Mr Townsend commented that successful partnerships that are built up have to withstand the poorer times as well as the good times. He added that insurers and brokers had to work together in order to build accountability as well as sustainable and viable business strategies. For Mr Whalley, there were particular issues to address around schemes business. He observed: "Certain insurers can be less keen to work on scheme development because of the current climate. But it is important to keep moving forwards."
The troubled economy is no longer a 'new' challenge for the insurance industry, and one of the questions raised during the discussion was what lessons insurers and brokers have learned over the past 12 months in terms of preparing for an unpredictable economic environment. Mr Cliff responded that it is increasingly important for the industry to manage its own risks. "Whether we are a broker or an insurer, are we managing all the risks in our businesses? We also need to look at those risks that face us from the external environment - not just a recession but also issues like foreign exchange fluctuations. Have we made sure that we are looking at every element of our business and saying yes, those risks are being properly managed?"
Mr Thompson put forward the view that there is likely to be more extreme scenario planning than in the past, "and probably better capital adequacy as a consequence".
For Mr Dobson, one of the major lessons has been to re-affirm the importance of Financial Services Authority regulation. "It has opened people's eyes within the industry as to what the FSA has been trying to achieve, from treating the customer fairly right through to the whole governance process regarding how you manage your business. Having experienced what has happened in the banking sector, for example, we have seen that there are very valid reasons to ensure regulations are in place."
Mr Townsend agreed with this point of view. He also went on to explain that recent experience has demonstrated the importance of remaining sensitive to the changing requirements and buying habits of customers. "There is a different perception and a different approach to spending money that we have noticed in the market and from customers over the past six months particularly. And making sure that we are sensitive to it as an industry is important."
Mr Scott reiterated the message that brokers have to be seen as truly risk managers for the client. "That goes beyond just dealing with their requirements from an insurance perspective - and involves ensuring that all questions, whether it be health and safety or compliance are dealt with and that we are giving solid, good quality advice." This, in fact, reflects one of the major concerns raised repeatedly during the round table discussion - that in order to survive a harsh economic climate, brokers must 'get back to basics' and focus on the provision of professional, efficient service, which demonstrably adds value for the customer.
- Top 100 Insurtech: Quarter four update
- Roundtable: Is a single customer view taking off in insurance?
- I work in insurance: Stephanie Horton, River Canal Rescue
- Charles Taylor bolsters liability team by hiring senior sextet from Vericlaim
- Travel insurtech Pluto begins beta test
- Insurtech diary: Getting stuck into insurance
- Gallagher Bassett acquires claims management firm