As brokers continue to reinvent themselves to remain a major force in personal lines insurance, it is up to insurers to help them flourish in this competitive market
Various changes over the past 20 years have presented significant challenges for the personal lines broker market, from the advent of direct writers to the rise of the aggregators. Despite this, brokers remain a key force in the personal lines market and perhaps it is time to stop speculating about their potential demise and instead start feeding the phoenix that ensures its future success.
The personal lines market remains a challenge but Datamonitor’s UK Personal Insurance Distribution 2011 report clearly supports the view that brokers have a firm grip on it. The research shows brokers accounted for almost 30% of the gross written premium in the private motor market every year from 2006 through to 2010.
The same story is found in the household market where brokers were responsible for between 24% and 26% of GWP over the course of the same five years.
With ease and convenience top of consumers’ agenda alongside price when arranging cover, brokers are increasingly present on price comparison sites. As some move their business models closer to those of the direct insurer channel, others continue to offer a more traditional proposition to those customers who value a local service.
Consequently, brokers should be able to maintain or even increase their presence in the market.
Brokers that can flexibly adapt to their changing environment will be better equipped to maintain market share, which in turn will contribute to the long-term strength of the personal lines intermediated market.
But can insurers help brokers to succeed in this crowded and competitive market, and what can they expect in return?
Access all areas
Given the premiums, commissions and margins involved, there is little room for manoeuvre. Only those insurers that can offer brokers fast, reliable and easy access to their products will survive.
On that basis, full cycle electronic data interchange is a prerequisite for successfully operating in this sector. This model eradicates the continual re-keying of information, which has previously hammered efficiency levels and created issues around data accuracy and processing times.
However, electronic trading only works for brokers when the majority of cases flow seamlessly through the systems, and when referrals are handled quickly and effectively.
Referrals have also been a major bugbear for brokers trying to trade electronically with insurers. The high number of cases that need to be looked at, and the poor processes in place to do so, have had the effect of adding cost to both brokers and insurers – ultimately making the channel less competitive.
The good news is that technology continues to improve and a high percentage of cases can be processed without the need for intervention.
The human factor
It is important, therefore, that where human intervention is required, it happens quickly and effectively. Decision makers should be brought to the fore and made available to keep business moving, which should give brokers confidence that issues can be resolved as and when required.
In a fast-moving and commoditised market, where it is difficult to differentiate purely on product, the delivery and service aspect of propositions is essential.
In addition to offering competitive prices, it is also vital that the right products are developed in order to support the broker market.
There must be a suitably broad range of options available to meet the differing needs of a broker’s client base.
In the same vein, the ability to work in partnership with brokers when it comes to developing individual schemes is also something that can help forge and maintain hugely successful trading relationships over a long period of time.
Schemes are most successful when they offer insight or expertise to a particular market that adds real value to all involved. There are major rewards for brokers and insurers who can work together along these lines.
However, there are still significant challenges to overcome in the wider personal lines market. Application fraud is a serious issue for the industry, and one that insurers should be tackling head-on.
Brokers are in the perfect position to validate application information and, therefore, act as the front-line in the fight against this type of fraud. Indeed, in the same way that the processes around electronic trading and product delivery have improved, so too have the capabilities to cross reference and check information electronically.
There is a very strong correlation between application fraud and claims fraud. If these individuals can be picked up and fraud prevented at the point of sale, there will be a marked improvement on the overall performance of the book.
By working in partnership with brokers and improving validation processes, insurers will be able to improve underwriting performance, rate risks accurately and remove any potential complications before the claims stage.
Brokers engender strong loyalty in their clients and this is reflected in the retention rates seen in the personal lines broker channel, despite the increasing commoditisation in this space.
Brokers are a central distribution channel in the personal lines market and they will remain so for the years to come. The volume, improved risk selection and higher retention rates they offer are extremely valuable.
There will always be challenges emerging on the horizon but there are great prospects for the personal lines broker channel, which continues to demonstrate strength through an ability to innovate and adapt.
Ian McManus, head of personal lines broker, Zurich
In Conversation with Zurich: Personal lines brokers
Personal lines brokers have endured endless change in insurance distribution and survived – and they continue to do so. As part of a series looking at Expertise in Action, Ian McManus, head of personal lines broker at Zurich Insurance, talks to Post editor-in-chief Jonathan Swift in a video interview about how insurers and brokers can build profitable and mutually beneficial relationships for a successful future. This includes how insurers can use sophisticated underwriting approaches and brokers can help insurers combat fraud. Watch video
Zurich disappointed in new #discountrate. David Nichols, Ch Claims Officer: "The failure to change the discount rate to a balanced level will only serve to increase the cost and, therefore, affordability of certain types of insurance - especially for higher risk customers." pic.twitter.com/ac1CfBzfxX— Zurich Insurance UK (@ZurichInsUK) July 15, 2019
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