I recently attended the annual North American meeting of Assurex Global, a worldwide association of insurance brokers. The theme was the “future of insurance brokers” and I saw several excellent speakers present insight into changes our industry can expect.
One of the most interesting presenters talked about the role of the broker and their traditional focus on shopping insurance companies for quotes. While brokers may say SERVICE is their greatest value, the speaker argued this is a very general and ambiguous promise. Therefore, most brokers sound pretty much the same and aren’t differentiated in the eyes of customers.
With the lack of a value proposition, whether they admit it or not, most brokers rely primarily on getting quotes to win business. If you don’t agree, just consider how much effort goes into the marketing process. At many brokers, it’s not unusual to submit an account to a dozen carriers. Often, considerable effort is made to secure control of the “best” insurance companies most likely to offer favorable terms. If there are other services or value provided by the broker, it often gets lost in the bidding process.
The Assurex speaker warns the insurance marketplace is changing. In the future, the value provided by brokers in obtaining quotes will diminish. Four factors are driving this shift:
- Data Insurance companies are investing tens of millions of dollars into sophisticated systems to collect and utilize data. This investment has already increased the ability of insurers to predict and price losses. As more carriers get better at pricing and risk selection, there will be fewer and fewer outliers offering premiums lower than the marketplace. And pricing will evolve into a narrower range.
- Technology Many well-funded investors are making an effort to disrupt the process of shopping business insurance. These companies generally focus on an easier way to shop the marketplace and get quotes. While none has yet taken significant market share, it is likely only a matter of time.
- Aggregators It used to be many carriers restricted access to a few agents. Certain agency contracts could bring value simply because you were one of only a few agencies representing a particular insurer. The rise of aggregators has dramatically opened up access to even the smallest agents. Limited or exclusive representation is becoming more and more unusual.
- Discipline Over many years, financial markets have caused insurers to become much more disciplined about profitability. Twenty years ago, insurance companies were much more likely to reduce pricing to keep market share. Now, better information and accountability will force pricing up if results deteriorate and lessen the range of quotes.
In the future, brokers will only thrive if they bring other services and value to clients. They will need to support client’s efforts to reduce premiums by helping them be better risks though safety and loss control services. In employee benefits, brokers must already offer wellness, compliance and communication support to be considered. “Shopping” for employee benefit plans in a marketplace with only three or four carriers adds little value. Expect to see a similar evolution in the property/casualty business.
These changes are likely to drive further consolidation in our business. As an agency owner, will you be able to make the service investments needed to compete? If not, will you sell to a consolidator? Or is it perhaps a good time to consider a third alternative… Join the Horton Group, Inc.
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