Opinion: Will COVID-19 kill the traditional brokerage model?

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>