REDEFINING the future of the intermediary

I do not know how you feel, but I have had my fill of the latest and most popular buzzword used so freely by the industry’s nay-sayers. You may have guessed that the word I’m speaking about is “disintermediation”.

For those unfamiliar with the word, it’s 17 characters in length and meant to impress you and intimidate you all at the same time. And from the reactions to its use in the broker driven property and casualty insurance industry, I would have to say that it has, for the most part, accomplished both questionable objectives.

The theory of disintermediation goes something like this. The big bad Internet is really a conspiracy by the direct writers, banks and virtual companies to take business away from the traditional broker. They clearly see the broker either succumbing to a smaller and unfavorable share of the market or going the way of the Dodo bird. I know it is not a popular position to take, but I think it is entirely appropriate to start using a new word. I would suggest a somewhat shorter word that in my view describes reality and industry potential more accurately. The new word is “reintermediation”. The reason I favor ‘re’ over ‘dis’ is based on a number of observations and new trends. These include the following phenomena:

Time famine

The most valuable thing that you and most consumers have is time. And yet we are all struggling with a serious case of “time famine”. We just do not have enough time and it is getting worse. Information overload, in part from the Internet, is making sure of that. I for one have reached the point where I need to depend on experts to help me with complex decisions. It is my quality of life and piece of mind that are at stake. And that does not even speak to the fact that the consumer should seek expert advice when his/her financial security is involved. The risk of not doing so is too high.

Product differentiation

Another factor stems from a new consumer demand for personalized products and services. The old cookie-cutter approach of the 1980s/90s has been rejected by the consumer in virtually every industry. Companies and brokerages are responding with product and service differentiation.

This consumer-driven move away from look-alike commodities will necessarily increase the demand for expert broker advice. And, the timing could not be better. Recent consumer surveys show a much higher regard for the independent broker channel compared with the major bank groups. At the same time, Canadian brokers are upgrading their knowledge and financial skills at an unprecedented rate through a wide range of courses and continuing education programs. The right recipe at the right time.

Supporting

local business

After the initial “wow” reaction to the emergence of the big box stores, I have observed a small but growing backlash against them. What I seem to be witnessing is the sentiment that local businesses are better for the local economy. The arrival of big box stores results in local business closures and in the movement of profits out of the local community. In comparison to big banks and direct writers, the brokerages are locally owned and have always been strong community supporters. The same rules apply here, and I believe that the broker community will and should take advantage of this sentiment.

Industry cooperation

I have been involved with p&c industry standards efforts since the ACOS change form days in the early 1980s. Since that time, I can honestly say that I have never seen stronger and more active industry cooperation than I am seeing today. Companies, brokers and their automation suppliers are working side by side on a number of fronts. Real progress is being made in a number of Internet technologies including web screen standards, XML standards (which will facilitate data trading between partners over the Internet) and an industry portal on the Internet. This portal promises to deliver many valuable capabilities to Canadian brokers, capabilities which will enhance customer service, office productivity and operational efficiencies for the broker.

These are significant trends that if continued and reinforced, will bring positive results. Results which are already starting to show up. In Canada, the percentage of p&c insurance written by brokers actually rose from 1998 through to 1999. I am told that a similar trend is occurring south of the border. In a recent survey based in the U.S., it was found that four out of five consumers who research insurance prices and options over the Internet then visit their broker to make their final buying decision.

The broker offers the consumer convenience, choice, name brands, an existing relationship, knowledge of the risk, product to risk matching and local service where the profits stay in the community. By proactively focusing on those strengths, reintermediation is the only word that makes sense to me to describe the new business of brokers. Our future is in our own hands.