InsurTech – Problem or Solution for Agents and Brokers?

By Michael Jans CEO, Michael Jans Advisory Twenty years ago, where would you have gone to find thousands of brokers gathered in one room? One of the national trade association conventions. Where would you go to find thousands of brokers today? At the technology conventions. Technology drives the insurance business. Even at the broker level. And the biggest changes are yet to come. Many brokers may not be aware – yet – but a lot of professionals and market experts are betting against them in the upcoming “technology tsunami” of InsurTech. Some predict that the gradual trend-line of slow erosion will become the rapid drop-off of disruption.1 Clearly, some industry macrotrends leave legacy providers behind, such as buggy whip makers, for example. Others challenge us to wake up, catch up – and win. What will the InsurTech revolution mean for today’s broker channel? Most InsurTech investments are somewhere between “unfriendly” and “hostile” to today’s incumbent broker. But not all. Some, in fact, help make the broker an important part of the InsurTech revolution. The right technology helps brokers fulfil the promise no other channel really makes. That’s the promise of real people serving real people. It’s the promise of human connectedness. It’s the promise of personal advice and personal advocacy. And it’s the promise of the comfort and confidence of having people on your side. This is the soft but powerful magic that binds a tribal species together: to be wired and connected at the deepest psychological level. Nonetheless, the threats are real. The Rapidly Changing Insurance Consumer Many of today’s brokers are bewildered and bedazzled simply trying to keep up with today’s insurance consumer. Ten or so years ago, this author’s most requested report was called 25 Ways to Write a Killer Yellow Pages Ad. Today that report withers on the vine of neglect. The insurance consumer of today probably can’t find the yellow pages in their kitchen drawer. They are rarely separated from their smartphone. No doubt, the numbers in the list below will be outpaced by the date of publication. (They usually are within weeks.) But they provide a glimpse into changing consumer behaviour (and a window into why so many of today’s brokers are already worried they’re being left behind). In the US: • 81% of consumers research online before shopping.2 • 88% trust online reviews as much as they trust personal recommendations from friends and family.3 • The average consumer reads between four and “52 or more” reviews before making a purchasing decision.4 1 https://techcrunch.com/2016/05/02/insurance-brokerage-is-broken/. 2 http://www.chainstoreage.com/article/study-81-research-online-makingbig-purchases. 3 http://searchengineland.com/88-consumers-trust-online-reviews-muchpersonal-recommendations-195803. 4 Ibid. What is Insur Tech? 18 • 98.4% check their email daily. 39% check it between 10 times and “throughout the day”.5 • And, remarkably, they deliver 2,617 “discrete touches” – swipes, clicks, taps – to their smartphone daily.6 It’s not a distant memory that the broker touched and nurtured their clients at the Rotary or the local youth sports league. They never dreamt that “digital marketing” would rank as a business skill, as necessary as quoting and selling. The growing gap – between today’s digital savvy consumer and the broker – is the sweet spot that so many InsurTech startups want to dive into. Rapidly Changing Technology – Can Brokers Keep up? Clearly, new, attractive, and useful technologies are driving change in consumer behaviour. As far back as 2013, McKinsey & Company declared: “There are signs now … that the economics of the traditional agent model are beginning to unravel.”7 Some technologies, arguably, simply put the broker out of the insurance equation. Driverless cars. Technology-enabled sharing. Instant, mobile-assisted insurance. Products with insurance “baked in”. In most cases, these leave the broker on the sidelines. The InsurTech revolution is frequently described as “InsurTech versus legacy”8 – with the implication that traditional carriers will discover themselves to be bogged down in legacy habits and systems, while whipper-snapper startups sneak up and eat their lunch. But the burden of legacy behaviour doesn’t just infect carriers. Brokers suffer the same disease. In the US, for example, many brokers eagerly await the Reagan Consulting “Best Practices Study” for direction, but fail to see that it’s a study of historical behaviour, not innovation. Forbes, Fortune, Inc., or Wired never highlighted the innovation of the broker channel for good reason. Gradual change and tradition were appropriate dogma … for hundreds of years. Misreading mega-trends can be deadly. The threats of InsurTech to the broker channel must be taken seriously: • Some consumers want the convenience and efficiency promised by certain InsurTech business models. Just how many remains to be seen. It’s less than 100%. But it’s more than zero. • The independence of the independent broker channel will deliver uneven responses. The independent channel has 40,000 firms in the US. Hundreds of thousands globally. Each one is led and managed by its own leadership. There’s no “big boss” or corporate structure to say “do this”. Some will rise to the challenge. Others will no doubt be left behind. • Some carriers will shift allegiance. Many carriers boast of their “partnership” with the broker channel. Ultimately, though, their primary loyalty must be to their shareholders or their P&L. Brokers must be prepared for top-ranked carriers to experiment with more alternative distribution systems, especially as startups partner with existing carriers in order to overcome the difficult regulatory

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