Analysis: Innovation is key to survival

Almost half of account executives and account handlers at broking firms believe their jobs are at risk from artificial intelligence and other high tech developments, according to a new CII report.

Artificial intelligence is still in its early days. But it has already automated many simple, repetitive tasks and is used for underwriting automation in personal lines and micro SME insurance.

It is also being used to speed up the claims process, analyse risks more quickly and identify fraud trends, according to the report, which was conducted in association with broker Konsileo and accountant PKF Littlejohn.

However, the complexity of data in commercial insurance, particularly for medium to large enterprises, is the key factor limiting the adoption of AI across all parts of the industry.

Whether the code can be written, or written cost-effectively enough, to replicate human decision-making at this level remains to be seen.

The introduction of the Insurance Act also places more significance on the client-broker relationship.

But it does not mean that brokers should rest on their laurels and think they are an age away from being disrupted.

Innovation is key to survival

The times are moving fast and brokers face a raft of changes as client demands become more sophisticated.

The report points to several areas of the insurance broking world that could be disrupted by non-traditional companies if the more traditional firms do not get on the front foot.

Currently, innovation by brokers is largely limited to process improvement and account maintenance and less frequently focuses on changes to client service needs.

While business models have evolved, few broking firms have fully embraced the digital revolution at the core of the business.

Technology innovation presents the industry with significant questions about its future direction, and peripheral add-ons and process simplifications are not an adequate answer.

In many cases, technology has developed within broker organisations, growing as they have through market consolidation, to handle a large volume of transactions each year.

Brokers now face a challenge to update to more efficient and advanced technology that is better able to use available data to support them and their business partners.

The slow pace of innovation means that brokers are not being freed up to spend as much time as they might like in building client relationships.

On average, broker account handlers spend more than half of their work time on administration.

This creates a huge opportunity for technology to disrupt the industry.

Already, the US has seen much greater investment in commercial insurance tech startups than we have seen in the UK.

But there is strong evidence that momentum here is now building and the disruption conversation is moving beyond commoditisation in personal lines to commercial lines.

Barriers to innovation

Software houses, although enablers of technology adoption, have also presented barriers to innovation.

Brokers typically use software houses to carry out their day-to-day trading.

This market is dominated by four big firms: Open GI, SSP, Acturis and Applied Systems.

One senior broker said: “One of the barriers to innovation is the protectionist views of software houses. Software houses run closed systems and frustrate business models with a technology capability unable to integrate with them in customers’ best interest. As brokers create proprietary systems, that barrier will surely be swept away in years to come.”

The report says that this problem highlights an opportunity for software providers to streamline administrative processes, giving brokers more time with clients.

Commercial brokers also face disruption from emerging technology that could be used to manipulate data better and improve real time data exchange with insurers.

For example, the Internet of Things (IoT) has big implications for commercial insurance.

It will significantly influence pricing of risks as risk data becomes more transparent.

What SME clients want

The micro SME market has commoditised to an extent.

But at the larger end of the SME spectrum, the desire for professional advice has remained constant and, according to clients, will continue to do so in the future.

This has led to a demand for brokers with deeper risk management skills.

SMEs with more complex risks tend to value the advisory role of brokers more than those with less complex risks, and have more face-to-face interaction with their broker.

But the greatest concerns that SMEs have raised about the industry are the jargon used, the complexity of products and documentation, and a lack of transparency about data and claims handling.

As data from IoT becomes more widely used, businesses will begin testing and using this technology to help prevent risk.

Skills shortage

A role will emerge for insurance brokers to support their clients by analysing and interpreting data in a more sophisticated manner for risk management.

This means that technical skills have increasingly become a necessary requirement for employers.

However, a growing skills gap in this area is putting brokers at further risk of being disrupted from outside.

Left unaddressed, a skills gap will affect the insurance broking model of the future.

But there is an opportunity for brokers if they want to seize it.

The increasing shortage of technically skilled individuals will mean there are greater opportunities for those with expertise and training.

To attract the talent needed firms may also need to change tack and adopt more flexible working practices if they are to hang on to young talent.

Millennials, who are making up a greater part of the work force, arguably value work-life balance and are driven by values other than financial losses or finding a job for life.