Is the insurance industry in danger of building the out-of-town supermarkets of tomorrow? says Stubben Edge

One of the biggest issues affecting modern supermarket retailers is wasted investment in enormous out-of-town ‘sheds on a hill’. Is the insurance industry in danger of repeating the same mistakes by ploughing large amounts of money into white elephant technology projects?

Launched by Tesco in 1956, the first self-service ‘supermarket’ was just bigger than the average high street broker’s office. Insurance didn’t experience the same huge expansion that supermarkets did, but companies like Direct Line emerged where efficiencies were found by cutting out those same brokers.

The sheer size of an out-of-town 100,000sq ft store enabled supermarkets to sell huge ranges, including non-food products, and the one-stop shop approach became the norm. The equivalent in insurance was the later emergence of the aggregators, where quantity trumped the focus on quality.

The clever bit was the behind-the-scenes data and systems that allowed supermarkets to revolutionise warehousing and distribution, keeping ahead of customer demand.

Technology providers Acturis, SSP and OpenGI have done a similar job by streamlining processes, albeit with Solvency II reporting requirements having a similar influence.

However, Tesco changed retail forever with the Clubcard loyalty scheme in 1995 – which built a holistic customer view to understand purchasing habits and affluence – the insurance industry is only now grasping the opportunities data offers from a marketing, not underwriting, perspective.

A macro view of this data is used to plan ranges, store layouts and locations, while putting customer behaviour at the heart of decision making. Big data became the Amazon Web Service of the retail industry, starting out as a sideline, but becoming incredibly valuable to the business overall.

In recent years, discounters like Lidl and Aldi have eaten into the market share of the big supermarkets. The anticipated recession following Covid-19 could have the same effect on the insurance industry, with new players like Google and Amazon eating up the competition.

Suddenly, huge out-of-town monstro-marts aren’t so popular, and their overheads hurt. Similarly, a broker is typically confronted with four out-of-town layouts: Acturis, SSP, OpenGI and Applied Systems – which require both a large investment and for a broker to shoehorn their business into the technology business strategy.

The problem with having a large, centralised technology purveyor is that you move at the slowest pace of the largest customer. As with the centralisation of retail warehousing, once this is achieved the benefits are available to anyone, leaving companies wedded to a ‘shed on a hill’ without their own means of being close to the consumer.

There has been a backlash against big retailers killing off independents. Recent research has indicated that customers are happy to bulk shop for everyday items, but for those more specialist artisan products, the local butcher or baker comes out top every time. Why? Because their product is simply better. It is made with care that is impossible to apply at scale.

This tends to be what the customer seeks when visiting a local broker rather than the online aggregators, whose product is basic and standardised because of their scale. The successful broker offers a better, bespoke product. This also makes them more likely to pay a difficult claim, rather than a standard ‘computer says no’.

For brokers to succeed in the future they need to remain close to consumers and their changing tastes. Ten years ago, who would have thought about cyber insurance, e-scooter policies and the many opportunities in caravans? Technology is the ultimate solution, but not through being locked into expensive, monolithic systems, only by using solutions that are niche, bespoke and nimble.

Late adopters of technology get left behind and customer data helps businesses make informed decisions about how to serve and retain customers. Empowering businesses with technology allows them more time with customers, providing them with the specialist, individual service they expect.

At Stubben Edge, we have helped customers navigate their way through balancing cost-effectiveness with powerful technology and insight. We have helped prepare businesses for change and have also brought our experience from other sectors to assist them with making the right choices.