Etrading results: Brokers must ‘make it explicit’ how they want to trade

As digital trading increases in the UK it is perhaps inevitable that we will have maturing pains caused by insurers looking to have a defined underwriting footprint for their digital products while brokers present risks with increasing complexity via e-trade channels.

Insurers will typically find it relatively straightforward to auto-rate 70% to 80% of their small commercial risks, in products such as property owners and tradesmen.

But this is the low hanging fruit and increasingly the market is looking to offer e-trade products that cater for a wider underwriting footprint. This wider footprint is typically more complex and the risk capture questions used on broker systems to collect information for quotes may not cater for some of this additional complexity. That’s where we need to see the right level of resourcing to back up insurers’ digital products to be able to effectively manage temporary interventions to ensure they remain digital products.

The good news for brokers is that we know of several insurers working on doing just this, especially for the larger volume products such as property owners and tradesmen.

The reality is that as insurers seek to cater for more complex risks through their digital propositions, referrals will increase. This isn’t necessarily a bad thing, but it does mean that when digital propositions are built, insurers need to ensure they have the right level of resources to deal with them in a timely manner.

It’s interesting that over 50% of brokers would not wait for longer than four hours for a response from an insurer. Nearly one quarter lose patience if they don’t hear back in 15 minutes. This certainly means it’s important that insurers respond quickly if they want to take market share in more complex business.

However, insurers do not tend to operate a one-size-fits-all referral service level. A simple tradesmen referral may be cleared almost instantaneously, while a complex minifleet or commercial combined risk may involve a more detailed review, which might not be feasible in less than four hours.

It will be interesting to see how brokers’ patience levels develop in line with increasing digital complexity.

The demand for expanding digital underwriting footprints also creates opportunities for different businesses, such as wholesale schemes operators and MGAs, to come and fill in the gaps, especially for risks that mainstream insurers may not wish to underwrite.

However, they will struggle to be visible to the majority of brokers if they are not on broker systems and rely on their own standalone extranets.

Don’t over simplify

An interesting contradiction is that some brokers said they want data to be used to simplify their journey, while other brokers want to ensure there is contract certainty, which might mean more questions need to be asked.

On balance, the verbatim comments in this research suggests there is a greater desire for contract certainty over simplicity, which is rightly where this should be. I’m sure most brokers would simultaneously want both.

Trade codes are mentioned again. This is an area that Polaris facilitates on behalf of the industry and while we want to continue to improve this, making sizeable changes to the method of recording trade codes would involve a significant reworking of the current approaches used by the market, both in the area of data capture on broker systems and in the manner insurers appropriately underwrite risks.

A better approach would be to focus on the processes and activities that businesses undertake as these determine the underlying risk. This suggests, as an industry, we may want to stop relying entirely on trade codes as a proxy for underwriting features and also source data that would ensure customers’ business activities are more accurately presented to insurers and therefore appropriately covered.

To retrofit this into the existing market approach may just be too complex and costly to consider. If, as I hope, we move to modular products over the medium-term, this would seem to be the most appropriate way of delivering what is undoubtedly an area of concern.

Access

Previous years’ Insurance Times e-trade survey results have highlighted that brokers are looking for wider product panels.

While we do not have comprehensive panels on all product classes, it is encouraging that this is less of a focus. In the main, the broker systems have been able to get viable panels on the four key digital products (shop, office, property owners, tradesmen) and to a lesser extent the next two (commercial combined and minifleet).

It remains important that brokers make it explicit to their insurer partners how they want to trade with them and if there are any consequences of them not being available through their chosen route.

For insurers to deploy products on different platforms there are inevitably costs involved and with competing development priorities, the business case for deploying a new product needs to compare well against the other opportunities insurers may have for spending their digital development budgets.

A compelling business opportunity where an insurer can see a route to getting additional revenue is going to support brokers in getting the distribution solutions they want.

Simplification

Trading on broker systems can mean more questions. Brokers need to answer the questions required by all panel members to return quotes from all insurers. That can feel frustrating, especially if some insurers don’t need the response, for example if they already access the data that gives them the answer, but are slowed down by a competitor.

I don’t think we are realistically going to see a significant reduction in questions to solutions where you need, say, five questions to get a shop quote. That wouldn’t do justice to the significant variations that can exist in a business. Such a move would risk more homogenous pricing, creating winners and losers for customers, brokers and insurers.

There is a middle ground here where we start to introduce data population into broker systems, something that Polaris is looking to pilot this year, to support a broker in getting accurate answers to questions sets.

Insurers are already using multiple data sources in their underwriting processes to add greater sophistication into their rating, and I expect the use of data to develop iteratively over a number of years.

Fragmentation of products is another area for the industry to address together. The market currently divides products into categories such as shop and office, but many of the questions on these products are similar. The fragmentation by product type means incremental costs for the deployment and maintenance of each product. This has the effect of reducing the digital marketplace, as insurers and MGAs naturally prioritise their limited resources and some products therefore don’t get to market.

Additionally, as customer businesses grow the products are not always able to cater for that growth.

A tradesman that acquires a premise and goes beyond per capita basis of underwriting might find that their insurances need to be re-written on a different product, which may mean significant changes in the customer’s insurance costs. Such a disruption also risks the customer seeking alternatives for both their insurer and broker.

A move to a more modular approach would offer a better opportunity for products to grow with customers and offer wider support. This is no easy job for the industry.

Competition

The survey showed brokers are seven to eight times more concerned about direct business insurers than new market ‘disruptors’.

This reiterates why brokers need to demonstrate they have a compelling offer to their customers.

If they source a price, customers can increasingly do that themselves but if they offer advice, especially around managing risk more effectively where insurance is part of a wider proposition, this can’t be replaced by dealing direct.

Technology can support a broker in getting the right products for customers and ensuring that they meet their needs effectively, and this should give the brokers more time to focus on their customers’ needs more holistically.

While direct commercial is a growing channel, the broker channel is still dominant and likely to remain so in the medium-term.

However, at the moment it is difficult to predict the impact of the current Covid-19 crisis on the shape of the economy as a whole and in specific segments, but if we see a significant economic downturn over the medium-term, it is important that brokers are able to evidence the value they give their customers or there is a risk that price focused customers will seek to go direct.