What does 2017 hold for insurance broking? Insurance Adviser spoke to key figures in the industry to provide you with some insight into trends that might play out in the year ahead.
MARK RADFORD, Radford Lawyers principal
There are several legal issues that will impact on the insurance and broking industry that brokers should be aware of for 2017.
The most important one is ASIC’s increased focus on the insurance sector, identified in its Corporate Plan, that brokers cannot ignore.
Some of the key risks for 2016/17:
- gatekeeper culture and conduct in financial services and credit resulting in poor outcomes for investors and consumers. Brokers are gatekeepers whether acting for the insurer or the client.
- gatekeeper culture and conduct in markets undermining good governance practices and risk management systems. This is a new focus on the role of management and Board in developing a good compliance culture – any issues and ASIC will go up the chain.
- misalignment of retail product design and distribution with consumer understanding.
ASIC has identified its key financial advice projects for 2016/17 as:
- advice compliance at the big five financial advice firms
- conflicted advice at the big five financial advice firms
- life insurance statement of advice
- quality of financial advice
- accountants – limited licence
- professional indemnity insurance held by smaller licensees
- insurance churn by advisers.
While the above are generally life and investment advice focused, this can spread to general insurance and this is a key risk for 2017.
ASIC’s additional funding support announced by the government will help it detect misconduct through more proactive surveillances that target poor practices – at the individual firm and industry level – within the financial advice, superannuation and managed funds, credit and insurance sectors.
These are only the key examples of how it will be a regulator-intensive year in 2017.
It is expected that ASIC will focus on general insurance markets beyond add-on motor insurance.
Brokers entering into new arrangements that ignore these issues do so at their own peril. Existing arrangements should be reconsidered in light of ASIC’s approach as well.
NIBA will continue to make sure the clear differences in performance between general insurance and life and investment insurance are pointed out but there must be real differences in order for it to succeed.
ROBERT KELLY, Steadfast CEO and MD
2017 is going to be a year where the industry has to get price increases across a wide range of products. I think the transition between selling on price and selling on quality will become a challenge for some sectors of the intermediated area because there are people who have come into the industry and only know a soft market… But 2017 will see the re-emergence of people talking about quality of product, quality of insurer and quality of claim service as opposed to ‘how much can I beat your existing premium by’.
Candidly, if an insurer has better claims service than some of its competitors, it should be able to price its product accordingly…
There are signs that some sections of the market are already moving away from price. The combined ratios are out of kilter, and they have to move the needle on the base pricing. That’s when the intermediary’s job becomes important: to explain to the consumer why they should be paying more for certain products and why they shouldn’t necessarily chase price, but chase continuity of reliability and insurer performance.
FABIAN PASQUINI, AUB Group Chief Distribution Officer
The consensus and early signs show a stabilisation of premium rates. We therefore look to see a flattening of the current market through 2017.
Further consolidation and M&A activity is likely to ramp up in the coming year. This will be fuelled by businesses looking for succession opportunities. At the same time, professionally operated Authorised Representative operations will gain popularity as they attract individuals away from traditional employee relationships.
As with all sectors of the economy, a broker’s ability to remain focused on core operating efficiencies will play an important factor in the year ahead. A big focus on expense control and optimising the way we do business will set brokers in good stead regardless of how the insurance cycle eventuates.
More importantly, the biggest opportunity in our view, and one that we’re arguably helping to lead, is for brokers to provide clients with a ‘whole-of-risk’ approach. If we’re always keeping our clients at the centre of everything we do, giving due consideration to their full risk portfolio (people, physical and financial risks) and providing relevant solutions, the opportunity to help grow and protect their business will also help grow ours.
DAVID HOSKING, Chief General Manager Broker and Agency, Allianz Australia
The Australian insurance industry is likely to face challenges from a much wider range of disruptive forces in 2017.
Premiums to increase – Following a period of declining interest rates, higher than expected claims inflation and commercial classes running at unsustainable rates, there is reason to believe that the cycle must turn.
Increased regulation – The regulatory landscape will continue to present challenges in 2017, with the financial services industry currently in the spotlight. For insurance, the products our clients purchase and the way these are sold will continue to be a focus. Related to this will be rising acquisition costs and the sustainability and transparency of current commission levels.
Emerging technology – One of the biggest challenges risk managers face… is to ensure their business continuity and risk management plans adequately address these new emerging risks. Brokers can expect to see continued investment in digital technologies that will impact existing distribution channels. However, none of this can replace excellent customer service.
Allianz has committed significant resources to servicing and developing solutions for its client base. It will be insurers with the flexibility and capabilities to understand and recognise risk quality and work together with the brokers and their clients… that are likely to be the winners in this increasingly complex market.
ROB WHELAN, CEO of Insurance Council of Australia
2016 was comparatively benign for natural disasters, but there are signs we may not be so lucky in 2017. An above-average cyclone season has been forecast, while bushfire risk is heightened across much of southern Australia. Insurers and brokers need to be ready.
Expect a continued focus on social licence in the financial services sector, and a move towards greater regulatory oversight. In the technology space, we will see an increasing ability to use data to fine-tune risk-based pricing. The ICA will explore some new initiatives to better help consumers understand the risks they face, and how to limit their vulnerability.
GARY DRANSFIELD, CEO Customer Platforms, Suncorp
While the regulatory, community and political focus in 2016 has been very clearly on the conduct and culture of the Australian major banks and their various distribution value chains, culminating in the appearances by the four major bank CEOs at parliamentary committee hearings in October, all sectors of financial services and all elements of value chains that deliver for financial services customers are likely to come under increasing scrutiny in 2017. This will be so not only in Australia, but globally.
For the broader insurance industry, the intense scrutiny that began for life insurers following the reporting on CommInsure shows that our stakeholders care deeply about our conduct, our cultures and the customer outcomes that we deliver, and should serve as a clear warning for the general insurance industry that we cannot be complacent about our performance on these dimensions or the community perception of our industry.
JASON CLARKE, QBE Insurance Australia, Executive General Manager Intermediary Distribution
Rapid change in the industry shows no sign of subsiding in 2017.
Insurers will enter the year with a renewed focus on client relationships, increasing efficiencies, and managing clients’ emerging risks.
The use of technology, data and analytics will continue to evolve and play a key role in the changing dynamics of the market.
The profitability of insurers and brokers has been affected by global interest rates and the rapidly declining interest rates in Australia. Premiums will increase in 2017 due to the impact of interest rates and the cumulative impact of insurance pricing reductions during the last couple of years, especially in short-tail classes.
Meanwhile, a strong emphasis on innovative products, cover options or general business approach will have insurers focused on upskilling young talent.
It will be more important than ever for brokers and underwriters to work together to communicate clearly with clients about these changes.
DR AMY GIBBS, Digital Communications and Content Strategy Manager, ANZIIF
2017 will be the year we start to see the insurtech hype turn into reality. Artificial intelligence is going to play a large part in the insurance landscape. Chatbots, computer conversation programs driven by AI, which can interact with people indistinguishably from a human will only get better. We will start seeing chatbots being used directly in selling insurance to consumers as digital advisers and brokers.
Digital broking platforms in Australia will also likely start to pop up in the next year. These platforms allow consumers and businesses to store their policies on online or mobile apps where they can view policy details, make claims, benchmark themselves against other businesses and even get AI-driven recommendations on coverage.
As more and more focus is placed on customer data and new forms of business in the media (such as P2P, personalised insurance, usage-based insurance and telematics) customers will begin expecting these sorts of innovations from their insurers. Brokers who can offer their customers access to innovative insurance products (or push insurers to be innovative) will be well placed to deliver on more sophisticated customer demands.
To compete in this changing landscape, brokers should make sure they are agile, online and up-to-date with emerging technologies. Consider making these technological offerings from your own practice, or invest in SaaS platforms that allow you to white label these services. The advantage brokers have in facing digital disruption is that they already understand the value of customer connections, now they just need to take that digital to where customers will be looking for them.