It’s not exactly a secret that the internet is reshaping the way many people buy insurance, just as it has reshaped countless other avenues of human endeavour in the past decade.
The average consumer today has little hesitation about sourcing quotes and buying a policy online, and brokers are making ever-greater use of online booking systems.
The price, of course, of easier access to ways to purchase insurance has been an increase in the number of business owners, particularly at the smaller end of the scale, who are forgoing brokers and opting to purchase direct. In fact, last year’s Vero SME Index found one in two of the surveyed businesses werebuying all of their insurance direct, an annual increase of more than 10%.
People don’t want to interact with technology. They want to interact with human beings.
Vero’s statistics also show that younger business owners are substantially more likely to follow the direct path, pointing to a generational shift in attitudes that could have enormous consequences for the future of the industry.
As a researcher and consultant on digital economies, Rachel Botsman has given more thought to the role of intermediaries in the
future than most. Chosen as the keynote speaker at last year’s NIBA Convention, her research focuses on how digital technology is disrupting many industries by reshaping the way customers connect with suppliers.
She points to an ever-expanding list of industries that have been shaken up by innovative new entrants; AirBnB, for example, has spread rapidly around the globe by offering a platform that allows travellers to find accommodation in private homes, undercutting the hotel industry. Uber, valued last year at more than $51 billion, connects passengers with drivers in a way that threatens the century-old taxi industry. Similarly, TransferWise has taken on the hitherto impenetrable world of international money transfers by allowing private individuals to trade in different currencies directly. Banks are even being challenged at the banking game, with peer-to-peer lending sites popping up all over the world.
Botsman says there are five key signs of an industry being ripe for digital disruption, including poor transparency, complex client experiences, limited access to goods and services, and broken trust.
But it’s the fifth sign that brokers will be most interested in: redundant intermediaries.
Eyeing the threat
Botsman says the redundancy of an intermediary can be determined by a number of factors. “The first is when, in the past, they have been critical at navigating some kind of complexity,” she says.
“That complexity could be detailed information, or regulation, or a lot of choice to navigate through. But then technology can empower customers by giving them access to the information they need, and suddenly the field is not as complex. That’s one way you see them bypassed.
“The second is when the intermediary is actually inefficient in the process. And if suddenly the customer realises that, through technology, you connect the person with the supply with the person who has the demand. So you can connect the need and the want in a whole new way.”
The intermediaries most at risk, Botsman says, are those offering commoditised services. So where does this leave brokers? It all comes down to their service offering,” she says. “A really good example of an industry that could have been made redundant, but in which some have managed to find a role, is the travel industry,” she says.
“What the good operators there have realised is the value of curation, in terms of the need of a human being to curate the range of options out there. And that’s a really valuable role for middlemen.”
The other area of opportunity for intermediaries to prove their worth is something brokers have been doing for a long time – helping their clients when trouble occurs.
“This is where I think many industries need to put in some thought; at which end of the client spectrum do you offer value?” Botsman says. “There’s not just the sale. There’s what happens after the sale, which is often when people want the reassurance that comes from another human.”
She says for all the disruption digital technology has caused, one of the biggest and most interesting trends has been the way in which old models of doing things have been superseded by new approaches that use technology to allow people to more closely interact with each other, in many cases by allowing individuals to deal with each other directly.
“People don’t want to interact with technology. They want to interact with human beings. But what’s changing is how we find and use other human beings. People in the people business should get that more than anyone.”
Reframe of mind
One of the recurring themes of digital disruption is that established interests have thought themselves immune from the changes affecting other industries. Newspapers, for instance, almost uniformly missed the initial move to online classified ads, forcing them into expensive games of catch-up and severely damaging their revenue streams.
Botsman says she is consistently amazed by how strongly people can believe in the immunity of their industry to change. “For people who want to stay ahead of this, humility is important,” she says. “Someone may think they deliver a high-value service that is protected by regulation, but things change. People also need to be able to recognise their industry may not have all the answers and they may need to look elsewhere for solutions.”
But those who find possible solutions also need a sense of bravery and urgency, she says. “A big difference I see in the mindsets of management in incumbent companies and entrepreneurs is the willingness to launch first and ask permission later. Disruptors get things up and running and use that to prove the concept has traction and that they can protect the public before seeking regulation. Traditionalists don’t do that; they look at regulation first and get told the idea would never work.
Her advice for brokers is to examine every way they add value for their clients and then figure out which ones cannot be replicated by another model or delivery structure, even if it means toppling some sacred cows. Whatever remains on the list is where brokers should focus their efforts, she says.
Picturing what’s next
While working as the Victorian Fire Services Levy Monitor, Professor Allan Fels took a heavy swipe at the way the insurance industry manages its pricing, releasing a discussion paper showing the huge variations in home and contents premiums – in some cases of more than 300% – that different insurers quoted for the same property. He called for a light to be shone into the ‘black box’ of insurance pricing, saying the information asymmetry was stifling competition. A solution, Fels said, would be to provide insureds with information on the insurer’s assessment of their risks.
The pressure to move towards greater transparency is only going to mount, says Botsman. “Any company that is making money off a customer’s ignorance is likely to be in trouble,” she says. “What people are going to expect is a holistic solution aimed at all the risks in their lives, personalised to their specific circumstances.
“Insurance is currently very fragmented, but that’s not always going to be good enough. People will want a proper end-to-end insurance solution. They will tell whoever is selling insurance: ‘You should understand my needs and how I operate in the world. I want one insurance product that addresses all those different risk factors.’”