Insurance brokers offer an untapped potential to increase productivity through the entire distribution vertical. This may not compute for some but here’s why brokers are the key to productivity and efficiency.
Insurance Productivity by the Numbers
Expense ratios, the percentage of premium used to pay all the costs of acquiring, writing, and servicing insurance and reinsurance, are a good measure of insurer efficiency. Expense ratio plus loss ratio equal combined ratio, giving a whole picture of insurer health. One way to look at expense ratio is how it relates to brokers and insurers. The ratios have not changed for years and looks like this:
Yes, it is a yin yang thing. In a broker distribution model, there are two contributors to expense and customer fulfillment. While individual efforts to extract efficiency will see individual benefits, there will also be residual benefits flowing to the other in the best-case scenario. An interesting look at the individual expense components that go into the expense ratio:
Two takeaways include the % of each component is roughly equal for both insurers and brokers and overwhelmingly compensation is the major component. Compensation is paying people for getting things done manually, the only exception being sales commissions paid by brokers.
Between 25% and 45% of all insurance jobs can be automated, so the investment in automation should be both brokers and insurers #1 priority. A Forbes article Tech Experts Predict 13 Jobs That Will Be Automated by 2030, includes underwriters at the top of the list!
The worst implication of either brokers or insurers undertaking innovation without full consideration of the implications for the entire value chain include a) actual results won’t achieve expectations and b) customers won’t respond favorably. More positively, when brokers equally participate in the innovation process, the more likely that expectations will be achieved and customers will respond favorably.
The Results Speak for Themselves
Insurers have been driving innovation to become more efficient and improve productivity. AI, RPA, API technologies have enabled endless possibilities. However, there is a dark side and that has been the tremendous cost of such efforts. A recent interview with an insurance company executive mentions the massive investment for such projects is huge and the title of the article sums it up – “Tech Arms Race Favors Giant Commercial Carriers”.
The cost has forced these efforts to be inwardly focused on achieving the insurer’s objectives. Brokers are considered but haven’t been a priority. The exception to this are insurers trying to get a bigger piece of the broker’s pie by making it easier to to business for them. However, this is met with mixed results as other insurers are trying to do the same thing, making it much more difficult for brokers to juggle so many different solutions. Other priorities include underwriters, adjusters and getting closer to customers.
Historically, P&C insurance has done a horrible job of innovating distribution. The actual expense ratio for the last 10 years shows no improvement:
That said, much more has been invested by insurers in innovation while brokers have been more passive on the innovation front. The biggest challenge for insurers will always be making their solution work for brokers amongst all the other solutions that other insurers are providing.
Insurers should collaborate more with brokers on innovation. However, brokers themselves must become more active in participating in innovation. Ultimately self-interest should propel collaborative solutions. Potentially, brokers can increase pre-tax profit by 117% and insurers can increase theirs by 80% with existing technology.
How to Unlock Productivity Through Insurance Brokers
Collaboration between insurers and brokers can be enabled with a Cloud-native platform underpinned by an automated (RPA) architecture that supports the entire insurance distribution vertical. Imagine every manual task related to quoting, purchasing, issuing, changing and remarketing on renewal can be done in Real-Time. Sharing information on the same platform overcomes current challenges posed by the multitude of solutions and even non-solutions that exist for both insurers and brokers.
Here is what a collaborative platform solution can deliver:
- Enhance the front-end client experience. Using API (both readily available external and custom) through the requirements gathering phase with the customer allows sharing and discussing, amongst other things, property valuations, equipment ACV, hazard sharing for loss mitigation, prior claims experience and driver experience.
- Generic insurance architecture handles all types of products and coverages, together or separately independent of insurer.
- Prefilled data ensures submissions are brief but error free.
- All submissions are complete and once submitted to insurers receive immediate Real-Time response from all quoting insurers.
- All submissions quoted are instantly issued with a bespoke policy without manual intervention.
- Policy changes are quoted and issued in Real-Time without manual intervention.
- Any policy is immediately renewed and downloaded or remarketed without intervention required the same as new business.
Learn how you can tap into your share of this tremendous opportunity. For your own view of the future contact us for a live demonstration.