As market middle men the role of brokers has come under fire with re/insurers moving further on down the value chain to access risk directly as their revenue and profitability is squeezed by the softening reinsurance market environment, and with the digital revolution disrupting all industry players, the brokers role in the value chain could see a shift.
Looking farther ahead, the increasingly blurred roles of brokers and re/insurers could create stiffer competition, although brokers have been taking effective measures to improve efficiency and secure their position.
With expansive networks and expertise, brokers have long been an integral part of the risk selection process, providing value to re/insurers and their clients, but the digital revolution is changing the game, offering re/insurers bigger and more cost-efficient platforms of their own from which to select and underwrite risk.
Lloyd’s Chief Executive Officer, Inga Beale, commented on this disruption to the broking industry in a recent interview with BCG senior partner Pia Tischhauser, saying the long-term winner of this increasingly competitive market will be “whoever grasps how to use technology for more accurate risk selection.”
For brokers, harnessing technology will be key to being able to keep value to the clients while reducing costs.
For Lloyd’s, which relies heavily on brokers to bring in business and revenue to its market with over 200 brokers around the world, the question of whether brokers will be long-term winners or losers of the digital revolution has particular relevance.
Beale said; “We rely on brokers. They are our lifeline. They are our sales force. They are our distribution arm.
“At the moment, we’re having this discussion, or question, on where the risk selection is going to take place. Is it going to take place with the broker and perhaps delegated authority?
“Or is it going to take place in the underwriter’s world, as it has traditionally. And that’s where whoever wins that digital world could end up being the long-term winner.”
With 84 syndicates operating within the Lloyd’s market, both competing and collaborating, the question of how to innovate to incorporate the digital revolution is uniquely challenging, but also one that Lloyd’s has to master for the survival of its current business model.
Beale said; “In the center of the corporation of Lloyd’s that I run, we’re all about trying to lead the market to a certain destination. But because there’s a certain amount that’s common and we’re a subscription market, we have to provide certain systems that are central and used by all the players in the market. That’s an extremely challenging situation.
“We’ve got to introduce technology that all 84 syndicates will adopt—plus over 200 brokers that place the business into the Lloyd’s market. Plus if we start to extend it to the policyholders and our delegated authority partners—our managing general agents, or cover holders, as we call them—how can they also use it?
“So we’re talking about engaging with thousands and thousands of firms around the world, and that makes this job truly challenging. It’s not the same as just going through business divisions and implementing technology enhancements or putting in a new system.”
The Lloyd’s CEO said that digital is going to impact the firm’s business model, and as such, one of the oldest insurers in the world is now fundamentally undergoing “a huge digital revolution,” said Beale.
“We’re embracing technology: we’re looking at how technology can assist in the underwriting process, how it can assist in the claims process, how it can assist in transferring funds, and quite important, how we can improve service to the customer, to the policyholder.”
With insurance technology start-ups looking at how to make the chain of risk to capital shorter and more efficient, it’s clear that brokers face a number of challenges going forwards.
As such, brokers should be leading the insurtech wave, as key holders to risk, if they can combine this access to the market with more efficient digital solutions, they could help the market to embrace efficiency, and maintain their position as being able to provide clients with the best market value and returns for their services.
As owners of new insurance technology platforms, brokers could disrupt their own industry in order to keep their spot in the value chain – the future could bring growing numbers of broker and technology startup M&As.