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BusinessDay www.businessday.co.za Tuesday 30 January 2024
INSIGHTS
INSURANCE BROKERS Sponsored content
Brokers: stay relevant in an evolving industry This requires •offering risk
management as well as product advice, writes Lynette Dicey
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he role of insurance brokers has been complicated in recent years by a number of factors including new technologies and industry and regulatory changes, which have combined to disrupt the traditional status quo. Some insurers are starting to bypass brokers as they move towards digital distribution, increasing the competition between direct channels and insurance brokers. Industry stakeholders point out that although technology is playing an important role in improving efficiencies within the insurance sector, brokers still have an important role to play, particularly in a tough economic climate. Rather than focusing on price alone, brokers need to be adding value through strong risk management capabilities. This school of thought was reiterated in the 2022-2023 Insurance Barometer research conducted by Santam. Writing in the report, Andrew Coutts, CEO of Broker Solutions at Santam, said that “without a meaningful change in our approach to risk, brokers and insurers will end up
/123RF — PERHAPZZZ perpetuating the cycle of double digit premium increases as the industry response to the everincreasing risk curve. This inflation-plus annual premium increase cycle will only be halted by making clients more risk-aware, investing in risk management and repurposing premium savings to improve insured’s risk resilience.” He added that more emphasis on risk management is required, with the focus shifting from “repair and replace” to “predict and prevent” with a move from commoditised risk transfer to collaborative risk mitigation as the cornerstone of sustainable and affordable insurance. It appears the shift is already happening. Close to half (45%) of the brokers surveyed for the report revealed that they are spending more time on providing expert risk and management advice and 80% said that they are conducting a risk assessment site visit. Karen Rimmer, head of Distribution: Insure at PSG, says both insurance companies and their clients are under financial pressure. Reinsurers and
insurers have faced huge losses in the past five years as a result of the Covid-19 pandemic, riots, flooding and the energy crisis. Insurers have increased their premiums due to increased rates from re-insurers. Clients, on the other hand, are battling a cost of living crisis and high interest rates. To reduce their expenditure, many are considering cancelling their insurance products or making changes to reduce their premiums. This situation, she says, is impacting brokers. “Brokers obviously want to retain their clients and keep the insurance cover in place. This means they need to spend more time on each client, ensuring they receive appropriate advice on the cover they can afford. They have also had to accept their bargaining power with insurers, particularly as far as price is concerned, is limited, based on the financial pressure insurance companies are facing. “Insurers are focused on stabilising their business and reassessing their structures and processes. While they do realise the challenges faced by their
brokers and value the relationships, this is not their primary priority at this stage.” Interestingly, Santam’s Insurance Barometer research revealed that price, while important, is not the biggest priority for brokers. The top three reasons why brokers select a particular insurer is based on the track record of claims settlements (52%), the support provided to brokers (32%) and ease of doing business (32%). Price featured 10th on the list of priorities. Brokers are also being challenged by rapid changes in the risk environment. Rimmer says insurers have reacted to these changes by making amendments to their policies for grid failure, power surges, certain vehicles and Sasria cover. They have also become much more cautious in terms of the type and amount of cover they are prepared to offer clients, even going so far as to walk away from certain geographical areas that pose a greater risk. This means brokers are not always in a position to get cover for their clients, or the
premiums are very high. “Staying abreast of these changes and ensuring clients understand the risk, the cover provided and the terms and conditions of each policy, is a huge challenge for brokers,” she explains. “The increased complexity means there is a greater risk of errors being made which can, in turn, lead to claims from clients who have not received appropriate advice. This places a heavy burden on brokers to ensure their advice is documented and signed off by clients.” Ultimately, says Rimmer, it is not the broker model which has changed as much as the responsibilities and the way in which brokers interact with clients and product providers that has changed. “There is a huge need for insurance advice, so the threat is not the role, but rather the competency of the individual fulfilling the role. The biggest threat therefore is becoming irrelevant. Brokers have to ensure they remain relevant and that requires they offer risk management as well as product advice.”
Successful relationships are built on trust and solid advice Not only is the risk universe constantly evolving, but it is getting more complex than ever. According to the latest Santam In surance Barometer Report 2022/2023, the top risks identified by personal lines insurance brokers including load-shedding (71%), economic challenges (62%), societal issues (43%), political risk (29%), accidental loss/damage to home, vehicle and property (26%), unemployment (26%) and climate change (22%). Commercial lines brokers have a similar view, also viewing load-shedding as the biggest risk at 57%, followed by motor vehicle theft or accident (28%), economic downturn (28%), climate change (24%), degradation of infrastructure (23%), theft (18%), political change/ social unrest (13%) and fire (11%). In this environment, the role of the insurance broker is more critical than ever before to provide clients with advice on how to mitigate risks. Karen Rimmer, head of Distribution: Insure at PSG, says the onus is on the broker to understand the specific and unique needs of each client and offer appropriate solutions. “When necessary, they will reconsider their portfolios to
Karen Rimmer … capacity. ensure they have the necessary capacity to provide the required service to all clients.” At the same time, she adds, they need to stay abreast of policy, industry and regulatory changes and ensure a good relationship with their product providers. This may lead to choosing preferred partners.
THE ONUS IS ON THE BROKER TO UNDERSTAND THE SPECIFIC NEEDS OF EACH CLIENT AND OFFER APPROPRIATE SOLUTIONS
“Successful insurance brokers need to have a solid and trusted relationship with their clients. This requires they run their practices in a way that allows them to spend the majority of their time seeing clients, leaving their office staff to handle administration. Increasingly, successful brokers are acting as risk managers for their clients, rather than just selling a particular product. As insurers put more terms and conditions in place to limit losses, brokers have an important role in ensuring clients understand these conditions and uphold the requirements so that claims are not repudiated.” In recent years there has been much attention given to the role of technology, artificial intelligence and insurtech, and the extent to which these new technologies will replace human brokers. Rimmer believes that while insurtech has a place, it’s not a serious threat to the role of the human broker. For brokers to remain relevant they must stay abreast of the rapid industry changes and adapt their operational model to remain profitable. “All the different role players need to work together to ensure the success of the industry,” she says.
OUR BROKER PARTNERSHIPS PLAY A VITAL ROLE TO THE SUCCESS OF OUR BUSINESS Old Mutual Insure recognises the pivotal role brokers play in our clients’ lives, particularly when unforeseen challenges arise. We acknowledge that choosing a non-life insurer is more
“NOT all good things come to an end.”
than a decision, it’s a choice that profoundly impacts the lives and businesses we serve. That is why our ongoing commitment to broker partnerships is built on trust, care, and excellence. Beyond providing customised insurance solutions, we assure you that our reliable specialist brokers safeguard your interests every step of the way.
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