Intermediaries best positioned to capitalise on a growing risk environment
The role of the intermediary is changing, and rapidly. Those who have depended on being able to purely provide the cheapest insurance quote should be anxious because they are now competing with not only the likes of technology Apps or low-cost telephonic and digital interaction, but also the more evolved broker who is focused on the advice relationship, which is proving, in Santam’s case, to have more value-add for clients and the intermediary that acts on both their behalf.
“Research shows that price is more important than it’s ever been, but value remains the most important buying consideration for clients, ” says Andrew Coutts, Head Intermediated Business, Santam. “While there is still room for price-focused intermediaries, they need to better define their own value point, which is to move away solely from the price element to the risk-and-advice element.”
Coutts has hyphenated risk-and-advice because, as he sees it, the two are inseparable, and for the intermediary this is a crucial concept. “In the current environment, brokers need to play a more meaningful and influential role in a client’s insurance decision-making for many reasons.
“If we look at businesses for example, they are exposed to a number of risks that didn’t exist decades ago, many of which are non-physical. Cyber-attacks (be that direct or indirect, silent or active), national grid power failures, load-shedding, and strike actions, could, and do, interrupt business activities, so our clients need to know with certainty whether they will have cover for such ‘unforeseen’ events.”
This, in turn, brings about the need for clients, be they businesses or individuals, to understand the extensive detail contained within a policy. “Over time many insurance policies have, out of necessity, become so finite in detail, knowing what cover comprises is proving more critical. It is as important to know what you are NOT covered for than what you are. It is argued that the industry should simplify policy wording to make that clearer, and we will get better at doing so, but in reality the ‘hidden cost’ of cheaper premiums equates to less cover, and clients have to really understand this trade off,” says Coutts.
Trading off to reach a compromise between price and risk cover is, therefore, not easily obtained from a standard off-the-shelf product, more so for businesses that are exposed to any number of non-physical risks in their specialist environments. “The question is whether clients can achieve any certainty without an advisor who helps clarify those risks that will help protect and position them for success in a rapidly changing world?”
The risk of non-physical/damage extensions in particular has manifested in somewhat of a conundrum for insurers. On the one hand they cannot know what those may look like, but on the other hand they also want to be able to pay claims, after all that is why insurance exists.
“Obviously risk of non-damage extensions is growing and how we as insurers respond is important. If we take existing products and sell them for ever-increasing higher prices, or offer the same products with ever-reducing risk cover, will the insurance industry sustain? Likely not!
“There has to be a shift somewhere, and that shift will increasingly manifest as prevention risk management gains traction, in other words how risk is managed and reduced over time.”
This is being enacted with digital systems and connected devices through the Internet of Things (IoT) that have evolved to prevent risk at source. For example digital warnings of required maintenance, or alerts to potential hazards that minimise the danger of an incident that would normally result in a claim. Insurers can, in effect, reward users of such technology with reductions in premiums, and is preferable over the client needing to trade off specifications from a policy from an affordability perspective.
The intermediary’s role here is clear. No longer should a broker be responding to a client in the sense of purely structuring a policy on a price basis, or just pushing products in an expanding risk environment. “It’s all about finding the point of value for the client,” says Coutts. “Within this space the intermediary comes into their own. They have to identify, and communicate to the client, the interplay variables between commodity and risk, which is incrementally more complex and more important.”
Coutts provides a simple example. ‘A one-car insurance policy is standard, but what choices do you have if you have three cars on your policy? Not all may be driven regularly, do they have the same or different drivers, how and where are they housed, what are they each used for and how does this impact premiums etc, and each of these aspects are in turn exposed to variable risks. The client needs to know and understand the options, which brings us back to risk-and-advice as a single concept.’
Exploring risks and providing advice is something that aggregators don’t do; aggregators being companies that usually provide online services and will acquire a selection of quotes from different insurance brands, for customers who are responsible for defining their own risk. The algorithms used by aggregators are based on generic underwriting, which is usually so broad-based that customers may be frustrated by rejected claims. This is because the policy isn’t bespoke and nor is there an initial understanding about what IS NOT covered. Similarly, direct insurers driving their price-based offerings do not address the risks their policies do not cover. Policyholders are left to work this out for themselves.
This adds further credibility to the role of the intermediary who is applying the risk-and-advice principle. It is this type of broker who asks the questions a client has not considered. It is the intermediary that presents possible scenario’s and explains that should a specific event occur, cover under a standard policy does not necessarily translate into a guaranteed claim. And should a claim be disputed, it is this new-age broker that will be best positioned to defend his/her client.
Coutts expands: “A broker is, in effect, an advocate who fights insurance battles on behalf of their customer who is therefore never alone when something goes wrong. Intermediaries help their clients be certain on what is covered and ensure they receive full value for their claim. They work 100% to retain a relationship with their client, which is where the intermediary’s true value lies.”
So what does the contemporary intermediary look like? Coutts says that this broker is tech-savvy, and when not, employs someone who is. “The modern day brokerage uses the digital evolution to augment their value with an electronic footprint and which works to enhance and enrich customer face-to-face engagement. He consistently manages every policy based on market changes, potential risk influencers and being able to define those. He encourages tailor-made solutions because he views every client as unique.
“When we talk about insurance good and proper at Santam, we are really talking about peace-of-mind for our clients. It’s never been about being the cheapest, but being able to deliver an accountable value chain of risk-and-advice, and advocacy. We do this through our intermediaries.”