Traditional insurance roles fall to the wayside as digital self-service and automation practices become more common. The challenge faced by today’s brokers is to carve out a new approach or become obsolete.
How can this be achieved? Technological innovation forms the launchpad through which the role of brokers can expand to meet the demands of customers through the 21st century and beyond.
The report follows this structure: first, we define the current role, and status brokers hold within society. Second, we analyze the key drivers of customer acquisition. Following that, we perform a market analysis identifying startups creating innovations in the insurance industry. After scrutinizing over 300 of these startups, we extracted key trends.
Our findings indicate that the role of an insurance broker won’t disappear entirely, as clients place a high value on having a human point of contact, but it will have to evolve to remain relevant in a rapidly advancing market. The three most pressing focus areas for evolution are risk assessment and distribution, value-adding services and ecosystems, and automating time-consuming processes.
Insurance broker definition and status quo
Insurance brokers are industry specialists who act on behalf of their clients, advising them on policy and risk management. Insurance agents, on the other hand, are directly employed by the insurance company and work in its best interests.
The global insurance brokerage market is expected to reach $114bn at a CAGR of 5.4% by 2025. The US dominates the insurance industry, with eight of the 10 biggest players being stateside and the remaining two in the UK.
While insurance distribution trends show some variation by region and product, customers are shifting universally towards hybrid purchasing behaviors. This obligates insurers to move from non-direct to omnichannel operating models.
Life insurance between the period 2013 to 2018 remained relatively stable between agents, brokers, and bancassurance. If we focus on geographies, the distribution landscape varies as we observe variations across different geographical markets and products. Brokers and independent financial advisors dominate distribution channels, with bancassurance leading EMEA and agencies APAC. Regarding Property and Casualty, or P&C, insurance, customers differ in preference across the US, EMEA, and APAC, inclining towards financial advisors, agencies, and brokers, respectively.
Transformation of distribution since 2019
COVID-19 has had a severe impact on the distribution landscape. Agents and brokers experienced a sharp decline in physical distribution opportunities while seeing an inversely proportional increase in digital.
Although customers increasingly use digital insurance channels, they give lower loyalty and confidence scores than multi-channel users. To mitigate, these insurers are looking for ways to add a personalized, human touch to their business models and digital user experience.
The main drivers of customer acquisition for personal lines are:
- Simplicity: The ability of brokers to provide easy-to-understand products
- Comparability: Brokers research and compare different insurance options
- Adjustability and customization: Broker’s tailor coverage taking into account the customer’s budget and needs
- Data privacy: Customers are becoming increasingly protective of their data, expressing concerns about potential leaks. To foster confidence, insurers need to provide up-to-date security solutions to safeguard against data breaches
On the other hand, commercial lines customers look for:
- Optimization of risk assessment: Brokers help identify risk mitigation areas and present partners with the insurance options most suitable for their needs
- Reduce cost: Brokers can reduce costs by sourcing different options and negotiating the final price
- Convenience: Brokers can provide competitive policy prices, complete coverage options, and claim services
- Expertise: Customers value a broker’s ability to navigate several insurance options skillfully
The bottom line is that brokers must adopt more sophisticated technology to continue adding long-term value. To do so, successful insurtech companies take three main approaches:
- Customer-first approach: Offering transparency, a simple experience, and pleasant UX
- Build digital-first experience: To address customers' changing needs, AI and ML can best address customers’ needs, simplify the claims process and provide customers with the best pricing
- Social value: This is what the emphasis of insurance should be
Market map and benchmark
We analyzed over 300 startups to extract the major trends in broker innovation
Four main trends have been identified:
To meet modern customers’ demands, brokers must implement technologies that allow them to foster customer relationships and exchange and receive data online. The pillars of innovation within the distribution section of the value chain are:
- Marketplace model for insurance distribution: To automate the policy research process, brokers are increasingly adopting multi-carrier quoting platforms. These platforms offer customers an optimized shopping experience and highly tailored policies. This gives brokers access to raw data they can share with capacity providers
- Data analytics for customer centricity and sales optimization: Analytics technology strengthens the broker’s toolset by automating key processes, including identifying high-value customers, predicting behavior, highlighting up and cross-sell opportunities, and providing highly personalized recommendation
Use Case:Aon has acquired CoverWallet, a digital marketplace for commercial insurance. This acquisition amplifies Aon’s position in the retail insurance market directed at smaller businesses, leveraging CoverWallet’s technology to develop and scale digital client solutions.
Risk assessment and pricing tools:
New technology helps create a seamless quoting experience by collecting data crucial to the risk assessment integration process.
Use Case: Strategic collaboration between Aon and Kovrr to enhance cyber risk modeling capabilities, leveraging the Kovrr cyber risk modeling platform, which delivers transparent data-driven insights into commercial cyber risk exposures.
Services beyond insurance:
Brokers can start building the foundational blocks of an ecosystem by creating a platform and forming strategic partnerships with service providers to use it.
Use Case: Strategic partnership between Willis Tower Watson and Mitiga Solutions to provide leading-edge volcanic ash cloud and sandstorm forecasting to aviation and aerospace clients to optimize air traffic management. This new partnership enables airlines, airports, and associated organizations in both the public and private sectors to predict and mitigate the impact of natural hazards to air traffic management and aviation operations.
Pre/post-sales services automation:
Automating customer engagement, support, and onboarding systems will eliminate time-consuming tasks from brokers' workflow. This innovation allows them to create world-class customer experiences.
Use Case: Strategic partnership between Aon and CLARA Analytics to help reduce workers’ compensation litigation costs. CLARA developed AI and ML-based software intended to provide accurate analytics for insurance companies, and this helps risk managers understand their underlying legal costs and determine the relative efficiency of the defense firms they engage with.
Innovation across all four sectors works to enhance the “humanness” of the industry instead of overriding it.
Customer expectations have evolved to align with products and services. Brokers need to respond to these developments with a digital transformation by building digital-first experiences to address customers' changing needs. The role of a broker won’t disappear, as having a human touch point remains crucial during the decision-making process.
COVID-19 has forced brokers to evolve and adapt by incorporating new communication challenges. Brokers must adopt new and sophisticated technologies (such as data-driven risk assessment) to add value while maintaining a human touch.
Using data to add a further layer of precision to the decision-making process is the first step to creating the new “exponential broker.” This new type of broker draws on a number of automated tools to collect data that will allow them to accurately assess the needs and risks of their customers. Efficient automation enables them to expand their expertise and learn more about their products.
The emergence of new marketplaces represents a major opportunity for brokers to leverage several digital tools, offering even more value to their clients. The sharp growth of investment in insurtech represents the realization of key insurance players that digital is the future.
Plug and Play Tech Center'sMunich, Germany office is situated in a city that's home to a number of large corporations and has one of the most vibrant startup scenes in Europe. As such, our Munich office is the perfect place to grow your company through our Insurtech program.