I was recently mandated to moderate a series of focus groups with P&C insurance brokers. In the context of these groups, one of the topics discussed was how brokers would compete with direct writers in the short to medium term. After some discussion, there was a new twist on an old conversation. I’m still trying to understand it. Perhaps you can help.
Price as a competitive necessity ….
Some brokers intend to compete by being open evenings to provide service to those unable to make insurance-related phone calls during the day. Others stated that they plan to be more present on social media. Overwhelmingly, however, brokers mentioned lower premiums as the key to being able to retain customers in the “battle” against the “directs”.
“The price I offer cannot be higher than what the customer can get from a direct,” said a few of the brokers.
But is there nothing but price?
Is price the only variable on which brokers are competing? I challenged the brokers participating in the discussion to think about what they offer other than a competitive price? I asked them to consider what their value is from the perspective of the policyholder.
For the broker channel to continue to thrive and win back some of the market share lost to the directs, it will be imperative for brokers to determine how they will compete, what they will do differently to retain and attract insurance customers.
The brokers’ Strategic Excellence Position …
Any business that will be successful must identify and compete using its strategic excellence position (SEP). An SEP has three characteristics:
- Something of value to customers
- Something that the organization does well
- Something that competitors don’t offer and have difficulty offering.
I asked brokers to come up with their SEP. While many had difficulty identifying one, some suggested that the personal contact or “relationship” they have with customers is their SEP. The ability for a policyholder to call a brokerage and speak with his/her broker was considered by participating brokers as the certain difference between dealing with the broker channel vs going to a “faceless”, “nameless” direct where a policyholder speaks with whoever answers the phone.
So is everything good now?
While these brokers felt confident that therein lies the secret to their future ability to minimize the erosion of market share to the direct writers, one of the brokers participating in the group discussion changed their perceptions.
Up until 18 months ago, this broker had been an agent of one of the directs. He explained to the group that the direct writers are moving to a model where their agents act as businesspeople handling “their own” policyholders. Each of these direct writer policyholders calls “their” agent who handles their file and who goes to bat for them in case of a claim. The only thing these agents cannot do is offer/suggest the product of another carrier.
The insights shared by this former direct writer agent stumped the group. They questioned themselves as to how they, as brokers, would be able to compete in a world of direct writer agents who perform many of the same activities as the broker and who are offering customers a unique contact. Certainly, they also considered the fact that direct writer agents also benefit from being part of relatively large organizations with 24/7 personnel availability, fully integrated client systems, access to correct billing information, etc.
So this is where I need your help….
The brokers left the discussion without having answered the question: What is the broker SEP in a world where the direct writers are mimicking some of the qualities of broker relationships?
What is the answer to the above question? I would love to hear your thoughts.
Sometimes it is difficult to see the forest for the trees. I challenge the brokers in your group to look a little deeper at what they know about their customers, how they can act on what they know, and how they can match that information to risk management information that is sitting in their tool box, to either help reduce insurance costs, provide helpful tips at the right moment or simply educate their customers on what they need know (without even knowing they need to know it). This is a tough time of transition for brokers and those who get in the muck in figure it out will prosper. Those who don’t will watch their book decline.
Brokers will also need to go where the directs do not go. Anyone can write a car and a condo policy. What if the client has a float plane? How will the directs respond to that request?
This is a good conversation. At the end of the day the brokers need to demonstrate real value to people – or as you put it a position of strategic excellence. Some brokers really get this and are more advanced than insurers. These are the ones who don’t attend focus groups but search the world for what is happening in insurance and beyond and quietly build their business. But others will not change their way of doing business in the face of a rapidly changing world. They are in effect selecting to exit the business…..in mid to near term.
As there are many types of policyholdesr this will mean different things to different people. As such, brokers need to learn more about mass customization – creating personalized services for different groups of people.
There are at least three areas of value that I think a broker can bring. The first is navigation skills – how to select the best coverage for his/her policyholder and not necessarily what is right for the brokerage. (For this they will need to be better informed and spend more time keeping up with the changes in the industry as well as be completely transparent with their customer to retain trust.) The second is choice. People are not “consumers” but individuals who like to be empowered and be part of a selection process that is personalized. The third idea is convenience. How can the insurance company make the lives of its policyholders easier? One idea is to be open evenings (as Canada Trust taught the banking industry to do) when people have more time to engage. But increasingly it is to provide real value. Some of solutions here are technology based – where I can speak most about – and others service based.
The big problem with price-based insurance marketing is that, at some point you become about as efficient as you can be. Given that 70-80% of the cost of insurance is for claims and claims adjustment expenses, the way you continue to compete on price is to reduce coverage and/or become more restrictive in your claims practices.
If product quality of an automobile declines, that’s often pretty visible. When product quality of an insurance policy declines, it is not as visible…until a catastrophic claim occurs and financially ruins the insured or whomever they are legally liable for harming.