By Neil Huzinga, Founder & Owner, Arun Bay Ltd.
Toronto, ON (Apr. 17, 2018) – Looking back over the last 15 years of evolution in the personal lines insurance market in the UK, there were clear waypoints where decisions were made, actions taken that shaped how British consumers prefer to buy their insurance today.
Sure, one of the biggest changes was brought about in 2003 with price comparison sites coming online and while their eventual mass appeal almost had an air of inevitability about it from the get-go, the rest of the supply-side had to adapt quickly to the on-going consumerisation of insurance to ensure its own survival.
If you take the cycle back to the late 80s, with the advent of the UK’s first direct insurer, the march of the consumer away from valuing advice from a trusted broker was, at first, slow. It gathered pace through the 90s, so that by the time of the arrival of comparison sites in the mid-2000s, the UK consumer was already well-primed to trade advice and guidance for paying the lowest possible price.
If we examine that period between 1985 and 2003 and the move by insurers into the direct space, there are parallels that can be fairly directly drawn with where the Canadian personal lines market is now.
Insurers invest ahead of, or in order to respond to, macro-market changes …
Traditional insurers, reliant on intermediaries marketing and selling their products, began very carefully and sensitively positioning themselves closer to the consumer. Affinity schemes sprang-up – affiliations with customer and fan bases of sports clubs, teams, motor manufacturers and lending institutions all gave insurers legitimate cause to be the sole point of contact for consumers when buying insurance.
Did it go unnoticed by brokers? Absolutely not and there was righteous indignation at the thought of a trustworthy partner moving in on their territory.
Did it stop insurers in their tracks? Absolutely not.
And this is where we are in the Canadian market in 2017/18. Slowly but surely (not so slowly in some cases) insurers that have been the mainstay of the broker market for decades, are forging closer alliances direct with consumers. Whether it’s through marketing affiliations like national sports teams, or by asymmetrical product offerings between what is made available to brokers and those direct to the consumer, insurers are gradually making their way closer to serving the end customer directly without the need for any third-party interaction.
Setting aside the emotional arguments around loyalty and betrayal for one minute, this is a perfectly natural and expected step for insurers to take. In their daily lives consumers are becoming ever-more accustomed to running their affairs themselves and, more often than not, from the palms of their hands. Insurers, wary of losing market share to competitors, want and need to be in the space the consumer is moving towards. That’s one reason why they have invested hundreds of millions of dollars in tech start-ups and a more customer-focused digital experience. Why would they put that investment in the hands of brokers when they can deliver those propositions themselves?
This may seem like a terminal prognosis for brokers, but if you read between the lines, and going by the experience of the UK market, opportunities abound, albeit perhaps in different places from where they existed previously, or even now.
… But there’s no guarantee they’ll get it right
The experience of the UK market has shown that insurers very often think that going direct is a sure-fire, straightforward way to mop-up the margin currently being spent on intermediaries, while also gaining direct ownership of a highly lucrative, long-term customer base. However, many insurers discover to their cost that dealing with naïve (in insurance terms) humans is not quite as simple as they thought, and they often end up either making a poor job of it or, even worse (paradoxically), pulling back out of the direct space.
Why would their retreat from the direct space be bad news for brokers? By the time insurers put together their consumer marketing campaigns and get their direct arms up-and-running, customers become accustomed to seeing a new face on the billboards, TV and radio channels. Where previously some customers would never have thought twice about by-passing their trusted insurance broking professional, with the lure of bright advertising promising great service and great products at lower prices all from names they “trust”, their heads are turned.
That head-turning is enough for some, regardless of the post-sale experience with the insurer, to change their ways for life. Where before they would only ever have considered trusting a broker and the valuable advice they give, for some, getting hands-on and feeling like you’re getting a good deal as a result is enough to change their behaviour irreversibly. Of course, for others, the opposite is true – once they’ve experienced poor service from an insurer they can’t wait to get back to a broker – and likely stay there.
When customers sneeze, we all catch cold
Unfortunately though, history has shown that the numbers aren’t, generally speaking, on the brokers’ side.
The vast majority of insurance customers have pretty straightforward insurance needs. What played out in the UK is that those with all but the most complex requirements could happily find a home “direct” in one way or another. By way of example, in the home insurance market only around 5% of homeowners make a claim in 12 months, and only a fraction of those are likely to experience poor service, so the opportunity for customers to have a genuine grievance against a direct insurer is, in the grand scheme of things, pretty small. The likelihood of customers turning back to their broker once they’ve left is therefore also remote.
So where’s the good news?
Firstly, and most simply, not all insurers prove themselves to be much good at dealing with customers, and negative word-of-mouth will put some customers off from looking to go direct at all, at least for now.
Secondly, not everything that an insurer says or offers in its marketing will appeal to everyone. You’ll likely find (as is already the case with some) that their initial marketing campaigns will portray them as offering something up new and exciting that you, as broking professionals, know has been written into policy wordings for decades. Some customers will see through that, some won’t, but at least that gives you something to focus on with your own campaigns.
Next, even though a foray into direct customer acquisition may become the focus for many insurers, that doesn’t mean that they will suddenly view the contribution that brokers make as worthless. Many will offer you different products or different ways of working with them so that you continue to play important roles to each other. It is in these areas where the most significant, exciting and longest-term opportunities lie.
If you accept for a minute that those customers who have the most straightforward needs are very likely to find an appropriate home with a direct insurer over the coming years, how can you ensure that you not only keep, but become known for, looking after those who have needs that are slightly out-of-the-ordinary?
It’s very likely that for the next several years insurers’ own direct propositions will focus heavily on the low-hanging fruit of the mass market of “straightforward” customers, as changes to large legacy systems and processes to deal with more complex customers will be beyond the appetite of most.
However, on a smaller scale, as brokers, huge corresponding opportunities lie in being able to look after those more “niche” customers. As insurers become known for looking after the simple stuff, they actually polarise the market by stigmatising those who can’t be catered for by their cookie-cutter processes. Where do those customers who now feel left-out by the mainstream go? Why shouldn’t it be to the brokers who have provided fantastic service for many, many years?
The invisible friend working to help you …
There is another invisible influence being brought to bear in the Canadian market. Many of the top ten insurers are led by individuals who have first-hand experience of working in markets where control has effectively been ceded to price comparison sites (aggregators). Many of those individuals are from the UK, where the pricing transparency brought to the personal lines market by the aggregators has commoditised it to a point where consumers have seen premiums drop by more than 50% over 10 years, and still rates continue to fall. Struggling to maintain any kind of market share, profit is, in those lines, almost impossible for insurers to come by.
Conversely, the Canadian personal lines market is still, by-and-large, a comfortably profitable one for insurers. You can therefore be sure that they will be fighting with every breath to keep it that way. So, while there will undoubtedly be a shift into the direct space, those insurers will also fight a desperate battle to keep price comparison sites at bay. This is an incredibly important battle they are fighting not just for themselves, but on your behalf too.
If you think that a market with a greater direct insurer presence is something to dread, dealing with a proliferation of price comparison sites dwarfs that threat by comparison. Current experience shows that it is not a fight that any insurance provider, whether insurer or broker, is going to win.
At least in a market where there are just two sources of product – insurers and brokers – regardless of a shift in distribution, you have the chance to create a sustainable, growing, profitable niche. You should take the opportunity right now, fight as hard as you can to assert your identity with customers, and enjoy the profits that it will bring.
About the Author
Having co-founded and recently sold InsurTech pioneers, Avantia Insurance, Neil Huzinga is the founder and owner of Arun Bay, working alongside smaller insurance brokers and agents in Canada and the UK on both day-to-day and strategic decisions.