Brokers to lead a shift in focus from risk transfer to risk mitigation

By Fanus Coetzee, CEO: Santam Broker Solutions

Brokers advising businesses and individuals on their short-term insurance cover have a tough job navigating the ever-changing risk environment, and constraints – such as policy exclusions and cover limits – that go hand in hand with the shifting environment.  This complex risk landscape does, however, present an opportunity for brokers to differentiate themselves with a unique value proposition.

Insurers and brokers must learn to balance the tightrope between economic viability and providing effective value-driven cover to ensure the sustainable growth of the insurance industry. To do this, more emphasis is needed on risk management – shifting focus from ‘repair and replace’ to ‘predict and prevent’ with a move from commoditised risk transfer to collaborative risk mitigation as the cornerstone of sustainable, affordable insurance. Without a meaningful change in our approach to risk, brokers and insurers will end up perpetuating the cycle of double-digit premium increases as the industry response to the ever-increasing risk curve. This inflation-plus annual premium increase cycle will only be stopped by making clients more risk aware, investing in risk management, and redirecting premium savings to improve an insured's risk resilience.

According to the latest Santam Insurance Barometer Report, 52% of brokers rate the track record in claim settlement as among the most important considerations when choosing an insurer. I couldn’t agree more, in fact, this number should probably be higher. Price, somewhat surprisingly, only featured 10^th on the list. While price is important, the “best price” should not be confused with the best value policy – it is the quality of the cover that should be emphasised.

The research further showed that 40% of brokers surveyed had changed their insurer recommendations due to price. This is understandable in the current constrained economic market, but brokers should not sell policies based on price alone because clients who go the broker route are generally accepting of a higher premium in return for personalised advice and tailored risk solutions. They recognise that brokers are best equipped to solve the ‘risk management plus risk mitigation plus risk transfer equals price’ equation. If we sell on price alone, we risk our clients being better served by the cheaper direct and digital channels.

But tech has its place in the broker model too; greater use of digital platforms and technology in the broker segment is critical for driving business growth and enhancing efficiencies. The Insurance Barometer found that more than 30% of brokers planned to invest in IT infrastructure over the coming year. Although this was a positive finding, that number should perhaps be higher if we compare it with the almost 80% of commercial and corporate survey respondents who said they wanted more applications and tech-based services from their brokers. The goal is, however, to accelerate the use of technology in the risk management space; this is where insurers should invest more in innovation.

It’s common knowledge that direct and FinTech channels pose a perceived threat to brokers. But the reality is that the barrier to entry for these models is very high and this will buffer their growth in the shorter term; and digitised commercial solutions are still some way off. It’s important to note that these new solutions can be used by brokers too. By way of example, Santam has invested in Ctrl, which is best described as a multi-quote digital adviser for low-value, high-volume books such as motor insurance. It’s still a broker model but is backed by artificial intelligence (AI) and digital technology. The innovation is aimed at offering advice-led insurance and easier quote integration to, for example, motor dealers at the point of sale.

Undoubtedly, the competition between direct channels and brokers will continue. Brokers add significant value in both the commercial and personal lines insurance space, but they cannot lose sight of why clients choose to transact through a broker, and how they deliver against those expectations. We hope to see more independent brokers professionalising their practices to offer risk management in addition to product advice. This would be a major win for an industry where the cost of claims to insurers, and premiums to insureds, is directly correlated to risk.

When dividing their time, brokers must now place greater focus on guiding their clients through the complex risk environment by conducting site visits and providing expert risk management advice. A more granular view of risk allows for accurate pricing and the structuring of hyper-sensitised, hyper-tailored solutions, further enhancing the value of broker-client interactions.

By way of example, if a broker is converting on average 40% of their engagements, it means they’re getting a 60% discount on the advice they provide. There are significant benefits to changing this model over time. Santam has for some time now talked about the importance of monetizing advice so that brokers can invest in their practices to add value to clients through an advice-led offering. We are now starting to see a shift in this area. Some of South Africa’s large national brokerages are investing in expertise by bringing on engineers as they build out their Risk Management Practices (RMPs). These RMPs have developed strong risk management interventions and advice capabilities and are competing in the corporate space with the likes of management consulting firms PwC, EY and Deloitte.

For smaller brokers without the resources to invest in an RMP, there is another advice-led model actively emerging. In this model, the broker works with large commercial and corporate risk committees, and for a fee, develops a risk management programme to help identify and understand risk exposures. As part of the risk management service, they review existing insurance policies to see if they are well-structured and to detect potential gaps in cover.

Going forward, technology, skill and expertise will be critical for future sustainability. Brokers who help clients prevent and manage risks and assist with restructuring policies, will add the most value by moving the inflection point from risk transfer to risk management and prevention. Brokers who upskill and differentiate themselves with a clear value proposition will ultimately triumph in this complex landscape. The shift in focus to risk management is non-negotiable to ensure the sustainability of the insurance industry – and to keep the wheels of the global economy turning.