Higher-risk environment makes insurance intermediaries indispensable

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The role of an insurance intermediary is rapidly changing. Intermediaries who have depended solely on being able to provide the cheapest insurance quote should be anxious. They are now competing not only with tech-based applications and low-cost telephonic and digital sales channels, but also the more evolved broker who is more focused on the advice relationship.

Andrew Coutts, head of intermediated business at short-term insurer Santam, says that this stronger relationship with clients is proving, in Santam’s case, to add more value for clients, as well as for the intermediary who acts on their behalf.

“Research shows that price is more important than it has ever been, but value remains the most important buying consideration for clients,” says Coutts. “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 he believes the two are inseparable. “For the intermediary, this should be a crucial concept,” he says, adding that the current environment forces brokers to play a more meaningful and influential role in a client’s decisions regarding their insurance.

“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 – direct or indirect, national power failures, load shedding and strike actions could, and do, interrupt business activities. Business owners and managers need to know with certainty whether they will have cover for such ‘unforeseen’ events,” says Coutts.

Not covered

This, in turn, brings about the need for clients – be they businesses or individuals – to understand the extensive details of insurance policies.

“Over time, many insurance policies have, out of necessity, become so finite in detail that understanding what cover they comprise is proving more critical. It is just as important to know what you are not covered for than for what you are.

“It is often 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.

“Clients have to really understand this trade-off,” says Coutts.

The trade-off to reach a compromise between price and risk cover is, therefore, not easily obtained from a standard off-the-shelf product, especially 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 and who will help protect and position them for success in a rapidly changing world,” says Coutts.

The risk of non-physical damage extensions in particular has manifested into something 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 the 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, the insurance industry is unlikely to remain sustainable,” says Coutts.

He says there has to be a shift somewhere and expects that it will increasingly manifest as risk prevention 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 and minimise risk at its source. For example, digital warnings of required maintenance, or alerts of potential hazards, minimise the danger of an incident that would normally result in a claim.

Insurers can, in effect, reward clients who use such technology with discounted premiums, which is preferable over the client reducing the policy specification and insurance cover in an effort to pay lower premiums.

Best value

“The intermediary’s role here is clear,” says Coutts. “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 traditional products in an expanding risk environment.

“It’s all about finding the point of value for the client. Within this space, the intermediary comes into their own. They have to identify and communicate to the client the interplay [of] variables between commodity and risk, which is incrementally more complex and more important.”

He 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 and what is each car used for?

“Every one of these aspects is exposed to variable risks and would eventually have an impact on the premium. The client needs to know and understand the different options, which brings us back to risk-and-advice as a single concept,” says Coutts.

Exploring risks and providing advice is something aggregators don’t do, aggregators being companies that usually provide online services and which 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, 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,” according to Coutts.

Modern broker

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 scenarios and explains that, should a specific event occur, cover under a standard policy does not necessarily translate into a guaranteed claim.

“If a claim is disputed, it is this new-age broker who will be best positioned to defend their clients.

“A broker is, in effect, an advocate who fights insurance battles on behalf of their customers, who are not alone when something goes wrong. Intermediaries help their clients to be certain about 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,” he says.

So what does the contemporary intermediary look like?

Coutts says this broker is tech-savvy, or employs someone who is.

“The modern-day brokerage uses the digital evolution to augment their value with an electronic footprint, which works to enhance and enrich customer face-to-face engagement. The broker consistently manages every policy based on market changes, potential risk influencers, and being able to define those.

“They encourage tailor-made solutions because they view 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 has never been about being the cheapest, but about being able to deliver an accountable value chain of risk-and-advice. We do this through our intermediaries,” says Coutts.

Brought to you by Santam Insurance.

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