Insurance broking

Removing friction in a changing risk landscape

With the rapid acceleration in insurtech development, new technology is already shaping customer expectations and business models – from broking to underwriting and claims. McKinsey predicts that by 2030, the role of insurance brokers will have changed dramatically. There will be fewer people required in distribution, and they’ll use technology to efficiently help clients manage an entire portfolio of risk.1

So what does that mean for insurance brokers today?

Primary insurers are facing a lot of economic pressure, with competition from reinsurers and start-ups. So they’re thinking about their cost base, and putting pressure on brokers to be more competitive.
Angat Sandhu

Re-thinking insurance distribution

The traditional insurance supply chain is cluttered with many players. It’s not surprising, therefore, that almost 60 per cent of insurtechs currently target distribution and products – rather than business efficiency, claims management or data and analytics.

“Primary insurers are facing a lot of economic pressure, with competition from reinsurers and start-ups. So they’re thinking about their cost base, and putting pressure on brokers to be more competitive,” notes Angat Sandhu, Partner with Oliver Wyman.

InsurTechs by Subsector

InsurTechs by Focus in Value Chain

Technology makes it much simpler for the re-insurer, for example, to reach a client directly. Every supply chain player needs to continue to offer value, whether through benefits or operational cost savings (such as low-cost claims management), or risk becoming irrelevant in the client journey.

The insurance supply chain

The changing face of insurance customers

While personal insurance is primarily sold through a mix of direct (increasingly online) and a broker, almost all commercial insurance is still placed via brokers (97 per cent, compared with 14 per cent for personal lines). It’s a process that depends on relationships, with an annual discussion about business risk determining the policy placement.

However, that commercial client base for these brokers is changing.

One in five Australian small and mid-sized businesses are now owned by millennials, and they are ambitious, hard-working and digitally-savvy. They expect technology to enable every aspect of their business and insurance advice is no exception. In fact, one in four of those millennial-owned businesses only operate online.2

Sandhu is also seeing this demand for tech-enabled experiences grow, especially among small and mid-size enterprise, and retail insurance customers. “They may want a relationship with a broker, but also expect value and a seamless experience,” he says. “The bar has risen – they want greater convenience and may question whether they need a broker for everything.”

The commercial client base for brokers are changing. One in five Australian small and mid-sized businesses are now owned by millennials, and they are ambitious, hard-working and digitally-savvy.

In 2016, Morgan Stanley predicted 15 to 30 per cent of small business insurance would be sold digitally by 2020 – and that more than 60 per cent of US small businesses would be owned by millennials and Generation Xers.3 In Australia, we’re already seeing insurtechs focus on improving client access (such as Blue Zebra), make claims online (such as Claim Central) or deploy chatbots for client on boarding (such as Flamingo).

Part of the challenge – for brokers and insurers alike – is overcoming the obstacles of legacy platforms that are sometimes older than your prospective client.

It’s concerning that half Australia’s insurance brokers believe they’re falling behind or could do more when it comes to innovating or adapting to changes. According to our most recent insurance broking benchmarking survey, 21 per cent said they had no plans to make a significant change or investment in IT or software systems over the next three years – and more than half were focused solely on investing in their website.4

This will impact broker valuations in the longer term. Although it’s currently a seller’s market – we’re seeing multiples of between seven and eight times EBITDA for strongly performing businesses – it’s only progressive brokers who are already using technology to give them an advantage that will be able to sustain those valuations in the longer term.

Towards collaborative innovation

Rather than thinking about the next wave of change as ‘human versus machine’, there’s opportunity to find new ways to remove manual administrative processes, by seeing it as human and machine. If brokers have more time for client advice and claims support, they can scale without adding more resources.

We expect data collection and analysis to be the next frontier. Data collection for underwriting can be a significant friction point for clients – but ‘big data’ offers the potential to provide more sophisticated insurance products and advice, while also simplifying insurance delivery. The explosion of data available from wearables or connected devices could see the domestic or retail insurance offerings become more proactive – predicting and preventing events, rather than financially repairing the situation.

Rather than thinking about the next wave of change as ‘human versus machine’, there’s opportunity to find new ways to remove manual administrative processes, by seeing it as human and machine.

Artificial Intelligence (AI) is expected to reshape claims, distribution, underwriting and pricing. New commercial risks – from cyber-security to driverless cars or a robotic workforce – will demand new insurance products. Sandhu says he’s seen one broker work with a corporate client to provide sophisticated modelling. “With advanced weather pattern modelling they can better understand the business exposure to risks and inform hedging strategies.” As a risk management strategy, it’s highly valued by the client and a true differentiator.

Insurance, at its core, is the deployment of capital for an ultimate risk. Those risks have already evolved – and so has the way capital can be deployed.

The new insurance landscape

Opportunities to thrive

Align your experience with client expectations

You may think you know your customer base. But could you be missing out on an untapped market? Australian businesses are underinsured – with 13 per cent of small to medium enterprises completely uninsured.5 By making the experience simpler and more accessible, you could fill that gap – especially for the growing number of millennial-owned businesses.

Make the most of your data

“Insurance works better when you have visibility and control,” notes Sandhu. Digital businesses know their client data is one of their most valuable assets – so make sure you have a secure platform to store and analyse data, and turn it into insights that can help your clients make smarter, easier decisions about their risk management.

Look for positive tech partnership opportunities

Insurtech is making incremental improvements to legacy systems rather than complete transformations – and that’s why incumbent providers are investing in start-ups that can integrate with their existing platforms, remove traditionally clunky processes, and enhance their products or experiences.

This partnership approach is win-win, because commercial insurance is complex and those start-ups need distribution. For brokers looking to outsource innovation, an insurtech partnership could move the dial significantly on client experience.


A strategy for growth

Businesses are operating in a completely new landscape, dealing with uncertainty, volatility and an accelerated momentum of technological change. And that may mean re-thinking the way you define your strategy.

In 2000, McKinsey defined three horizons of growth based on the maturity and relative risk of different types of projects.^ We believe this is a useful way to describe the three growth initiatives that will need to happen concurrently in order to sustain business growth in this changing business landscape.

What are the three horizons of growth?

Re-frame your perspective

This is a time of opportunity, not threat. We believe business owners are in a strong position to thrive.

To grow sustainably and profitably, it’s important to acknowledge that traditional rules no longer apply. Business models have been democratised and boundaries have dissolved. Customer expectations are driving the pace of change.

Consider your innovation model and mindset, the broader business ecosystem you can tap into, and the capabilities you need to put in place.

We trust you found this report informative and insightful, and we’d be happy to continue the conversation with you.

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