If you’re reading this, there’s a fair chance you may be having doubts about your current insurance broker. Maybe you’re concerned about the cost and wondering whether it brings value to your business. In these difficult times of steeply rising costs, every line of budget will come under close scrutiny.
In 2017 Statista, global providers of market and consumer data, published a survey on the preferred purchasing channels of commercial insurance by SMEs in the UK in 2015. The survey showed that, over the 3 quarters surveyed, usage of brokers and other financial institutions grew by 16 percentage points to 64.5%, at the expense of direct buying and comparison sites.
By October 2021, a survey by UK insurance brokers FSB Insurance Services found that figure had increased to 75%. Managing director David Perry said that the survey revealed that advice was valued over price, especially in emerging areas such as cyber cover. SMEs were focusing on what their policies covered and there was recognition that insurance is complex. Perry suggested that brokers add significant value to insurance distribution.
On the face of it, that seems like cause for back-slapping and high-fiving, but a survey by hubb brought a sharp dose of reality to the start of 2022. 55% of UK-based SMEs either weren’t sure or didn’t think that their insurance broker provided the most competitive or best quote to meet their needs.
42% said they would change insurance brokers to save money whilst 26% said they would change for better advice. Not so much a fly in the ointment as an elephant in the room.
Here are 5 questions to ask your current insurance broker to gauge whether they’re meeting your needs.
What exactly have you done for my business in the past year?
Do they offer full transparency of your account, in real-time? Itemised billing is widespread in many sectors and clients have a reasonable expectation of a detailed account of what they are paying for. Garages no longer get away with handing over a lump sum servicing invoice and a bag with the replaced spark plugs, and there’s no reason that should be acceptable from your insurance broker – obviously without the used spark plugs.
Hubb believes in “radical transparency” and you can view your account and policy documents online at any time.
How much time is spent on administration?
In their World Insurtech Report 2020 digital transformation leaders Capgemini highlighted that insurance brokers are under pressure to provide an improved customer experience. Executive Vice President Seth Rachlin said “the brokers who are particularly tech-focused are going to see enormous value, not only in terms of their operational efficiencies, but also in their ability to deliver true value-added services to their customers”. He added that low value-added transactions should be fully automated or they are a waste of time for both the customer and the broker.
It’s been estimated that brokers may spend 47% – 63% of their time dealing with administration. On this scale, potential savings are not marginal.
In December 2021 hubb acquired Digital Fineprint (DFP), putting themselves in a unique position to add more value and enhance their customer focus. Chief Technical Officer (CTO) Ulrich Zink summed-up the significance of the acquisition “We believe that the market is ready for true disruption and that usage-based broking is an inherently fairer way for business owners to arrange commercial insurance.”
With the benefit of improved data analytics brokers can add value not only to their customer relationship, but also to their insurer relationships. According to Capgemini, the total cost of risk might reduce and “could go down significantly”.
The acquisition of DFP was against the trend of insurtech funding where a dizzying 54% slump in 1st quarter 2020 was attributed to the Covid pandemic by global brokers Willis Towers Watson in their Quarterly InsureTech Briefing.
Can I contact you online?
In a series of surveys in 2020 global management consulting giants McKinsey & Company found that use of digital services increased by 5% in 6 months. The main benefits of convenience and efficiency were boosted by practical limitations on other means of communication during the first lockdown.
In addition, 20% of UK SMEs said they intended to use digital interactions about their insurances more in the future.
71% of UK SMEs reported a decline in revenues in the same year so that coverage, service and value became the key factors when SMEs considered insurance.
Micro businesses and sole traders were found more likely to embrace digital than small businesses. The Centre For Research & Self-employment (CRSE) reported that gig-based freelancers contributed £20 billion to the UK economy in 2019. The impact of furloughs, working from home (WFH) and layoffs or redundancies has seen a boom in gig, freelance, one-man and micro businesses. As very many of these businesses are digital-based, it should come as no surprise that their owners also want to arrange insurance digitally.
How are you remunerated for your services?
On 1st October 2018 the Financial Conduct Authority (FCA) introduced new regulations to implement the requirements of the European Directive (EU) 2016/97 on Insurance Distribution. In general, insurance brokers receive fees and/or commissions. Fees are paid by the client and must be disclosed before there is a liability to pay them, so that clients should be in no doubt as to the amount or method of calculating them.
However, commissions are normally paid directly to the broker by the insurer. In the case of commercial policies, there is currently no duty of disclosure on the broker and they need only disclose the terms of the commission if the client asks. The significance is twofold. Firstly, there may be a temptation to recommend products carrying a higher rate of commission. For this reason commissions on consumer policies must be disclosed, but not currently commercial policies. Secondly, although the commission is paid by the insurer, not the buyer, a product carrying a higher commission is likely to be more expensive to the buyer.
Do you offer a self-service option?
Usage-based insurance (UBI) is not new and many UBI policies are available. However, usage-based broking (UBB) is still a bit of a novelty. McKinsey & Company highlight the fact that 99% of UK businesses are SMEs, employing 77% of the workforce (November 2020). SME premiums account for over 60% of commercial lines underwritten, yet most SMEs don’t have staff designated to deal with insurance. Insurance advice is clearly valued by the 75% of SMEs that buy insurance through a broker channel. Yet a hubb survey found that 40% complete the renewal process online with no broker interaction. There’s a broad range of commercial insurances available, from compulsory covers like motor or employers’ liability, to discretionary policies. Each has its pitfalls for the unwary, but once set up, many can be renewed or updated very easily. Cost-conscious and value-savvy buyers want the best of both worlds, and the self-service, usage-based model offers exactly that.
The challengers and disruptors are the climate change facing the insurance distribution sector. Access, flexibility and added-value are the solutions and customers are the prize.
Global consultants such as McKinsey & Company and Quadient are already advising traditional market players how to change to avoid being left behind, although McKinsey’s report on positioning for 2030 seems optimistic, given the current pace of change.