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No holding back: it’s tech time for brokers

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Brokers are set to adopt technological innovation at a faster pace than has so far been experienced as the relatively buoyant insurance market provides them with a stronger foundation for investment.

A new report from Macquarie Bank suggests there is already a growing sense of urgency, with companies scared of being left behind as innovations make transacting business easier for customers in a range of sectors.

Higher-performing broking businesses are already taking advantage of opportunities, but for many the challenges are daunting.

Brokers in general are scrambling to determine which from a large range of tech options will deliver the best results, even as they realise it is time to take the plunge.

“There is this constant discussion around insurtech, there are regular pieces in the press about what technology can do for customers, and they are looking at the future for their own businesses and saying, ‘If we want to be successful, what is it going to take?’ Macquarie Business Banking National Head of Insurance Eoghan Trehy told insuranceNEWS.com.au.

An online survey of 194 brokers for the Macquarie report finds 79% are uncertain what to invest in, while 77% say knowing how much to invest is a key question.

Keeping abreast of technological change is identified as an emerging challenge by 84% of respondents.

The focus on technology comes as brokers in general are prospering, with revenues rising in a hardening insurance market that may still have some way to run.

Average revenues grew to $2.51 million last financial year, a 5.4% increase on two years earlier, the Macquarie report says. Average profit margins edged up to 23.8% from 23.2%, while 30% of respondents had margins above 30%.

“It is a perfect time for them to think about what else they should be doing to future-proof the business and just try a few things,” Mr Trehy says.

“It doesn’t have to be big and it doesn’t have to be costly.”

He says responsibility for technological change and innovation doesn’t need to fall exclusively on the older-generation owners of broking businesses.

“Empowering the team is going to be the key to actually embracing the change. It doesn’t have to be on the person who owns and runs the business.”

The survey shows six core drivers mark the difference between higher-performing brokers and others: investing in technology; willingness to act in uncertainty; streamlining operations; harnessing data; focusing on innovative offerings; and using technology to improve the client experience.

High performers are defined as having financial-year revenue above $1 million, profit margins of more than 30%, revenue growth last year and a commitment to continuously driving innovation.

The “profile of a higher performer” includes median gross written premium of $16.5 million, compared with $6.3 million for others, and an average margin of 37.5% compared with 20.5% for others. They are also 91% self-licensed, while 78% are multi-partner businesses.

The survey finds 50% of higher-performing insurance brokers are investing in technology and 41% in broking systems, compared with 44% and 24% respectively for others in the sector.

Typically, they are looking to simplify or automate various functions and free brokers to spend more time working with clients and providing advice.

Looking ahead, brokers see challenges from increased price sensitivity among clients and heightened competition and regulatory intervention.

“The level of concern is remarkable for an industry with healthy margins and a history of strong revenues across economic cycles,” Macquarie says.

“Clearly, many insurance brokers believe change could be just over the horizon.”

More than 80% of respondents nominate increased regulation and compliance as key issues to be tackled.

Macquarie notes these are “hygiene factors” – a cost of being in business that is important but difficult to influence. Technology and innovation, on the other hand, are within the grasp of individual businesses, even as they face uncertain times.

“In other industries, the impact of technology has been profound,” Macquarie says. “First movers and fast followers are likely to lead the way, building a business that can withstand change.”

The survey confirms that higher-performing brokers are already setting the pace and more businesses are weighing their options. The long-predicted winds of technological change are blowing more strongly around insurance broking.