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The digital dilemma for brokers

Technological upheaval and shifts in SME buying behaviour show more than ever the need for brokers to deliver high-quality, tailored advice and ensure their role is not swept aside amid a wave of disruption.

The latest Vero SME Insurance Index suggests a new tipping point may have been reached, with 31% of respondents buying insurance through a broker last year compared with 40% in 2013.

The report also records the resumption of a downward slide after a brief respite last year.

Brokers in Australia are not alone in seeing people turn away from traditional sources of professional advice. It’s a global trend that has affected areas including accounting, law and medicine.

On a positive note, the Vero report says clients who do seek advice from brokers are significantly more satisfied than those who don’t.

“The challenge for brokers is to reinforce this perception of expertise and then to translate it in a way that more… clients see their broker as their primary source of advice on business risk,” the report says.

National Insurance Brokers Association (NIBA) CEO Dallas Booth says meetings with the World Federation of Insurance Intermediaries last week also highlighted changing buying habits, increasing use of the internet and the potential for disrupters.

“The thing that brokers have got very much in their favour is that the relationship between the broker and client is traditionally a personal relationship,” he told insuranceNEWS.com.au.

That relationship will become even more important as transactional broking activities are increasingly automated.

“I am absolutely convinced that there is a need and a strong future for brokers, but it will be up to individual brokers to work out the best way of relating and communicating with their clients and then meeting their needs,” Mr Booth says.

NIBA will consider what more it can do around the issues raised, and will pursue discussions with industry leaders.

“We will certainly be urging brokers to look very carefully at this report and analyse how they can apply the findings in their own businesses,” Mr Booth says.

The Vero report shows the decline in using brokers is not confined to the micro end of the SME spectrum, where issues are less complex and the need for insurance is often underestimated.

In the latest survey, 43% of medium-sized businesses, with 20-199 employees, used a broker, down from 59% in 2013.

“This decline is a surprise for many in the insurance broking industry and can be viewed as an indicator of the seismic shifts taking place in the way that businesses purchase insurance and manage risk,” the report says.

Usage of brokers also declined in the “small SME” segment – enterprises of 5-19 people.

Phil Kearns, MD of NSW-based broker InterRisk, says his business has not seen a drop in SME demand, but brokers hear “war stories” from people who thought they were adequately insured through policies bought online, only to later discover this wasn’t the case.

“SMEs need to be really careful about the type of cover they are buying, in terms of whether they are adequately covering their business,” he says.

“The best way to combat the online phenomena is to provide a level of service that means your client doesn’t need to go elsewhere, or want to look elsewhere.”

Mr Kearns says brokers can warn SMEs of potential risks, including emerging areas such as cyber, and provide peace of mind as they help clients navigate the wide variation of potential covers.

“People want to sleep at night,” he says.

Vero provides no silver bullet on digital disruption, but suggests a couple of routes for brokers to follow.

The first is embracing and integrating digital capabilities, such as finding an online model that allows brokers to provide great service to lower-volume customers including micro-businesses.

“There are brokerages that are already doing great work in the digital space, such as using digital platforms and social media,” Suncorp Head of Commercial Intermediaries Anthony Pagano told insuranceNEWS.com.au.

“We would expect this would increase as brokers gain skills and a new generation of brokers comes up through the ranks.”

Barriers to embracing digital solutions include a lack of confidence, training, experience and time, while costs are becoming a smaller hurdle.

Vero also flags the need to reinforce the unique benefits of brokers, including delivery of personalised services and solutions based on a deep understanding of customers and their needs.

Marketing should be built into strategies to ensure brokerages are well known and understood by their target audiences, it says.

While older SMEs may be rusted-on broker clients, people running emerging businesses who are familiar with the online environment can be unaware of new risks they face as an enterprise expands, and are also oblivious to the benefit of advice.

But the same changes that are reducing SME demand for brokers are also throwing up new threats, against which businesses should ensure they are protected.

“Business insurance can be complex and the ability of brokers to tailor the risk coverage for their clients’ needs is, and will continue to be, invaluable,” Mr Pagano says.

“The ability for brokers to effectively communicate the value they bring and to deliver risk advice to their clients is even more vital in these changing times.”

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