For the general insurance industry, 2018 has been a year of recovering revenues for insurers and growing uncertainties for brokers. While insurers in Australia have led the world in raising premiums after a long period in the doldrums, brokers are moving into 2019 with the twin threats of competition and hostile regulatory action hanging over them.

For insurers, 2018 was also about reshaping their strategies, cutting out layers of management to improve efficiency and setting up new ways of growing closer to their customers. IAG and Suncorp are already well advanced in this, and QBE and Zurich have more recently followed.

What’s that all about? Two words: insurtech and retention.

Technology has developed to the point where new systems can simplify insurance sales processes. The major insurers see that building and maintaining closer relationships with customers, in the direct and SME spaces in particular, is within their reach.

Many insurtech developers, which just a couple of years ago were seen as a threat from outside the industry, are now working with insurers on innovative products that have the potential to “personalise” policies in ways that create long-lasting mutual relationships.

We are likely to see some of these products enter the market in the next year, and the pace of change in the SME and direct markets is likely to step up as more efficient and intelligent products are introduced.

For brokers focused on the SME market, the challenges such developments will bring should be obvious. Brokers will continue to play a part in the insurers’ innovation strategies, but the established ways in which they relate to insurers – and insurers relate to them – will inevitably come under pressure.

At the top end of the broker market, consolidation will continue – where it can. The takeover of specialty broker JLT by Marsh in September to create a more flexible global brokerage is a case in point. Locally, JLT brings to Marsh a range of highly developed specialty services that will greatly expand its market opportunities.

Marsh is also a player in the SME space, which in itself reflects the intensity of broker competition at the large corporate end of the market, and increasingly in the middle market.

While smaller brokerages in the Australian market have been growing through mergers and acquisitions over the past 10 years, are they big enough yet to avoid becoming a takeover target for their larger competitors?

Scale brings with it efficiencies and the ability to adapt more readily to a rapidly changing marketplace. It also emphasises a need for more focused market strategies and investment. Many senior brokers have told insuranceNEWS.com.au that 2019 may well see a surge in the number of middle-sized brokerages merging.

What about the smaller brokerages? Most are now securely ensconced in groups such as Steadfast, Austbrokers, IBNA and PSC. While some have built their businesses on specialised lines of business, many – if not most – have also developed their own networks of authorised representatives, with participants ranging from highly experienced brokers to small operators with equally small client lists.

The pressure points for smaller brokers that play solely in the SME market are many and varied, and the greatest pressure in the next year is going to come from the fact everyone wants a slice of the SME market pie.

The SME market is now a battlefield. It’s becoming even more commoditised, and insurtech will give direct insurers the ability to offer more specialised and sophisticated products.

Consider this: the risks faced by a corner store or restaurant, for example, are pretty much the same as any other. Technology is already at the stage where machines and their algorithms are capable of making clear and concise recommendations on risk products for common small businesses – even to the extent of including variations.

So, to retain their foothold in the SME market, brokers will also have to become more sophisticated – particularly in the way they exploit the one feature where they continue to have an advantage: advice.

There’s no denying that deep and professional knowledge about risk transfer and management is going to be more important to brokers than ever, and 2019 will be the year when all insurance brokers must get serious about acquiring it.

But is the level of qualification required of brokers by the Australian Securities and Investments Commission (ASIC) enough? Senior brokers say it’s not. They also say the level of education on offer for brokers isn’t sufficient. As the insurance business becomes more complex and the SME market more demanding, brokers need more technical knowledge – and ways to continually update it.

That would particularly be the case if brokers were forced to charge their customers for the advice they provide. Because the deepest shadow cast over them as 2019 arrives is not from technology but from ASIC, which has made very clear its opposition to insurance brokers being paid commissions to sell insurers’ products.

The present system may be the most efficient – and for the buyer, painless – way to pay for services, but the regulator sees commissions and other payments from insurers to brokers as open to abuse. The debate over commissions has been raging for at least 30 years, but it nevertheless will be the second front in the brokers’ 2019 battlefield.

Brokers are well equipped through the National Insurance Brokers Association to mount a strong case in favour of commissions, and there are now several listed broker companies that may need to add their considerable muscle.

With the Hayne royal commission providing a compelling impetus for change, the issue has never been as front and centre as right now.

For brokers 2019 is going to be a challenging year and change in many forms is increasingly inevitable. In business, change is usually positive, but not necessarily if it’s only change for change’s sake.