Underwriters can help counter the threat from online insurance platforms by cultivating stronger relationships with brokers, the Australian Professional Indemnity Group’s recent national conference in Sydney heard.

“When insurers put their business online, they lose one of their most effective points of differentiation – their underwriters,” WR Berkley Insurance National Facilities Manager Christian Garling said.

“Unlike online systems, underwriters don’t just produce a premium; good underwriters also create a relationship with a broker.”

With acquisition costs increasing, insurers’ attention is being drawn to the level of brokerage they pay, he told a debate on the threat from online platforms.

If brokers want to avoid being replaced by online systems, they need to add value to clients’ experience so that price is not the only determining factor. And they need to support niche insurers whose business models depend on brokers for their distribution.

Online systems have many disadvantages, Mr Garling says. They lack personal, customised service and can create a culture that is out of touch with brokers.

“Once there is that divergence between the insurer and their brokers then, in terms of broker distribution, the insurer is on a path to extinction,” he said.

“Brokers need to be valued, treasured and cultivated because they are the people generating the business for insurers. For an insurer to outsource its underwriting to a piece of software says they don’t value their brokers and in fact see the broker as an obstacle to business.”

Some industry professionals view the trend to online distribution as the destruction of underwriting, producing less flexibility, more disputes, insurers taking advantage of consumers, mass redundancies as online systems and overseas call centres take over, and the removal of differentiation between players.

“The main filter between an insurer and claims is the risk selection and the terms imposed by its underwriters,” Mr Garling said.

Recent surveys show the emerging impact of online platforms. The Vero SME Insurance Index reports a drop in business use of brokers, from 65% in 2011 to 61% last year.

It says business-owners aged below 40 are most likely to buy direct.

A Roy Morgan survey shows the direct market is making its greatest impact in industries such as construction and professional services.