With tough market conditions providing so little opportunity for growth, commercial insurers are starting to focus on brokers at the more profitable end of the market, either through niche products, or by working with regional community brokers who typically know their clients better, resulting in stickier, more profitable business.
Commercial insurance can be highly complex because it needs to be more specific and tailored to the individual needs of businesses. As a result, brokers are far more crucial partners for insurers in the commercial space than the personal one,” explains Brown, referring to a recent SSP white paper, “Where next on the distribution journey?”. (https://talentedinnovators.uberflip.com/i/550388-where-next-on-the-distribution-journey)
Other insurers are looking at accessing emerging opportunities through UMAs (Underwriting Managing Agents), which have increased in popularity in the recent soft market conditions. The majority of UMAs focus on commercial insurance, and their smaller size and often specialist nature make them more agile and responsive to the broker channel. Brown says UMAs enable insurers to access products or services that the insurer would not be able to provide themselves. This is especially true in terms of niche lines, where the cost of developing specific underwriting experience could otherwise be prohibitive.
Alternatively, insurers may be looking to provide access through a greater number of brokers, but at a lower cost, through the networks and strategic partners underpinned by a technology solution. Networks play a key role in the distribution of commercial insurance, providing value for both insurers and brokers alike. However, insurers must work with a network or strategic partner that is easy to do business with and which offers the most value to their business in terms of greater efficiency, cutting costs and driving profits, rather than simply providing an aggregation of brokers.
While brokers are the dominant distribution channel in the commercial space, they start to lose market share when it comes to SMEs and micro-SMEs, as business owners look to repeat their personal lines purchasing experience in the online space.
Customers are open to using different channels concurrently or along the buying cycle, which means the industry needs to provide a seamless experience and recognise which channels a particular customer chooses to use. In the UK, for example, we are seeing a change in the way business owners purchase insurance, with a 35% increase in direct channel usage and a 22% increase in those who purchase their insurance online.
According to the white paper, while 51% of SMEs are still using brokers for their commercial insurance needs, 28% are likely to change channel at their next renewal date, with over half of microenterprises set to use aggregators.
All of these factors are leading to a more digital commercial landscape, which mirrors the transformation that is taking the personal lines world by storm. “We’re seeing different buying behaviours from consumers who are more aware of the need for cost-effectiveness coupled with transparency, ease of doing business and faster turnaround.
While this increased digitisation of the SME commercial market can be perceived as a threat, there are immense opportunities for insurers who can adopt a flexible, agile and simple approach to meet these demands from the new generation of purchasers. However, insurers should not simply duplicate their existing business processes online. Instead, they need to deliver differentiated customer experiences and engagement by developing a well-thought-out, omni-channel approach for each segment that puts the customer at the heart of everything they do.
With access to such a large number of successful brokers, commercial insurers can make the most of this dominant method of distribution while examining how they can exploit emerging channels such as digital.
The challenge for insurers and brokers is to develop and implement a strategy that explores both the broker and digital distribution channels and enables them to realise their growth ambitions.
Clinton Brown, SSP Business Development Manager