The broker of the future: digitalisation offers real added value
Looming regulation by policy-makers, automation of their business processes: insurance brokers are under pressure, especially when it comes to the field of occupational pensions. But if they go digital and leverage their expertise, they can secure their survival or even strengthen their position.Learn more about the future of Insurance in our white paper
Insight in brief
- Digitalisation and automation of processes
- Cost-efficient service requires an efficient IT infrastructure
- Insurance brokers should become risk consultants
Insurance brokers play a pivotal role. They mediate between insurers and customers in the almost impenetrable undergrowth of quotes, thereby helping to find the right model to meet individual needs. In the field of occupational pension schemes, brokers mainly work for companies wanting to park their employees’ pension fund assets in a collective or multi-employer pension institution. As a result, they occupy a key position in the insurers’ distribution and operating model.
The brokerage model commonly used in this area has come under criticism for some time now. In this model, the employer engages the broker to find a suitable institution – but it’s the institution that pays the broker. These costs are indirectly passed on to employees, according to criticism in a parliamentary ‘interpellation’ (procedural request to the government for information) alling for a change in the law. Regulation is now pending – although it remains doubtful whether it will lead to a better functioning brokerage market.
Digitalisation of requests for quotes
The sector should take the political Sword of Damocles hovering over its head as an opportunity to fundamentally rethink its own business model. After all, the Federal Assembly is not the only source of danger for the conventional broker system. Digitalisation is also revolutionising the sector. The Sobrado platform, for example, developed by innovative occupational pension institutions, is massively simplifying the process of gathering quotes. Whereas brokers previously used to obtain quotes manually by email or phone, the request is now sent automatically to all networked providers.
This platform threatens to make a central brokerage service redundant because Sobrado is so easy to use that customers can even obtain quotes themselves. Larger companies in particular, which sometimes have an in-house broker with occupational pensions expertise, can then compare the quotes themselves and dispense with external brokers. And it’s no different for the insurers: if they connect their digital quotation system to Sobrado, they can automate practically the entire process.
Consolidation in the brokerage sector
While large companies will tend to reduce the number of human brokerage services they use in the future, the beleaguered sector will be offered an opportunity in particular by SMEs. They are under cost pressure and are continuously cutting back services outside their core business – such as their own occupational pension specialists in HR. If brokers move away from the digitalised brokerage process towards the daily business of occupational pensions administration, they can fill this gap. However, there is one condition: they will have to upgrade.
Today’s brokerage sector is dominated by small operations with a handful of employees. It’s going to be difficult for them in future, because running HR administration today demands a powerful IT infrastructure. It’s the only way that internal changes such as staff turnover, or administrative changes such as new addresses, can be managed professionally. If you try to do this by email or phone, you will not be able to offer a cost-effective service. But investing in this sort of IT upgrade can quickly run into six- or seven-digit amounts. Only larger brokerage firms with more than 50 employees and a corresponding volume of business can afford to do this.
The way forward for small firms: consulting
Wanting to stay small doesn’t mean throwing in the towel, however. Even though brokerage will become increasingly automated, brokers still have unique risk management expertise. They are familiar with the needs of their customers and know that a start-up with a handful of young employees needs an entirely different bundle of insurance policies – including policies beyond occupational pensions – than a craft business with mainly older employees. But brokers would do well in these cases to wean themselves off the brokerage fees that have come in for political criticism. Instead, they should charge by the hour for their services. Ultimately, they are no longer brokers, but risk consultants.
The digital broker of the future
Brokers can provide real added value as a pivotal interface between customers and insurers. However, this will demand a systematic focus on their core expertise and significant investment in the end-to-end digitalisation of their business processes.