I was looking through old customer comments recently stored on our system and one stood out:
“I can’t close because the customer is buying on price even when the cover isn’t right for him.”
This came from an insurance broker in specialist lines business – that means he wasn’t dealing in something really commoditised like private car policies, but a class of business where a smattering of knowledge could go a long way.
It could be that he’s just a bad salesperson – some brokers are still of the opinion that the market still walks in their front door year after year rather than heading to the perfect information of the Internet.
But I think it’s a deeper problem that needs to be addressed now if the general insurance intermediary is to survive.
For those who don’t know, the insurance industry in the UK for “normal” business (i.e. your premium is calculated based on some rules and variables with a smattering of seller adjusting) is conducted directly with the insurer (think Direct Line) or via brokers. Insurers will give you their rate, often discounted as middleman fees are removed, and brokers will give you rates from a number of insurers, earning their money from a commission. Since the rise of the Internet and direct sellers, the consumer has been educated to buy on price alone.
The broker has the run of a few insurers and often negotiates special rates for individual niches, so they’ve often been able to work well in this model. Volumes of business have increased, particularly as aggregators send firehoses of leads in. Brokers have been given better and better technology with insurers publishing rates on extranets rather than paper rating guides. Everyone’s been reasonably happy.
But.. few seem to notice that as the demand for computerised rates increases from insurer to broker, two deadly fronts are advancing on the intermediary.
1: Computerisation of all rates closes the gap between intermediary sales and direct sales
If I’m an insurer and I’ve invested a ton of money into computerising my rates, covernotes, documents, MTAs etc – I’m going to eventually start to wonder what it will take to put an online interface to the public, under my own brand or a broker I happen to own. I lose my distribution chain of an agency network, but I gain a bunch of commission, control and negotiating clout.
Imagine computing power in twenty years time, and the data… I could have an insurance brain making up daily pricing based on current risk, adjusting premiums as data flows in and out from any number of sources. Claims data, demographics, crime figures, current affairs, sporting events, weather, company announcements, health statistics… the list is endless.. they’re all available in real time streams. Doesn’t it seem very quaint that your premium is based on data that’s a year old at least and will be fixed for one year hence? In other words – by the time your policy expires, the data upon which your risk was calculated is 24 months old? Isn’t that akin to town planning based on archaeological remains?
2: If all brokers are quoting from the same extranet rates for the same products, the only thing left to compete on is <> price.
If you’re going to get the same cover and price from Broker A, B, C & D – what’s the point in talking to B, C & D after you’ve spoken to A? You probably don’t want to run through 90 questions again and listening to another 10 minute FSA disclaimer is not going to be fun (why don’t we centralise FSA disclaimers?)
The answer is of course to stop competing on price alone.
Coffee shops did it. Why can’t brokers? Budget airlines broke in on price, yet are now subtly moving away and adding on new reasons to choose one over the other. Even utilities companies rail against price only competition now and again with convenience, green features and the like.
Learning to differentiate NOT on price is the only defence against the above. More later..
