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CII Research Report The future of commercial insurance broking in association with www.cii.co.uk
Contents
The Chartered Insurance Foreword
John Moore MBE 05
Institute (CII) Executive Summary 06
The CII is the largest professional body for the
Insurance and Financial Planning professions, with 1 Commercial insurance broking in 2018 09
more than 125,000 members in over 150 countries.
1.1 The state of play in commercial 10
Our purpose is to build public trust in insurance. insurance broking
We do this through the provision of insightful leadership, 1.2 Technology driving change for
relevant learning and an engaged membership. commercial brokers 16
This report forms part of our programme of insight – 2 The client-broker relationship 23
delivered with and on behalf of the profession – to
drive positive action in support of society's experience 2.1 How far will the self-service model go? 24
of insurance. 2.2 What SME clients want 28
2.3 Current client service models 32
cii.co.uk 3 Brokers, clients, insurers, technology
The Insurance Broking Faculty – to 2028 35
This report has been produced by the Chartered
3.1 Automated underwriting: how far can it go? 36
Insurance Institute's Insurance Broking Faculty which
has over 14,000 members and which encourages 3.2 Broker technology evolution: The view
and promotes progression to qualified status and the from the industry 38
maintenance of good practice, the highest standards of 3.3 Lead generation supported by
competence, expertise and professionalism for staff at all digital channels 42
levels of experience. The Faculty, which has an advisory
3.4 Disruption and emerging technology
board made up of key market practitioners provides
in commercial broking 46
members with a host of relevant and timely information
in a range of formats, covering high level research, 3.5 The Internet of Things (IoT) and
technical and legal developments, through to topical commercial insurance broking 48
debates and seminars – all designed to keep you up to 3.6 Artificial Intelligence 50
date with your chosen area of expertise through market
relevant CPD offerings. 4 The future for broking careers and
For more information on joining the Insurance Broking organisational structures 55
Faculty go to www.cii.co.uk/joinafaculty 4.1 Traditional insurance broking careers 56
CII 4.2 The evolution of insurance career
42–48 High Road, South Woodford, development 60
London E18 2JP 4.3 Emerging trends in employment:
The future of work 65
tel: +44 (0)20 8989 8464
email: customer.serv@cii.co.uk 4.4 New organisations: Broking with soul 66
website: cii.co.uk
5 Broking in 2028 71
References 76
Future of Commercial Insurance Broking Research Report 3
Foreword
I am delighted to welcome you to this important report. There is much
talk in our profession about technology, economic and societal trends
that will impact insurance broking but much of the analysis focuses on
impacts to the consumer and micro-SME end of the insurance market.
Based in Canary Wharf with over 250 staff and 35 partners, Konsileo is a start-up commercial insurance broker using This report deals very directly with the future of advice insurance brokers to becoming a profession that is every
PKF Littlejohn is the London member of PKF UK, the technology and an innovative organisational model to in insurance broking and the forces acting upon broker/ bit as recognised as accountancy and law.
national accounting network organisation for the seven disrupt the traditional broking model. Konsileo removes advisors and the firms that employ them.
I commend this report to you and look forward to robust
PKF member firms in the UK and Ireland firm with over the administrative burden of regulatory compliance, data
In my view, becoming a trusted advisor is at the heart debates about its implications.
2,000 partners and staff in 32 offices and a turnover capture and duplication with an intuitive platform that
of insurance broking, and has been at the heart of the
of £150m. PKF Littlejohn is ranked among the top six gives brokers back more time with clients and facilitates
business I have had the privilege to lead for the last 16
accountancy firm advisers to the UK insurance sector collaboration in a community without hierarchy.
years. This report covers, in an insightful and comprehensive
and the UK’s top 15 auditors for the London Stock Konsileo was co-founded by CEO John Warburton – former way, the trends affecting clients, technology and the
Exchange AIM market. The firm is one of the largest director of global marketing and digital strategy at Allianz, insurance profession but concludes that the future of
auditors of European Commission grant funding, including based in Munich – and Chief Technology Officer Peter insurance broking lies with individuals developing and
its research projects around the world, humanitarian aid Henderson – a web pioneer who was most recently maintaining towering expertise and trusted advisor
and financing for EU Accession countries. technical director of mental health start-up Big White Wall. client relationships. John Moore MBE
It is based in the City of London, and is authorised and Immediate Past President
Disclaimer This is not to say that the challenges facing brokers are
regulated by the FCA. Chartered Insurance Institute
This document is prepared as a general guide. No not significant. Further commoditisation of insurance
responsibility for loss occasioned to any person acting products could lead more clients to self-serve. Technology,
or refraining from action as a result of any material in this particularly Artificial Intelligence, could displace
publication can be accepted by the author or publisher. employment across the market. The gap in technical
This information is in accordance with legislation in place and commercial skills could widen.
at 1 January 2018.
These challenges are real. Nevertheless the way forward
PKF Littlejohn LLP, Chartered Accountants. A list of for any individual or firm in the market is to relentlessly
members’ names is available at 1 Westferry Circus, London focus on clients and to continuously develop skills and
E14 4HD. PKF Littlejohn LLP is a limited liability partnership technologies to support clients even further. This is the
registered in England and Wales No. 0C342572. Registered route to a successful and vibrant profession and to creating
office as above. PKF Littlejohn LLP is a member firm of the a future for the people working within broking both today
PKF International Limited family of legally independent and in the future.
firms and does not accept any responsibility or liability I personally believe that Chartered status, at both firm
for the actions or inactions of any individual member and individual level, is one of the critical foundation stones
or correspondent firm or firms. that can help drive and support change and the Chartered
PKF International Limited administers a network of legally Insurance Institute is committed to a vision of supporting
independent firms which carry on separate business under
the PKF Name.
PKF International Limited is not responsible for the acts
or omissions of individual member firms of the network.
4 Future of Commercial Insurance Broking Research Report Future of Commercial Insurance Broking Research Report 5
Executive Summary
The market environment is attractive but Clients will continue to value expertise and Technology opportunities exist but are Broking as a career will increasingly
commoditisation is accelerating at the advice but have less tolerance for pure not being fully exploited; ‘front-end’ be built on professional risk advisory
bottom end ‘middle-men’ experimentation is the answer expertise
In some ways, the commercial insurance broking sector is This commoditisation affects the client-broker relationship The impact of technology on broking could be linked to There are challenges to ensuring that sufficient insurance
in rude health, with unprecedented levels of capital available in a profound way, and broking firms have a choice to what happens to technology applications in underwriting. technical and risk advisory skills are available in the industry
and a positive macroeconomic environment that favours make as to whether they should compete in the super- This reports concludes that whilst there will be increased as some of the traditional training grounds have radically
brokers’ SME clients, (and not just the very smallest commoditised (and largely self-serve) end of the market deployment of auto-rating and decision support tools in reduced numbers. This means that broking firms and
micro-enterprises). or re-position themselves as true risk advisors. underwriting, the level of complexity and paucity of data individuals will have to take more ownership of their
sets in larger commercial risk will mean that supply side own training and development, and that individuals will
Consolidation has affected the insurance broking market Research suggests that there are many factors that arrest
commoditisation will have its limits. increasingly specialise.
structure but it seems to have stabilised in recent years, commoditisation and that client businesses do not have
with the market share of mid-size broking firms growing to become very large or complex before they need and Broking technology has the potential to be a strong enabler Professional qualifications are an important part of this mix
for the first time in decades. desire advice. of change in the industry and there are many new entrants and too few manage to make it through to the top levels
to the sector. In many cases, however, the software vendors of professional accreditation. This is likely a function of the
Nevertheless, changes in technology and customer The same research also found, however, that brokers
are a source of inertia and technology led change in broker- life stage that people are at when they start studying as
behaviour, particularly in the micro-SME segment, are often miss the opportunity to turn a relationship from
client interaction is relatively rare. Similarly, by outsourcing brokers, but employers and the industry could do more
leading to rapid commoditisation of the lower end of a ‘transaction enabler’ to a ‘risk advisor’ one. The failure
technology, many brokers find it difficult to innovate on to support them.
the market. to make this transition in clients’ minds will become
processes themselves.
increasingly costly. People operating in any professional service are increasingly
This commoditisation is being accelerated by capital inflows
Even if core platforms are difficult to change, there are affected by the ‘Future of Work’ issues of increased
into ‘Insurtech’ players, the most notable of which is the There are examples of some broking firms and individual
opportunities for individual people in broking to embrace automation, more varied career patterns, a longer working
£400m acquisition of Simply Business by Travelers. brokers becoming trusted advisors to clients; it did not
digitalisation in customer interaction using consumer-based life, changing norms in the workplace and desire for
appear, however, that the industry is yet fully embracing
technologies such as social media (particularly LinkedIn), flexibility.
this and innovating to support it.
video conferencing and even their mobile phones for photos.
Recent academic theories in organisational design and
Similarly, there are many different applications for workplace culture suggest that these changes could have
improvement, and disruption, of the current broking process a profound effect on organisational forms, and it is possible
that individual firms and even individual broking people can that new types of firm could emerge.
deploy. Some will rely on software vendors creating open
‘APIs’ to allow firms to experiment with plug-in applications
to improve efficiency, effectiveness or customer intimacy.
The growth of the usage of the ‘Industrial Internet of Things’
by businesses provides a big opportunity for brokers to
advise on risk management scenarios for clients, although
building this expertise will be challenging.
How can brokers,
The advent of widespread Artificial Intelligence in broking broking firms and
will provide a similar challenge and will even further erode
value for those brokers with weak relationships and/or low insurers prepare for the
expertise who see themselves as merely an access point
to the insurance market. Brokers with expertise and who future of commercial
insurance broking? Our
To prosper by 2028,
demonstrate a deep understanding of, and empathy with,
their clients will survive and be successful.
manifesto (from page
broking firms need to 70) provides a guide.
choose their business model,
individuals need to embrace
learning and insurers need
to reward good practice
in client management.
6 Commercial
Future of Commercial
insurance broking
Insurance
in 2018
Broking Research Report Future of Commercial Insurance Broking Research Report 7
1. Commercial
insurance
broking in 2018
8 Commercial insurance broking in 2018 Future of Commercial Insurance Broking Research Report 9
1. Commercial insurance broking in 2018
1.1 The state of play in commercial our country’. Ahead of a meeting with SME representatives Number of small businesses (10–49 employees) by '000s
in August 2016, Theresa May said: “I want to build an
insurance broking economy that works for all, and that means working with, Figure 2 Snapshot
and listening to, smaller firms. The priorities I have set –
The shakeup of the Western establishment brought on a more productive, skilled workforce, an economy balanced 250k • There is a renewed focus
by the UK’s Brexit vote and Donald Trump’s election as across the UK and open to new opportunities – can only
US president is driving a rethink of globalisation. The signs on SMEs as the trend for
be achieved if we listen to these businesses.”
are that UK and US policymakers may now begin tipping globalisation in business is
the scales in favour of small and medium-sized enterprises What do these significant changes mean for small and challenged by changing
208
(SMEs) that are domiciled in, manufacture in, and pay taxes medium-sized commercial insurance brokers in the UK? 204 204 political winds in the UK
in their respective countries. Investors are also starting 200k 195
There is an opportunity for growth in a revitalised SME sector 187 and US
to act on this trend: veteran US investor Warren Buffett and, with it, a chance for brokers to expand and develop 178 178
was reported by Wirtschafts-Woche as having recently their books of business as clients look for help with insuring
176 174
172 173 174 174 • There is an opportunity
purchased two ‘mittelstand’ businesses in Germany and 167 166 167
growing organisations with increasingly complex risks. 163
162 for brokers’ roles to evolve
apparently has an appetite for €50m–€300m turnover firms.
For brokers able to put in place a flexible and technology-
to take advantage of the
Global corporations are being viewed through a more critical 150k
lens than at any time since the globalisation trend began enabled business model, there is considerable potential increased focus on the
in the 1980s. in the decade ahead. SME sector
2000
2004
2006
2009
2008
2005
2003
2002
2007
• The global economy
2001
2010
2014
2016
This report discusses how commercial insurance brokers
2013
2015
2012
2017
Even discounting the growth of limited companies and
2011
contractors with no employees, the number of small and can develop beyond a transaction-led function into a value- continues to shape the
medium sized businesses (defined as those with between added risk advisory role to enable them to capitalise on this 100k
insurance market, so the
10 and 249 staff) has grown steadily this century, whilst opportunity.
Source: Business Population Estimates for the UK and Regions 2017; platform from which
the number of large firms has remained stagnant.
While the focus has shifted in favour of the SME, the benign Department for Business, Energy & Industrial Strategy; 30 November 2017 brokers will deliver their
Politically, the Prime Minister has recognised the growth and global economy maintains its influence on the insurance services may change.
importance of SMEs, describing them as the ‘backbone of industry as cash continues to be invested in the sector.
Growth in the number of UK private sector businesses Number of medium sized businesses (50–249 people) by '000s
by size band, 2000 to 2017 (index: base year=2000)
Figure 3
Figure 1
35k
34
33 33
31 31 31
30 30 30
Base year 2000=100 30k
190 29 29 29 29 29
Small (10–49) Medium (50–249) Large (250+)
28 28 28
180 27
170
25k
160
150
2000
2004
2006
2009
2008
2005
2003
2002
2007
2001
2010
2014
2016
2013
2015
2012
2017
2011
140
Medium employers 20k
130 126
Source: Business Population Estimates for the UK and Regions 2017;
120 123 Department for Business, Energy & Industrial Strategy; 30 November 2017
Small employers
110
100 101
Large employers
90
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Business Population Estimates for the UK and Regions 2017; Department for Business, Energy
& Industrial Strategy; 30 November 2017
10 Commercial insurance broking in 2018 10 Future of Commercial Insurance Broking Research Report 11
Consolidation and evolving business models are an ongoing share amongst SME clients. Since 2011, the market share Number of General Insurance distribution deals by quarter
feature of the UK insurance broking market. This – together of brokers with 20–50 staff has risen from 14% to 20%,
Figure 4
with investor appetite for the stable client retention and while firms with over 100 staff have seen their market
strong margins of well-run insurance brokers – means that share reduce from 60% to 48%. Axa Insurance director of 12
the number of mergers and acquisitions, and the size of commercial intermediary e-trade, Deepak Soni, said the
those transactions, has increased over the last five years. figures demonstrated that "smaller brokers have shown
that they are able to use technology to bring a raft of new 10
Interestingly, analysis of the Top 50 Brokers data produced
customers to their doorstep."
by IMAS, and first published by Insurance Times suggests
£5–£25m £26–£100m £100m+
that the amount of premium handled is not concentrating,
even though the market is consolidating. “Smaller brokers 8
are being bought up, but it’s the medium sized brokers
that are growing faster than the bigger players,” says IMAS
partner Olly Laughton-Scott. 6
A study published in December 2016 by Acturis and
Axa found that small brokers have grown their market
4
Broker industry investment cycle 2
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Investment 2012 2013 2014 2015 2016 2017
into insurance
carriers because
Source: IMAS Corporate Finance
an attractive
investment
Premium
rate decrease Market share by broker size 2011 Market share by broker size 2016
Lower cost due to competition/
distribution increased regulation/ Figure 5 Figure 6
increased
business costs
13% 14%
8%
10%
60% 14% 48%
Investment
Need for
to facilitate
consolidation/
consolidation/
business model 20%
business model
change 6%
change
8%
Source: Konsileo, PKF Littlejohn
Number of Staff Number of Staff
0–10 11–20 21–50 51–100 >100 0–10 11–20 21–50 51–100 >100
Source: Acturis/Axa Source: Acturis/Axa
12 Commercial insurance broking in 2018 Future of Commercial Insurance Broking Research Report 13
This data suggests that, whilst there are economies of scale With debt remaining cheap and the devaluation of sterling Net deal flow of Commercial Lines Brokers 2011–Q3 2017 (number of deals)
in insurance broking, there can also be diseconomies of scale driving interest from overseas, mergers and acquisitions
when corporate structures and overhead are added to the activity is likely to continue apace in 2018 and remain Figure 8
traditional broker model. Theo Duchen, CEO of Acturis was a feature.
quoted in the Insurance Times saying: “Smaller brokers are 20
Consolidation is entering a new cycle. The largest national
obviously competing aggressively against larger brokers
commercial brokers have almost entirely been bought, whilst
and consolidators, and using their entrepreneurial skills to 15
a new wave of ambitious medium sized firms, backed by
increase share”. Laughton-Scott from IMAS explained that
private equity investors, are now buying smaller firms.
“for larger brokers to grow and retain their SME market 10
share, they need to set up specialist divisions that can offer
the same personalised service that small-to-medium-sized 5
brokers can”.
Private equity investors and private equity backed 0
Net deals
companies have been the most frequent investors so far
-5
this decade, particularly in the last year, with privately held
companies selling far more than they have been buying.
-10
-15
-20
-25
Quoted Privately Partnerships Overseas Overseas Private Private Mutual
Change in market concentration Held (in UK (new Equity Equity
Figure 7 already) entrant) backed
Source: IMAS Corporate Finance Type of buyer/seller
100
2002 2015
80
ted
a Net deal flow of Commercial Lines Brokers Q1–Q3 2017 (number of deals)
% Cumulative market share
tr
en
Figure 9
c
60 7
on
6
c
ss
5
40
Le 4
3
2
20
1
Net deals
0
0 -1
5 10 15 20 25 30 35 40 45 50 -2
No of companies -3
-4
Source: IMAS Corporate Finance
-5
-6
-7
Quoted Privately Partnerships Overseas Overseas Private Private Mutual
Held (in UK (new Equity Equity
already) entrant) backed
Source: IMAS Corporate Finance Type of buyer/seller
14 Commercial insurance broking in 2018 Future of Commercial Insurance Broking Research Report 151.2 Technology driving change for commercial brokers
Whilst the insurance market has remained relatively
stable since the 1980s, the opportunity for disruption and
investment in the sector has been gaining currency in the Travelers buys Simply Business Travelers chief executive Alan Schnitzer made clear that
Simply Business commanded this sale price not for its
past few years. The pressure to innovate and to adapt
is growing. products or customer book, but for the potential of its
Simply Business uses online distribution to arrange
digital distribution model in the US and other territories.
Whilst commercial insurance has been relatively untouched insurance for sole traders and small businesses. It has
by technology innovation compared to personal lines, grown since 2005 to arrange cover for more than He said: "With technology and innovation driving
it is increasingly garnering interest from entrepreneurs, 400,000 SMEs and landlords, and reported brokerage of customer preferences and expectations, advancing our
investment firms, accelerator programmes, and the £38.1m in 2015. Revenues grew by 75% in the latest three digital agenda to best serve our customers and the
innovation units of the larger insurers. years, with renewal rates close to 80%. marketplace is a key strategic priority.
In March 2017, it was bought by US insurer Travelers for "We look forward to working with our agent and
£403m, around 50 times EBITDA and more than three broker partners as we seek to deploy Simply Business's
times the £120m reportedly paid by Aquiline in April 2016. capabilities to make the small commercial insurance
transaction easier, faster and more efficient."
Globally, insurance technology companies received $2.67bn of investment in 2015 and $1.69bn in 2016, with 122 and
173 firms respectively receiving funding, according to figures compiled by CB Insights.
Insurance tech annual financing trend 2011–2016 Insurance tech funding volume 2012–2017
Figure 10 Figure 11
64
59
Deals Amount ($Bn) Deals Investment ($M)
$2.67 2500 48
43
173
40
38
2000 38
$1852
$ in millions
122 34
$1.69
1500 31
30
28
91 25
1000 22 23 $985
20 21 19 $783
63 $0.87
13 13 12 12
46 11
500 9
$422 $398 $312
$369
$283
28 $0.35 $240 $135 $180 $295 $230 $271
$0.27 $32 $78 $37 $110 $45 $132 $172
$0.14 $31 $44
0
2011 2012 2013 2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2012 2013 2014 2015 2016 2017
Source: CB Insights Source: CB Insights
16 Commercial insurance broking in 2018 Future of Commercial Insurance Broking Research Report 17Most of this funding has been focused on personal lines and
peer-to-peer insurance models, although there have been
a string of investments in commercial insurance start ups. Snapshot
The most notable are outlined in figure 12, below.
• The insurance market is seen
• There is growing focus
as ripe for technology
on a client-centric or user
disruption and, as a result,
experience-based approach
InsurTech is considered a hot
sector by global investors • New sources of risk data are
emerging that can provide
• Technology-driven change in
better information about
commercial insurance has so
clients.
far been largely confined to
micro-SME businesses
Funded small commercial insurance tech startups in the US
Figure 12
Start up Embroker Next Insurance CoverWallet Insureon Indio Slice Labs Bunker CoverHound Risk Match QBIS Insurance
Solution
What Insurer that enables Insurer that enables Insurer that Broker that Digital platform Insurer selling daily Insurer selling cover Comparison site with Comparison site for Digital platform for
clients to buy their small companies uses intelligent enables clients to enabling brokers cover for SMEs such as to freelancers, option to link through brokers brokers, simplifying
own insurance on to buy insurance assessment tools compare coverage and clients to Uber drivers independent to broker workflow, sourcing
one platform where it is simple to assess SME and cost, either streamline policies contractors, and other quotes, managing
and transparent insurance needs autonomously or small businesses policies
with a certified
agent
Where San Francisco, Palo Alto, New York, Chicago, San Francisco, New York, San Francisco, San Francisco, Oakland, Greenwich,
USA USA USA USA USA USA USA USA USA USA
Status Private Private Private Private Private Private Private Private Private Private
First 2015 2016 2015 2015 2016 2016 2016 2011 2016 2016
fundraising
Venture Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
capital
backed?
Total $14.3 million $13 million $9.8 million $31 million $2 million $3.9 million $2 million $56 million $3 million $3 million
fundraising
Source: CB Insights
18 Commercial insurance broking in 2018 Future of Commercial Insurance Broking Research Report 19There has been more prominent investment activity in the US the average premium traded through the broker channel. Conclusion
but momentum is now building in the UK and the disruption “This heavily indicates that it is only the simple business that
The trend for increased investment into commercial
conversation is moving beyond commoditisation in personal customers are happy to place themselves, before requiring
insurance start ups in the US will likely extend into the
lines to focus on commercial insurance. Simply Business’s a broker’s advice or assistance,” says Acturis CEO Theo
UK in the next few years. There is a huge opportunity for
growth and high sale price demonstrates the potential of a Duchen.
disruption in the UK market, which has remained relatively
technology-led disruptor model to the micro-SME market.
At the same time, larger insurers are placing big bets untouched so far.
Indeed, the micro-SME market and the potential for it to
on start ups, either by partnering or forming accelerator
move towards self-serve by making use of sophistication in As data from the Internet of Things becomes more widely
programmes, in a bid to future-proof themselves, indicating
web marketing, customer servicing and simplified products, used in personal lines, businesses will begin testing and using
a willingness in the industry to embrace change.
has been a hallmark of innovation activity in the market this technology to help prevent risk. A role will emerge for
for a number of years. In the last ten years, many insurers However, investment into disruptive companies has not yet insurance brokers in supporting their clients by using data
have promoted e-trade offerings and several, including Axa, extended in the US or UK to meaningfully tackle the advised for risk management.
Hiscox and Allianz, have actively engaged in ‘direct’ models segment. Opportunities in this segment might be focused
for micro-SME clients. less on self-serve and more towards the better provision of
advice, use of additional data from Internet of Things (IoT)
The model does, however, achieve relatively low average
technology, and machine learning to enable pro-active risk
premiums, reflecting the read across from the personal lines
“The most imminent
management.
experience. Acturis figures show the average premium being
traded through direct channels is around 40% lower than
effects of disruption
will be felt in the
banking sector;
however, the greatest
impact of disruption
57%
of brokers think that the
61%
of commercial insurance
is likely to be felt in
insurance industry will
be disrupted
professionals think that
the insurance industry
will be disrupted
the insurance sector”
World Economic Forum, The Future of Financial Services, June 2015
Source: Insurance Survey 2017: CII, Konsileo,
PKF Littlejohn
20 Commercial
Future of Commercial
insurance broking
Insurance
in 2018
Broking Research Report Future of Commercial Insurance Broking Research Report 212.The
client-broker
relationship
22 The client-broker relationship Future of Commercial Insurance Broking Research Report 232.The client-broker relationship
2.1 How far will the self-service model go?
Gauging the purchasing behaviour of commercial insurance For the purposes of this report, it is therefore assumed that
Snapshot • There are some ‘human nature’
clients is very challenging, with intention (as expressed in there is, indeed, increased commoditisation at the lower end
barriers to commoditisation such
surveys) and observed behaviour often at odds with each of the market, with micro businesses increasingly preferring • Sales of commoditised products as trust, technical understanding
other. self-service online platforms to telephone or face-to-face and direct sales continue to grow and the need for comfort and
SMEs represented 40% of the commercial insurance broking
purchasing. More complex SME businesses, by contrast, among smaller businesses help
prefer continuity of relationship, perhaps face-to-face,
market in 2014, according to the Verdict Financial report, • Commoditised products offer • Broker support for sales of
particularly as the complexity of their
UK Commercial Insurance Distribution 2016.
business grows. limited value and flexibility for commoditised products may
According to Verdict’s survey data, there is a strong desire
Larger companies tend to be concerned about a broader larger companies with more be worth the effort, resulting in
across micro-SME, small and medium-sized firms for a complex risks future opportunities as businesses
range of business risks than their smaller counterparts, and
‘direct’ method for buying insurance. This is not necessarily
therefore more receptive to insuring against a range of risks, grow and require more cover.
supported by data from separately conducted interviews
and are more likely than smaller companies to see brokers • As technology continues to
with SMEs and industry experience. It is unclear at this stage develop, commoditised products
as adding value. The degree of broker involvement in the
whether the discrepancy between different sources
insurance purchasing process depends on the complexity will continue push into more
is indicative of a latent need that the industry is not fulfilling
of business risk and insurance products. complex risk areas
or possible issues with the survey sample sizes.
Reported preferred purchasing methods of SMEs in 2015 Broker involvement in commercial policy transactions
Figure 13 Figure 14
100%
Type of
Insurer Broker Client
product
80%
Complex
60% High touch
40%
Commoditised
20% Low touch
Super
0%
Q1 Q2 Q3 Commoditised
Broker Direct Price comparison Other Financial institution
No touch
Source: Verdict Financial 2015 SME Insurance Survey Source: Konsileo, PKF Littlejohn
24 The client-broker relationship Future of Commercial Insurance Broking Research Report 25Direct purchasing has enabled smaller businesses to shop the risk of selecting the wrong option still sits with the Conclusion touch and then to high-touch accounts as their businesses
around and avoid what they see as unnecessary broking client. Insurance buyers reach a point where the time spent grow. Big data will enable brokers to nurture those small
Commoditisation of insurance products, if done badly, can
costs. At the micro end of the market, a keen focus on price understanding their cover requirements would be better clients that will eventually grow into key corporate clients.
lead to clients making poor buying decisions, potentially
limits the role of brokers in adding value by giving advice. spent on their own business, and seeking expert advice
leaving them under-insured, or open to reputational risk Many broking firms may therefore choose to run multi-client
Smaller companies tend to be owner-managed or sole becomes both a better use of their time, as well as a
or other adverse outcomes. strategies, designed to service both commoditised, low-
traders and might evaluate insurance purchasing in the same safer option.
touch, and high-touch clients.
way as a personal lines purchase. It is likely that the Financial Conduct Authority (FCA) would
There is evidence in the academic literature that the difficulty
take a keen interest if these outcomes were inherent in the
Corporate buyers are accountable to others for buying in obtaining quality risk advice is a retarding factor on an
commoditised model. The insurance industry has a duty
decisions, and are therefore less likely to choose a no-touch SME’s growth. Marcelino-Sádaba et al (2014) concluded
to help avoid such outcomes.
or low-touch transaction. This builds an inherent ceiling into that “many SMEs do not – or not adequately – apply risk
commoditisation. management practices …. [and] cannot afford to rededicate On the other side, technology can enable customers to
resources”. This can lead to them missing out on economic identify for themselves any additional exposures they may
The inflexibility of the first generation of commoditised
opportunities. In “Risk management in SMEs: a systematic have, and to adjust cover accordingly. It can, along with big
products (relatively simple insurance covers that are
review of available evidence” Gilmore et al (2004) concluded data, also enable brokers to identify opportunities among
packaged into a product and sold direct online), means
that “SMEs focus on business strategies that have lower no-touch customers, moving them gradually through low-
that they apply only to a limited level of risk, and they are
risks rather than on growth-oriented business strategies”.
therefore unlikely to penetrate the larger end of the SME
These insights, together with the impact of the regulatory
market. However, new technology is enabling businesses
environment where businesses with a turnover of over £1
to tailor product packages online by entering more detailed
million do not benefit from Financial Services Compensation
risk data. These new websites offer real-time quotes that
Scheme (FSCS) protection, suggests that there are a series
reflect add-ons, levels of cover, and other product tweaks,
of factors pushing SMEs towards seeking less advice, and
and provide detailed information about further covers for the
other factors pushing them towards seeking more, as
client to consider. Such transactions require little day-to-day
illustrated in figure 15. In particular, the Insurance Act 2015
broking input, but brokers that support smaller business will
provides a basis for brokers to highlight the value of risk
gain opportunities for marketing, contact-building, and data
advice as being supportive of good corporate governance,
gathering, which have the potential to pay off significantly
in addition to ensuring the efficacy of insurance covers.
in the future as client companies grow and their risks SME perceived risk as turnover & complexity increase
become more complex. The challenge for the industry is to serve this latent need
at an effective cost. Figure 15
Nevertheless, these more sophisticated self-serve products
are not yet able to provide a full substitute for advice as Factors that could increase perceived value of advice
• Emerging risks arising from cyber, AI, IoT, climate
change etc
• Complexity of setting up and monitoring IoT
risk systems
• Insurance Act and other regulatory changes
Cost/Risk to client of self-serve
increasing governance overload
• Innovation in risk management techniques
by brokers
“Given the opportunity for greater advice Current situation
and involvement with clients, might there
Factors that could reduce perceived value of advice
FCA 'Micro- • Product changes reducing risk of non/wrong
Enterprise disclosure
be an evolving role for brokers to provide Definition'; Access
to Ombudsman
• 'Robo-Advisors' able to do risk diagnosis for
complex situations
‘in-house’ risk management for larger clients?” service and FSCS
stops
• Regulatory action to relax governance requirement
Director of Broking firm
£1m turnover and employees2.2 What SME clients want The SMEs we polled were satisfied with the service to the broking firm: half of clients would be happy
provided by brokers and purchased all of their insurance to switch providers if their account handler left.
A series of one-on-one interviews with SME businesses have not been approached with a compelling enough through them; however, they do not appreciate brokers’
conducted by PKF Littlejohn in November 2016 revealed offering in the past. potential to take a risk management role. SMEs with more
an impression of insurance broking as a transactional, rather complex risks tend to value the advisory role of brokers
More worrying, while all the SMEs currently bought insurance more than those with less complex risks, and have more
than advisory, service. Whilst this is a qualitative finding,
through a broker, nearly half of them said they would, face-to-face interaction with their broker. The greatest
it presents some challenges to the industry.
in principle, be comfortable buying all or some of their concerns raised were the jargon used by the insurance
The interviews found that businesses are generally satisfied insurance products online or in a commoditised way industry, the complexity of products and documentation,
with this transactional relationship, showing loyalty to their in the future. a lack of transparency about data and claims handling.
current broker, and are happy to recommend them to other
The interviews revealed that SME businesses largely continue Most SMEs deal with a specific broker individual or a small
businesses. Only those with more complex business risk
to see brokers’ roles as transactional and not advisory, and team, and they tend to be loyal but have limited contact,
profiles appreciated the risk advisory role of their brokers.
that they value advice about pricing of insurance, as well usually only on annual renewal unless there is a specific
However, over half of those surveyed said they would be as claims handling assistance. SME clients have little interest risk involvement by the broker. Most clients stay with their
willing to spend more time with their broker to discuss in risk management or sector-specific insights, with most current broker out of convenience, loyalty and satisfaction
elements of their business and the risks it faces. This seeing the brokers’ role as to source quotes, and not to give with the service provided. However, there is a wide
suggests that those who don’t receive risk management business advice. variation in loyalty to individual broking staff compared
advice would be open to changing their minds, but perhaps
Which of the following do you get from your insurance broker? How often do you speak to your broker?
Figure 16 Figure 17
10
18%
8
6 9%
55%
4
18%
2
0 Every month Once a quarter Twice a year Once a year
Feeling of comfort Feeling of comfort Risk management Useful insights into
from knowing you knowing you can advice so you better my sector that help
are getting the best fall back on your understand your my business
value product insurance broker own business and Source: PKF Littlejohn
in the market if there is an issue the risk therein
with a claim
Source: PKF Littlejohn
28 The client-broker relationship Future of Commercial Insurance Broking Research Report 29“I’m aware that
Clients are unaware of specific broker professional Conclusion What clients said:
qualifications, and assume that any such required
“As little time and
The impression gained from discussions with a sample of
qualifications are held if their broker is in practice. Reliance
is placed on the broker firm’s reputation, and clients assume
clients is that the role of brokers has not radically changed,
nor has it been affected by attempts to professionalise the insurance is
money as possible,
that individual brokers are suitably experienced for their role.
something you need
image of brokers. When coupled with high retention rates
in the industry this need not, in itself, be a major source of
concern to brokers. Nevertheless it would be possible to
speculate that the logic of using a broker is still somewhat that’s what I want a qualification for.
from an insurance
related to facilitating insurance transactions, and therefore
relationships could be vulnerable to self-serve initiatives that
make insurance market access less complicated. If someone didn’t
Clients seem to value their brokers’ role in navigating and
interpreting the complexity of the insurance market but
broker.” have qualifications,
I’d question if they
have little awareness of specific qualifications to do so. On
Director, Financial Services client spending £10,000
the whole, clients do not appear to see their broker as an
per year on insurance
advisor. There appears to be an opportunity for brokers to
shift from simply selling insurance products to understanding
the risks of their clients, and to providing risk information and
knew what they’re
business advice.
talking about.”
It is therefore possible to hypothesise that the nature of
the broker/client relationship is at something of a cross- “What else do I
look for? Help with
roads, with the 2027 picture somewhat in the hands of Director, 56-person £2 million revenue business spending
brokers today. £25,000 per year on insurance.
proposal forms.
What the hell
do they mean?”
2028 Owner/ Director, Manufacturing Sector client spending
2018 “My broker’s advice £20,000 per year on insurance
2008 “I’ll probably is critical to my
“Broker helps me stay with business”
access the insurance my broker...unless
or
market” something better
comes along” “Insurance? I’ll sort
it out myself”
30 The client-broker relationship Future of Commercial Insurance Broking Research Report 312.3 Current client service models The 2016 FCA thematic review into ARs has dampened some
enthusiasm for the AR network model. If regulatory controls
A greater number of client servicing models exist today than Networks can be strongly demonstrated, there is a good chance that
this model could become more prevalent and we may see
Variable service parameters
did so 20 – or even 10 – years ago. The arrival of appointed
Networks’ intentions are to offer scale advantages whilst a new, stronger model, emerging. Brokers typically compete on a small number of factors.
representative (AR) networks and consolidation in the
retaining entrepreneurial freedom for brokers. They offer
broking market has influenced how firms operate. Whilst All networks will need to be able to provide the same kind These reflect the deployment of a mix of scale effects
brokers a certain level of support, without imposing the
new models have successfully found a place in the market, of IT solutions and services as the global firms or regional and the needs of their target customers.
more rigid organisational structures and processes that
they, along with more traditional approaches, are continually brokers so that their members can compete on a level
are often associated with being fully integrated into major • New business executives and existing business servicing
challenged to innovate in order to deliver against customers’ playing field. The average size of firm, being a member of a
corporations. vs having the same people do everything
changing needs. network, may increase over time as technology or platform
A sub-set of networks, AR networks go further by providing investment becomes a larger cost to brokers. Networks have • Whole market vs partial market advice in terms
Global brokers
fully regulated status to brokers. Typically they remove an opportunity to become increasingly sophisticated to the of insurers
Global brokers are typically known for going beyond hierarchical management structures, and are relatively non- extent that it might be nonsensical for a new start up broker
arranging insurance, and focusing on additional risk prescriptive in broker-client relationships, enabling individual to go it alone or for a smaller broker not to want to draw • Extent of self service at purchase
management and advisory services. They provide holistic brokers to take the lead. This can be attractive to clients on the services that a network can provide. • Extent of self service once a client
risk advice to support large enterprises, especially where and network members as it can result in bespoke servicing
there’s an international dimension. arrangements, but can also introduce risks that flow from Regional brokers • Access to risk management service and advice
lack of standardisation. Regional brokers have made fewer changes to their
In the mid-market, global brokers have adopted different • Ability to place international risks
client service strategies. Aon and JLT have in-house staff. approach to client service and tend to be built on strong
regional or segment/scheme franchises. Account executives • Claims support service
Willis has used Willis Network to reach smaller clients. Marsh
has grown in this area by acquisitions. Its purchase of Bluefin continue to service clients with a high level of face-to-face • Multi service lines (e.g. employee benefits)
engagement, possibly supported by an account handler, and
and Jelf in 2016 gave it a platform of 80 regional offices Snapshot few additional people are involved in servicing the accounts. • Cover variations, specific to the broker.
across the UK, serving over 250,000 clients.
Global brokers often adapt the way they function by • Innovation by brokers is largely There has been an increased level of technology deployment,
with some migration between technology providers, and
breaking out their client service individuals into specialist limited to process improvement
teams. This approach may decrease the breadth of many firms have consolidated their SME risks to a sole
and account maintenance, and less insurer. Apart from this, the speed of operational change
knowledge of individual brokers but means that they
frequently focuses on changes in regional brokers has been relatively slow.
can address client needs to a high level because every
broker becomes an expert in a particular risk area. Some to client service models Conclusion
Where firms are successful in deploying strong account
large broking houses have gone through a process of • Many smaller broking houses have executives, a high level of client intimacy and an ability Each of the different broking models has innovated. The
consolidating their books of business with a bias toward to win and retain business from all other types of broker micro SME market has commoditised to an extent, but the
higher-premium accounts. Others have created servicing
been absorbed into larger firms
is reported. desire for professional advice has remained constant and,
hubs to support clients at the lower end of the premium through consolidation according to clients, will continue to do so in the future.
range, and have increased the level of automation for simple This could evolve further, given half the companies surveyed
• Acquisition has prevailed in place
risks. were willing to discuss risk management with their brokers.
of innovation in some instances
Consolidators Whilst business models have evolved, few broking firms
• Technology may allow value added have fully embraced the digital revolution. Technology
Consolidation is an ongoing feature of the insurance broking services, historically the preserve innovation presents significant challenges, and add-ons
market (see Chapter 1). The early waves of consolidation
often focused on re-allocating insurer portfolios to optimise
of large clients, to filter down and simplification are not an adequate answer. There is
to smaller clients. a considerable opportunity for firms that can identify how
margin. More recently there has been an emphasis on
to support their staff and to service their clients in ways
operational change and organic growth. In the case of many
that are relevant to the marketplace; and for those able to
of the large broking firms, this change requires a significant
re-engineer their business around these insights. The broking
effort to ‘re-platform’ away from legacy technology and/or
firms of the future will be those that embrace the larger,
overly customised versions of standard industry platforms.
technology-driven changes now occurring in business.
To some extent, managers in these firms report that
technology may have acted as a barrier to innovation in their
processes. Innovation at larger firms therefore tends to focus
on acquiring other brokers, simplifying existing systems,
and expanding business processes, rather than buildingnew
technology to support brokers and clients.
32 The client-broker relationship Future of Commercial Insurance Broking Research Report 333.Brokers,
clients, insurers,
technology
– to 2028
34 Brokers, clients, insurers, technology – to 2028 Future of Commercial Insurance Broking Research Report 353.Brokers, clients, insurers, technology – to 2028
3.1 Automated underwriting: how far can it go?
A key factor that will affect how insurance brokers operate in reduce the inefficiencies of manipulating data within the
Snapshot
future is the extent to which insurers will continue to employ underwriting process. A number of factors within insurers
trading underwriters to manually underwrite commercial and brokers are influencing this process, whether to • Commoditisation of
insurance risks. Some insurers see manual underwriting as accelerate it or to retard it. insurance products will
an inefficiency that can be resolved by applying technology; increase but there are
The balance of underwriting may well nudge away from
others recognise that trading underwriters have a great deal significant retarding forces
manual toward automated in the next 10 years. However,
of tacit knowledge and are able to blend risk and market
the retarding forces are significant, and the role of a trading
factors.
underwriter will likely continue to exist in some form, albeit
• The heterogeneous nature
The heterogeneous nature of risk data for more complex more technology-supported than today. Therefore, the of commercial risk data
risks is one reason why insurers have not yet stopped process of commoditisation of different products will puts a limit on automation
manual underwriting altogether; effectively, the available move at varying speeds, depending on the attributes and different classes of
pool of data for any single risk type is too small for complete of the product. business will commoditise
automation to produce valid underwriting decisions.
to different levels.
Nevertheless, the trend for applying new decision support
tools to underwriting continues, as do attempts to
Factors influencing the move to automated underwriting Factors influencing the commodisation of commercial insurance products
Figure 18 Figure 19
Demand side: brokers and clients Supply side: insurers Level of commoditisation Product Key commoditisation drivers Key commoditisation
blockers
Accelerating factors Retarding factors Accelerating factors Retarding factors Substantially commoditised • Single vehicle motor • Simple rating question sets • Some clients seek advice
• Small package – shop, • Automated algorithm • Referrals often necessary
office, simple contractors
• Increased requirements for • Broker software houses • Insurers seek cost savings • Insurer economics are • Direct to client self-service • Frequent telephone
automated data exchange unable to provide correct more sensitive to poor • Small property owners fulfilment
• Deployment of Artificial • Low premiums
with insurer, from brokers data and rich data underwriting decisions
Intelligence to deal with Commodity potential • Small commercial • Rating can be automated • Brokers and clients see
than higher operating
• Client self-service takes • Clients with more complex complexity of rating combined (up to £10,000) risks as complex and seek
expenses • Some relaxation of
off, therefore insurers are risks value advice and models and expert advice
in control of the entire expect wide insurer choice judgement • Data is heterogeneous and • Small professional underwriting precision to
process there is high complexity indemnity fit more risks into standard • Comparative quotations
• Open market trading • Appetite for investment products can be valued
of the underlying data set • D&O
• Trading between individual relationships preferred in new technology in
underwriters and brokers is by individual brokers and commercial rises • Investments might focus • Third party data sets may • Risks of self-service may
• Motor fleet
discouraged, through solus underwriters on automation of the simplify question set seem high to clients
and panel arrangements administration processes • Excess of loss or brokers
• Brokers trust individual
and leave underwriters
• Increased familiarity with underwriters more than • Terrorism
in place
technology the firms they work for, Unlikely to commoditise • Complex commercial • Desire from insurers for • Client and broker
and will follow them if combined costs savings resistance to self-service
they move insurer
• Specialist covers • Risk of poor decisions
high, relative to operation
• Large property owners and
cost savings
motor trade
• Paucity of data sets
• Complex professional
Source: Konsileo, PKF Littlejohn makes algorithms difficult
indemnity
to apply
Source: Konsileo, PKF Littlejohn
36 Brokers, clients, insurers, technology – to 2028 Future of Commercial Insurance Broking Research Report 373.2 Broker technology evolution: The view from the industry
“The broker tech marketplace needs
to be more proactive, and to keep up
Insurance broking software is dominated by four efficient and advanced technology that is better able to use
independent players (Open GI, SSP, Acturis and Applied available data to support them and their insurer partners.
Systems) alongside broking firms with their own proprietary As the volume of available client data increases, particularly
technology. In many cases, technology has developed within
broker organisations, growing as they have through market
from the Internet of Things (IoT), broker systems could
innovate to provide additional, value-added services, with changing times and technology.”
consolidation, to handle a large volume of transactions analysing and sharing client data.
each year. Brokers now face a challenge to update to more Account Executive, Regional Broker
Source: The Insurance Survey 2017: CII, Konsileo, PKF Littlejohn
Snapshot of the insurance broker software market
Figure 20
Company Number of users (firms) Number of users (individuals) Description Innovation trajectory
Open GI (core system) 2,000 (UK and Ireland) 19,000 Streamline full cycle process, real-time quote management, Acquired Power Place in 2013 for distribution of commercial
increased exposure, exploitation of aggregators insurance products electronically through its base of 1,200
broking firms. Various partnerships to enable e-trade.
SSP More than 160 (UK) More than 1,000 OfferInsure, S4i, and Sirius 21, combine as SSP Pure Broking SSP Pure Broking and SSP Select Broker working toward
and SSP Select Broker, which emphasise automation, a complete, straightforward, effective infrastructure system
efficiency, and multi-channel distribution for brokers
Acturis – 14,000 All-in-one software with end-to-end client management, Considered an industry leader. Invests substantially in system
e-trade, integrated management information and maintenance and improvement. Strong focus on insurer
dashboards, integrated communications, and a full audit trail functionality and transaction rigour.
Applied Systems 12,000 (UK, Ireland, US, Canada) 140,000 (Global) Applied Epic is Applied Systems’ most used software, Now launched and operating in the US, UK, Canada and
and the fastest-growing cloud-based broker management Ireland. Applied Mobile recently launched for UK market,
system. TAM and Mobile are two further options. The system with a version for employees to log everything as per the
follows the end-to-end process and helps with prospect online platform, as well as a client version that can be
management via the cloud platform and via the mobile app branded as per the individual broking firms requirements.
for brokers and clients, with additional risk management
tools available.
Transactor 120 (worldwide) N/A Regular updates, total configurability, wide range of third The latest version is available in Enterprise for large
party integrations, full service API, scaleable and reference- insurance brokers, and in a multi-tenanted version for
able for more than 120 users, full back office functionality, SME brokers, MGAs, and insurers
automates policy lifecycle, responsive web design as
standard, advanced management systems and reporting
Insly 70 (worldwide) N/A Calendar management, commission management, document Offers a degree of automation to support smaller
management, insurance rating, policy management, quote broking houses
management, self-service portal
Aon (Inpoint) 1,738 (worldwide) 22,000 Serves the whole insurance value chain. Provides data, Aon has strategic partnerships with providers including
analytics, engagement, consulting. Implemented alongside TranSearch, EFFISOFT, and WebXL, to augment specific
third-party applications areas of the Inpoint system
Willis Towers Watson (vGrid2.0) N/A N/A Infrastructure-as-a-service software system that enables life Version 2.0 yielded runtime improvements of 20% to 30%,
insurers to run models through an on-demand, cloud-based according to independent tests. It also enhanced security
technology. Fully integrated with Willis Towers Watson’s features
RiskAgilityFM
Marsh (ClearSight) N/A N/A Enables clients to consolidate risk information, and to Marsh Analytics Platform (MAP) enables clients to quantify
optimise risk decisions and manage risks; also offers mobile delivery platform, iMap
Jardine Lloyd Thompson (Specialty) – – Adapts multiple third-party technology, including Toshiba Citrix is applied to JLT Specialty in cloud services to access
hard drives, and NetEvidence Highlight. NetEvidence works and transmit data remotely. Operates respected pensions
with Citrix, a desktop virtualisation tool that enables remote software, Profound, although this does not serve brokers
access to virtual desktops
Source: Software provider websites and press articles
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