“Times and conditions change so rapidly that we must keep our aim constantly focused on the future”
– Walt Disney
Let’s face it, insurance and broking have never been heralded as a rapidly changing industry. In fact, if we take many of our current insurance principles and approaches, they can be very easily tied back to concepts that originated several hundred years ago and haven’t changed all that much. Admittedly, I’m exaggerating to make a point for comparison, but while there has been gradual change, we are now at a point in the insurance world where we sit at a crossroads and a potential for massive upheaval.
The crossroads that we face is driven by fundamental changes to the economy, compounded by macro and micro economic and market forces that can disrupt the current balance. This can and will reset the insurance business and market participants.
At this point, many of you may decide to stop reading and chalk this article up to another prognostication of the “end is nigh” theme, yet if you humour me for a few moments, I will tie together several trends across the global economy and relate them back to our insurance business to better describe these crossroads and decisions.
First, we are experiencing a wave of specialisation across all industries and customer segments. The current web search and applications allow us to get to a previously unimaginable level of customisation and specificity. To prove my point, think of something from your childhood, as obtuse and unique as you can get, maybe an old comic book, some drinking glasses that a fast food restaurant gave away as a promotion, or even a piece of clothing. Now go search for it on the web. Guess what? It’s out there and available. This concept of ubiquitous access and availability holds true for both consumers and business buyers. Product and service companies are focusing their strategy and approach to increasingly more narrow categories. While counter to many of our experiences (you must expand products and services to grow) companies’ today approach a “less is more” model to grow.
If your company is the best in a particular segment, the ability to capture market share is fairly easy. Once you have captured this segment, move onto the next with a similar specialist focus. Companies’ ability to implement this model is driven by the two factors demonstrated above, access and availability. The continued improvement and refinement of web search capabilities and personalisation converge to allow users’ preferences to drive their content and information. Secondly, the mirror image of the user preferences enables companies to target their narrow services to a discrete segment of customer. The intersection of these two perspectives creates value which is realised through both focus and scale. This appetite for specialisation will only continue to increase as the ubiquitous access and availability of information is aligned with customer preference matching.
Building on this specialisation trend, the next trend centres on transaction type and frequency. In many ways this trend becomes additional fuel for specialisation. Business and consumers expect and utilise hyper-customised micro transactions as the new normal. You only need to look to the current experience and acceptance of how people consume transportation and lodging. Today, the expectation is that each can be purchased for only the amount that is required. No need to buy a car and let it sit idle for at least half the day, just use Lyft or Uber. Consumers today buy only what they need. The same goes for lodging. Have extra capacity that isn’t being utilised? Just use Airbnb or VRBO. Allow someone else to consume the extra capacity efficiently and effectively. These new expectations that are firmly established about how people interact and purchase rely on quick and efficient transactions. At the heart of this new economy is the ability to buy only what you need and not to purchase more. This trend will only continue and expectations for all purchases to be based on specific needs and capacity will cut across areas where previously the expectation was to purchase more than needed. Insurance will be a part of this transactional revolution. Look to office space as the next wave where utilisation of only what is required will reset long term leases and space requirements for firms of all sizes.
The third trend is a world that is governed and enabled by data. In this new data driven world, risk can be instantaneously aggregated, measured, predicted, interpreted and transacted with the right systems. It is somewhat ironic as brokers, we have for years feared disintermediation by the markets and customers, yet the true change in the distribution model is going to be realised by sensors and analytics, not markets or business models. For the near term, the strategic risk for insurance distributors and markets is fairly low, as the transactional efficiency of information still requires a third party to organise and unify the risks and the markets for the clients’ needs. This, however, will change as technology offers new possibilities for real time risk data aggregation and interpretation. These technologies have the potential to redefine the speed and frequency of how insurable risk is assessed, priced and sold. New models of near real-time risk transfer and spot markets will be developed from the complexity of the data driven world.
The final macro trend is around the dramatic workforce changes from permanent employees to project specific or “gig” employees. While there is disagreement about the actual numbers of these employees, the consensus is that these “gig” employees are growing and today are potentially up to 30% of the US workforce.
Businesses will move to an employee base that is highly mobile and that works from project to project. These contractors (not employees) will decide what they want to work on based on their interest in the project and monetary needs. A key element of these new workers is that each will shoulder more risk individually and will make risk transfer and mitigation decisions that align with their employment model. Much like the changes in transactions, the structure between employer and employee will fundamentally change how these workers evaluate and respond to risk. Flexibility and focus become the key attributes of the new workforce and the labour pool will dictate how companies utilise resources and capabilities.
So, you are asking yourself, what do these trends mean to brokers and the insurance industry? Let me offer a few observations:
The days of being a generalist with scale are gone. It doesn’t matter today that you have tens of thousands of people operating in 150 countries, no client really cares. What does matter is that you have experts and relevant scale that understands the clients business, risk, and culture. Clients will want to quickly and easily identify your expertise. Less is more.
Tradeoffs are the currency in authenticity. Clients understand the no one can be all things to all people and any firms that pretend that they can do it eventually lose their credibility. Customers, when dealing with specialists, expect tradeoffs. Price may be lower or higher, it may require a different process, or a different philosophy to accessing and aggregating experts in order to fulfill the client needs.
Transactions are becoming smaller, faster, and more specialised. Brokers need to ensure that our transactional model allows for quick and efficient transactions. Clients will expect transactions that only provide for the capacity they need and nothing more. Easy transactions that provide all the relevant information. Policy issuance is immediate and the ability to move in and out of risks is made simple and easy.
Borders and boundaries are meaningless. Clients don’t care where the experts reside, just that they have access to this expertise and it is applied to solve their problem or needs. Clients want the best people to solve their problems and to be focused on their specific needs.
Brands are relevant but tailored service and meeting the client needs will always win. Brands provide a foundation of trust and expectation, but the brand is more powerful when it supports the specific needs of the client.
Returning to where I began, our aim needs to be on the future. As an industry we need to recognise that the world is rapidly changing around us and if we are not aware of these trends, we will all be left behind.