Rumors of Retail Insurance Brokers’ Demise Are Greatly Exaggerated, but to Remain Indispensable, They Must Embrace Insurtech
I’m old enough to remember when leading insurance publications offered headlines like “7 reasons the insurance agent is a dead profession” amidst the proliferation of Insurtech startups and their venture capital partners seeking to reorganize the insurance distribution channel. So is my 5-year-old.
Retail Insurance Distribution: Defying Expectations and Thriving
The good news for “traditional” agents and brokers is that their role in the channel has endured, and, if anything, retail insurance distribution has elevated itself among channel participants based on its resilience (think back to COVID-era results).
In fact, since 2016, the aggregate revenues of the “Top 100” insurance agents and brokers have increased by 77%+, while every slot on the list, one through 100, reflects a greater revenue amount — clearly not solely a function of industry consolidation.
And if one were to contrast the market performance of a broad insurance index versus the best-known purported Insurtech “disruptors,” they would be pleased to be included among the former, not the latter.
Origins of Retail Resilience
While surprising to many without deep experience in the insurance industry, retail resilience has several origins. The economics of retail — low capex, readily scaled expenses, healthy cash flows, recurring revenue streams, and resilience to economic shocks — make the industry attractive to private equity and other sources of stable capital (family offices, pension funds etc.).
It never hurts to have powerful, well-capitalized friends when it comes to having a durable place within an industry channel; the shape and composition of the channel may change (so may its participants), but you will be organized around, not out.
Further, retail owns the relationships. Indeed, where coverage is compulsory and commoditized and the insurable values minimal, consumers might be less motivated to seek a relationship with a provider. They may prioritize immediacy of fulfillment: search, click, buy, forget, repeat.
For the most part, however, consumers (commercial or individual) with any real exposure (e.g., assets at risk) prefer that an expert be involved in the consumption decision. After all, insurance is a contract, and not everyone likes to read or understand them; they want a qualified person to tell them it’s taken care of.
My rule of thumb: If they use lawyers and tax services, they will use an insurance broker.
That’s the good news.
The Influence of Insurtech on Retail Distribution
Here is the other news.
Insurtechs have built some very good technology. It should now be clear that they will not displace the retail broker layer. But as they seek to reorient their efforts and apply their technology within the retail distribution environment, they may well determine the winners and losers within retail.
While individual businesses will have priorities influenced by circumstantial variables (capital constraints, market conditions, timelines relating to material events etc.), all retail distribution will be generally focused on organic growth, profitability/productivity, scalability and sustainability.
The retail businesses that are most adept at evaluating, assimilating and integrating the best Insurtech product offerings will have a decided advantage as those offerings materially impact the range of achievable performance outcomes within retail environments across each dimension of interest.
The ability of a business to harness business information and data informs demand generation, lead generation, lead distribution and valid business development campaigns.
Broadly categorized as “digital marketing,” these activities correlate strongly with organic growth. The ability to identify, integrate and customize complementary CRM/marketing, agency/policy management systems, and financial technology to efficiently orchestrate centralized revenue support activities positions a distribution business for favorable growth.
According to a large survey commissioned by Nationwide, the impact of a well-tuned digital marketing regime is significant — associated with 80%+ higher rates of organic growth.
Automation and machine learning are also making a significant business impact, extending the efficiency frontier in terms of profitability and productivity.
Retail Insurance and Insurtech: A Promising Partnership for the Future
Operational excellence initiatives that don’t incorporate and account for the capability and capacity expansion offered by leading Insurtech infrastructure product offerings are simply not credible — the operations function within a retail distribution platform must now encompass tech-enablement and automation to be effective and to produce competitive financial results.
Insurtech product offerings are also essential to ensuring that well-designed retail distribution ecosystems are able to scale and sustain — frankly, scalability and sustainability are two of the most important and favorable attributes inherently available through the proper development of an internal technology architecture aligned with the vision, priorities and objectives of a particular business.
Retail isn’t dead.
Insurtech isn’t either. The ability of the former to incorporate the latter will determine competitive differentiation and success in the retail layer and within the distribution channel more broadly. &