For insurance brokers and carriers alike, the ground is shifting. Heightened regulations, digitization, new technologies, changing consumer demands, and increased competition require new and better distribution strategies. Most importantly, relationships between brokers and carriers must be sound to effectively address today’s market challenges. To that end, brokers are adapting their business models and carriers are implementing new strategies to help brokers succeed in the face of current market dynamics.
The Changing Landscape
As if insurers and brokers weren’t already grappling with adjusting their business models to drive higher sales and profitability, new regulations have introduced additional challenges. Consumers’ “best interests” are a top priority for regulators. In New York State, for example, the Department of Financial Services (DFS) published its Regulation 187 designed to facilitate best interest insurance and annuity product recommendations on the parts of insurers and brokers. It requires an integrated, end-to-end approach requiring that producers’ recommendations meet best interest standards of care or suitability, cover various disclosures, and meet the consumers’ insurance needs and financial goals.
Also mandated under Regulation 187 is the requirement for insurers to establish and maintain a system of supervision encompassing standards and procedures that facilitate their and the producers’ compliance, as well as audits to assure compliance and diligent recordkeeping of information pertaining to customers’ financial situations and the producers’ recommendations. Regulation 187, which became effective February 1, 2020, for insurance products (August 1, 2019, for annuities), requires insurers to modify their sales process and producer supervision methods, and producers to implement measures to train their staff regarding these heightened best interest standards. Nevada also has passed similar best interest legislation requiring brokers and agents to serve in a fiduciary capacity. It may not be long before these regulations become national as New York State is already urging the National Association of Insurance Commissioners to implement nationwide best interest rules for life insurers.
Consumer privacy is also in the spotlight with states looking at new regulations to protect their residents. In California, the State enacted the California Consumer Privacy Act of 2018 which takes effect July 2020. It will expand consumers’ data protection rights. For example, consumers can opt out of a sale of their personal information by a business which is prohibited from discriminating against them for opting out by charging them a higher price. Under the law, consumers also will have the right to pursue legal action in response to violations of this law and the State’s Attorney General also can pursue civil penalties. Again, insurers and brokers must be diligent in complying with this new legislation.
Besides state regulations, there are new pressures on insurers and brokers coming from the International Association of Insurance Supervisors (IAIS). The IAIS is calling on them to implement measures to become more technologically advanced. These measures can pose challenges and risks to both operations and underwriting. Additionally, with an emphasis on becoming more cyber secure, new operating costs are introduced as companies must take ongoing measures to secure their information technology system and implement new cyber security policies and training programs.
The influx of fin-tech companies has levied new demands on insurers and brokers to digitize their operations. There is little doubt that the younger generations, in particular, expect their digital lifestyles to be accommodated by any company that wants their business. Keep in mind too that these Millennials are not just customers, but many are also decision makers in the companies that employ them. Survey after survey shows that Millennials believe that mobile access is essential. By going digital, offering consumers a seamless, online and 24/7 access to product information, claims status, etc., insurers and brokers better position themselves to compete against the “all-in” digital fin-tech companies.
Digitization and the enhanced consumer experience and engagement it delivers notwithstanding, new technologies enable insurers and brokers to build a more resilient infrastructure. They also assist in better access and leverage of “Big Data” and its value proposition in terms of predictive analytics that promote more effective target marketing, personalized customer relationship management (CRM) and sales strategies. For some brokers, data is helping them identify specific niches where they are most likely to be successful, while others are utilizing data-driven market intelligence to advance their expansion plans. Additionally, data is helping insurers gain valuable risk insights that enable them to establish better underwriting and pricing models to address new market influences (i.e., increased competition and regulation, as well as changing consumer demands). A McKinsey survey of middle market brokers found that brokers applying data and related analytics experience faster growth rates and improved competitive edge.
New Broker Strategies
Successfully navigating today’s insurance industry terrain requires brokers to move away from the traditional model of product focus and transactions. Instead, they must move toward a more fiduciary role wherein they emphasize financial wellness in serving their customers. This, of course, requires a more in-depth approach to discovering what each customer needs and wants in terms of financial protection and security.
Borrowing from the financial planners’ model, conducting a thorough discovery and risk assessment to gauge an individual’s and/or organization’s financial situation, risks, and risk tolerance, is essential. Considering the “best interests” regulations now being promulgated, implementing this strategy is becoming less of a choice than a necessity.
Also essential is for brokers to begin adopting new technologies to provide the seamless digital experience more and more consumers expect. Working with a technology solution provider that understands the insurance industry can help a brokerage gain the tools needed to optimize processes and support a best-in-class customer experience. As part of their adoption of advanced technologies, brokers should also strive to maintain cyber safe operations that not only protect their organizations’ data, but also their customers’ sensitive data. In addition to staying abreast of the latest cyber threats and implementing all recommended cyber security measures, brokers should be diligent in raising the awareness of their staff regarding cyber safe practices, ranging from regularly changing passwords to not opening certain type emails associated with malware and phishing attacks.
Applying these strategies, brokers can expect to attract and retain customers most suitable to that broker’s business model. Further, they will be in a better position to build improved relationships with carriers who recognize that their more resilient business practices are likely to contribute to higher product sales. Of course, the carriers are supporting brokers in ways that go beyond providing a robust portfolio of high quality insurance solutions and employee benefits.
Carriers Support Broker Goals
Carriers recognize their responsibility to brokers marketing their products. They too know the value of introducing new digital platforms for easy access to their product information, as well as maintaining a strong cyber security information technology infrastructure. Today’s market-responsive carriers, attuned to consumer needs, are also continually introducing new voluntary products that meet those needs. These range from identity theft and credit monitoring solutions to new portable insurance products that accommodate today’s more mobile workforce. There are also greater measures to support consumers’ greater financial literacy and better understanding the role of each insurance product and/or employee benefit. Carriers are sending product specialists right to the worksite on enrollment days to assist in educating employees about different products, best coverage amounts, and how they will help achieve vital financial protections.
They are also enlisting brokers in new ways such as carrier broker councils designed to extract information and insights from brokers about what they are observing and experiencing in the marketplace. These exchanges provide an opportunity for carriers to better respond to both the market’s needs and those of the brokers to support a stronger distribution channel. Also with this goal in mind, carriers are looking at new and improved ways of managing and reducing risks that impact everyone. They are introducing new risk management solutions, industry-specific risk strategies, and launching solutions that target some of the greatest pain points of customers such as escalating healthcare costs being addressed with medical stop loss insurance and high cost specialty drugs tackled by specialty drug cost management solutions. Their leadership too is becoming more self-reflective, moving away from business as usual and striving to adopt new measures that help it and its broker network succeed. Whereas several decades ago insurers’ profitability rested largely on their positive underwriting, today their relationships with brokers are more important than ever. Some are even going as far as saying that a power shift is occurring that is leveling the playing field among insurers and their brokers. Mergers and acquisitions among the nation’s larger brokers are contributing to this power shift.
In the end, relationships are what still matter most; relationships between brokers and their customers, insurers and customers, and insurers and brokers. Building trust with customers and between themselves is tantamount to success for brokers and insurers regardless of the changing landscape and the new challenges it has introduced.