How is technology changing insurance distribution?

Almost every industry is feeling the impact of technology on customer expectations and business models. Insurance is no exception, as a recent Insurtech event revealed.

Over 200 brokers, insurers, underwriting agencies and insurtech founders attended the event, which was co-hosted by Macquarie Bank and Insurtech Australia. They all shared an understanding that change is already underway – and that what they do next will ultimately determine their business’ future.

“We’re all experiencing the effect of this fourth industrial revolution, as World Economic Forum describes it, both personally and professionally, said Eoghan Trehy, Macquarie’s National Head of Insurance Broking. “Getting together at an event like this lets us all understand where insurtech is having an influence – here and globally – on broking, underwriting and claims.”

Distribution is the first target

Insurtech Australia’s Severin Stoetzer noted in that almost 60% of insurtechs currently target distribution and products – rather than business efficiency, claims management or data and analytics.1

And according to Trehy, one reason for this focus is the cluttered traditional insurance value chain.

“There are many players involved in the insurance supply chain, and technology may enable some of those participants to be leapfrogged in delivering value to the client – for example, reinsurers reaching clients directly,” he explained.

But he sees technology as an enabler of the value chain – rather than a disruptor. “It’s about enhancing the experience, giving customers what they want when they want it, finding new ways to improve operational efficiency, and removing friction points.”

Given this focus on distribution, is disintermediation of the insurance value chain a real possibility?

Technology is an enabler of the value chain – rather than a disruptor. It’s about enhancing the experience, giving customers what they want when they want it, finding new ways to improve operational efficiency, removing friction points.

According to the panel discussion, this ultimately depends on the value each participant creates along the way. Perceived value balances both benefits and cost, so insurtechs that reduce the pressure of operating costs (such as low-cost claims management) are increasingly attractive.

“The reason there are so many parties in the supply chain is we are all specialists at what we do. To survive, we need to hone in and do what we do best,” explained Alison Brough, National Manager of Strategy and Key Partnerships with Allianz.

She talked about the additional value of combined expertise: “We need to enhance each other’s role, rather than threaten their existence.”

Trehy believes those controlling the relationships are relatively secure. “One of the things we learned through our study tour to the United States last year was that startups need distribution. If they get that before an incumbent innovates, the startup may potentially have the upper hand.”

But this typically has happened elsewhere when startups create entirely new value chains, fuelled by external capital – as Uber did in the taxi industry. Trehy doesn’t see that happening to the same extent in insurance.

“Insurtech is bringing in clever ideas, but it is making incremental improvements to legacy systems rather than complete transformations,” he explained. “Incumbents are providing capital to startups and insurtechs that show new ways to enhance their current offering. Tech that integrates with their existing platforms and removes traditionally clunky processes.”

Oliver Wyman’s Angat Sandhu believes Australia is poised to see more capital investment in insurtech coming through. “We’ve seen a lot of activity globally, and things in Australia will start to change,” he noted during the panel discussions.

However, Trehy is concerned by the slow commitment to investment from Australia’s insurance broker community in general.

“In our benchmarking, we asked brokers where they planned to make a significant change or investment in IT or software systems over the next three years. 21% said none at all – and more than half were focused solely on investing in their website.”2

Panellist Simon O’Dell, Insurtech Australia’s CEO, believes brokers are in the best position to partner with insurtech. “It’s a way to outsource innovation, to transition through to the industry of tomorrow.”

The panel also agreed legacy systems are a hindrance. “We’re using platforms that are 30-plus years old and while we’re transacting online it’s clunky,” commented Austbrokers General Manager Rebecca Wilson. “If we can do things online more efficiently, we should improve relationships further because we’ve given phenomenal service.”

From distribution to data

Although technology has so far focused on distribution, the panellists noted the opportunity for data analytics – and they expect blockchain, artificial intelligence and machine learning to increasingly play a role in these areas. Data collection can be a significant friction point – but ‘big data’ offers potential to tailor more sophisticated insurance products and advice. 

Trehy believes blockchain needs to be explored at all parts of the value chain. “It could significantly simplify insurance delivery – someone will crack how to use distributed ledgers to capture data and streamline the customer experience very soon.”

One thing is certain: those legacy systems aren’t going to see the industry through the next few decades.

“I don’t think it’s a case of human versus machine, but understanding how the machine can take away the manual, clunky administrative and operational processes,” said Trehy. “That frees the broker to give advice to the end client and deliver tangible value when they need it most.”

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Unless stated otherwise, this material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.

1 Insurtech Australia presentation

2 Pursuing sustainable results, Insurance Broking benchmarking result, Macquarie Bank