The views expressed in this article are not necessarily those of the FIA. The article below was supplied by Navan Consulting.
This article was initially intended to discuss Brokers through the ages – What the data shows us. After initial research it quickly became apparent that very little data was immediately available to support the topic. However, it is safe to say there is a long and proud tradition of brokers and the role they have played in the insurance industry. An interesting article on Aviva’s website suggests that by the 1570s in the marine market “there were 30 sworn brokers in London who produced policies underwritten by London merchants.”
Over the years we have seen many changes to the broking market, and this is extremely relevant at the moment. Seven of the top eight risks facing brokers in 2018 detailed in an article in the UK newspaper The Telegraph in November 2017 are as relevant to the local market as they are to the UK. The list includes: skills shortage, demand to specialise, commoditisation and self-service, rise in automation, lack of insurance among SMEs, cyber security and uncertainty in markets
The Telegraph article makes a pertinent point: “To remain successful, the ability to evolve their [insurance brokers] services, business models and client relationships will continue to be key.”
It is useful to understand how many brokers operate in the local market. The closest I could come to an absolute number was from a table included in the Retail Distribution Review document published by the FSCA in late 2014 – yes, it really was that far back! The table gave the number of registered FSPs in May of that year as 10 270, and the number of representatives as 113 532. Of this number, more than one third are tied agents of insurers. When combined with bank representatives, more than half of these individuals represent either a banking or insurance group.
This suggests that there have been, and continues to be, a signi cant number of brokers operating in South Africa. What we also know is that there have been and will continue to be changes in the intermediary market – some suggesting that the current legislative and regulatory changes are likely to result in changes to the landscape. This is also being fuelled by technology supposedly providing the platform(s) for large-scale disruption.
But is this actually the reality or is there something else going on? What was the actual impact of regulatory changes in, for example, the UK market after the implementation of RDR there? While there was clearly a period of consolidation, the changes may not necessarily have been extreme as some suggest. This after factoring in people who retired from the industry or switched to other sectors for a variety of reasons.
Locally there is a lot of speculation about the impact of direct players on the local market. Analysis of the short-term market shows direct players account for a significant percentage of the domestic market and are more recently increasingly expanding their activities into the commercial and life markets. Equally, we tend to overlook the fact that most insurance companies, – especially, but not exclusively, the larger players – have a direct component of their own. This phenomenon, however, is extremely hard to measure.
Further analysis suggests that the majority of the local market overall remains intermediated – and this term is used in a calculated way. In this calculation we also need to consider how insurers are making use of, for example, tied agents.
So how do our local brokers stay relevant in the face of all the changes?
Much has been made recently of the rise of big data, arti cial intelligence, use of algorithms, robo- advisers, technology as a disruptor, and so on. All of this is relevant, and all of these are becoming very real factors impacting our industry.
One area of focus has been on the data component because, in many respects, this is what drives so many of the other changes. We do need to ask how much control brokers have over data, as well as how much data they own or are able to access.
What is increasingly important is what we are doing with the data we have at our disposal. This is where the ability to use data in a meaningful way can be used to provide input to enable better decision making. A useful tool to describe this is the Data-Information-Knowledge-Wisdom (DIKW) hierarchy, made popular by the systems thinking theorist Russell Acko.
DIKW suggests that information is derived from data – where data is analysed and re ned to produce information. The next component is the move from information to knowledge, and it’s been suggested that this is far more complex than originally thought. Knowledge is informed by extracting relevant elements from the information component, but then requires the application of human experience and skills.
This can also be described as insight. It may be argued that this is possibly the missing link between knowledge and wisdom. However, from a day-to-day business perspective, the ability to recognise issues, trends, etc. based on an understanding of our environment in order to derive insights, gives us the ability to make better – informed decisions.
It is then up to us to apply these insights in our particular circumstances to add value and differentiate individual o erings which will enable brokers to stay relevant. There is, as always, lots of opportunity out there. We simply need to understand where to end it.