As I write this, I’m travelling to Brussels to meet Nic De Maesschalck, who runs BIPAR, the European Federation of Insurance Intermediaries, which groups 48 national intermediary associations in 32 countries. So, it should come as no surprise that I, and many of those around me, understand that brokers matter. But one thing I have learnt over the 10 years I have been doing this job is that not everyone is blessed with this knowledge. That is especially true for the specialty sector – what I like to call the glamorous end of the insurance industry – that LIIBA members inhabit.
Getting on the same page
In South Africa, you’re fortunate to enjoy a supportive partnership with your government and regulator, but many governments and regulators around the world don’t get insurance broking.
In many countries, regulators and governments presume brokers to be the transactional purchasers of insurance on behalf of consumers. When they look at a distribution chain with more than one intermediary in it, they assume it is bad value. They are conditioned to see our whole industry in the context of motor and home policies sold to the general public. In that context, cross-border trade in insurance seems anathema to them. This results in poor public policy and sub-optimal supervisory strategies.
So, we commissioned a report – Innovation Imperative: why brokers matter more than ever – to educate and communicate the true value of specialty brokers. We wanted to tell the story of the wide range of risk management services that brokers deliver. But, we needed to tell it in a context that governments and regulators internationally would care about. Hence, the focus is on the growing protection gaps around things like cyber and natural catastrophe.
Changing face of risk
Even though the intermediary sector in South Africa works closely with the government and regulator, this report still holds value. The nature of risk is changing fast.
On the cyber front, corporate clients are becoming more and more dependent on tech and data. Cyber attacks and systems outages disrupt services and expose weaknesses in supply chains.
From an environmental perspective, extreme weather events are getting more prevalent and more violent. From Australia to California and multiple instances elsewhere, we have seen the damage this can wreak. While some may dismiss the climate crisis as “the world’s biggest con job”, the evidence suggests otherwise.
The third trend we are seeing is an increase of geopolitical instability. For global companies that tend to buy their insurance in London, this is a major issue. The value of those firms is increasingly wrapped up in intangible assets. Over 90% of the value of S&P 500 firms is in things like brand and intellectual property – not the physical things we traditionally cover.
Closing the gap
We, as an industry, have thus far not evolved to deliver the solutions clients need to manage this changing risk profile. We call it the “innovation gap”. And, if we are to close it, we need to address a number of issues.
Firstly, we need recognition that brokers are going to be key. You are the engine room of innovation. You identify new risk; analyse it; model it so it can be insured. You help clients mitigate risk in the best way possible, which may or may not involve the purchase of insurance. You find clients around the world with similar risk exposure to build demand for new products. Then you negotiate with insurers to get the best cover and price for your clients. You also do all the admin that makes sure the policies function properly.
One of the things that needs to change is how the rest of our industry views this innovative role of the broker. It tends to be referred to as a distribution “cost”. And costs are something we try to minimise. In reality, it is an investment in research and development and needs to be viewed as such and nurtured if we are to begin to close the gaps.
Insurance is risk averse by its nature. But when it comes to emerging risk, we need to throw off this particular shackle. Lloyd’s has started this by allowing managing agents to allocate capital to innovation. Regulators need to expand the sandbox concept to further encourage inventiveness, and accept that some failures can be good at the macro level – if they deliver lessons and build the knowledge needed to find the ultimate solution.
International regulators also need to stop obstructing the flow of expertise across borders through unhelpful licensing arrangements. If a broker demonstrably owns the relationship with their client and is licensed in the country where the client is based, then they should be free to draw on the expertise of other brokers without any need for them also to be licensed there. Any other approach just adds cost and complexity and diminishes the client outcome.
Governments need to recognise the beauty of all this and facilitate it. They need to embrace public/private partnerships where required and consider tax incentives to promote the cover of emerging risk.
Insurance brokers are the drivers of growth, not just in the insurance industry but in every industry in every economy. Your input was integral to developing the Innovation Imperative.
We will now take this story to the people who need to hear it – drawing on and utilising the global network through the World Federation of Insurance Intermediaries, of which the FIA is a member. Now is the time to spread the word.