Article Synopsis :
Protecting against a new breed of emerging risks requires coordination among insurance buyers, insurance carriers, and policy makers. Insurance brokers are ideally placed to lead this ‘risk facilitation’. But as the pace of change within the marketplace accelerates, a major rethink of how brokers operate and compete is needed.
In “Broking 2020: leading from the front in a new era of risk”, PwC examines the forces reshaping the risk marketplace with an eye toward how brokers can ‘lead from the front.’ The report draws on the findings of a comprehensive survey of risk service buyers from a range of large international corporations, aiming to understand their changing priorities and expectations. The report also contains interviews with Dominic Christian, Executive Chairman of Aon Benfield International, Daniel S. Glaser, President and Chief Executive Officer of Marsh & McLennan Companies, and Stephen Hearn, Deputy CEO of the Willis Group, on the future of broking. Key findings are grouped as follows:
(A) Forces Transforming the Risk Landscape
PwCs STEEP framework groups insurance industry disruption in five categories:
- (S)ocial: Big data insights from various sources can be useful and also destructive. Negative news or misinformation (a.k.a., ‘fake news’) can result in digital wildfires leading to devaluation of a company.
- (T)echnology: Technology disruption is having positive and negative impacts across all industries. For brokers, it creates new opportunities such as cyber security-solutions, new forms of analytical capabilities and reduced operating costs.
- (E)nvironmental: Catastrophe liabilities are increasing along with infrastructural developments in many emerging countries. Brokers don’t yet have all the information required to ensure pricing adequacy in times of heavy losses.
- (E)conomic: Under-insurance threatens growth and the ability to recover from CAT disasters. Globalization brings supply-chain diffusion, raising concerns across several industries.
- (P)olitical: With respect to CAT disasters, governments in many countries are either unwilling or unable to play the role of insurer of last resort.
(B) Consultative Broking Demands Broader Information Gathering, Insight and Collaboration
The changing risk landscape requires brokers to lead with better insights and advisory capabilities. 74% of survey participants are looking to brokers for analytics to help improve decision-making. The demand on brokers to act as ‘partners’ is also up. Big data and advanced analytics will be crucial to effectively manage changing risk needs. Brokers must:
- Find new and creative ways to leverage big data and analytics.
- Collaborate more with government, academia, specialist risk consultants, and industry peers.
- Have a flexible operating model, designed to be more consultative and lean. Product and service offerings personalized by client are the goal.
(C) Stepping Up to the Demands of the New World
Changing market dynamics require brokers to assume the role of consultative partner who understands risks better than the buyers they’re selling to. Brokers must lead in:
- Identifying, quantifying, managing, and tracking a wide spectrum of emerging, or as yet ambiguous, threats.
- Mobilising corporations, insurance/reinsurance companies, capital markets, and global governments to develop a better understanding of certain threats, along with more efficient strategies for managing identified threats over time.
- Designing the optimal mix of self-insured retention, insurance, reinsurance, and capital market risk mitigation to economically protect corporations and the wider economy from the impact of catastrophic risks.
In this dynamic marketplace, brokers must find positive answers to the following five essential questions:
- Do you have clear enough insights into the rapidly shifting risks and pressures facing your clients?
- Do you have the expertise to turn advanced analytics into actionable solutions?
- Are you doing enough to bring together and make the most of the information, expertise and talent available to you within your organisation and among your partners and stakeholders?
- Do you have the operational efficiency and flexibility to respond to client’s changing channel and engagement choices in a sufficiently fast and economic way?
- Do you have the confidence of your clients, risk transfer partners and other key stakeholders needed to lead effective risk facilitation?
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Digital Insurer's CommentsInsurance buyers pay insurance brokers to create effective risk management solutions the buyers can’t create for themselves. A lot of what brokers used to do, especially in ‘standard’ coverages is being simplified and automated and is therefore on a path to being commoditized.
We agree with the report in that non-standard risks, especially those involving cyber risk and nanotechnology, are where forward-thinking brokers should seek differentiation. The technologies and risks and coverages are not only new, but changing on a seemingly daily basis. Savvy and sophisticated insurance buyers are looking to brokers to provide valuable insights in these frontier areas.
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