It only makes sense that as an economy grows, the need for insurance also increases. For instance, consider non-life insurance. As the average household income grows, the more high-value possessions they will own. The more they have to protect, the more likely people will turn to insurance brokers to try to protect them.
The same thing can be seen in the Philippines. In terms of growth, the insurance brokerage in the country is showing remarkable growth. According to the Insurance Commission, for 2017, premium income generated by brokerage activities rose on the back of mediated profit in the non-life segment. From P52.07 billion in 2016, the tally recorded for 2017 grew to P57.92 billion as reported by 63 insurance brokerage firms, 11.23% higher.
Brokerage activities accounted for 20.56% or P57.08 billion of the P227.58 billion total premium generated by life and non-life firms.
Broken down, more than four-fifths or 83.54% of the mediated premium generated last year came from the non-life insurance industry, totaling P48.38 billion. The mediated premium from life insurance, meanwhile, amounted to P8.7 billion, representing 15.02% of the total.
The Insurance Commission also reported that the industry posted a total of P7.32 billion in terms of brokerage revenue or commissions earned as of end-2017, 12.1% higher than the P6.53 billion a year ago. Most of such commissions came from the non-life segment, totalling P6.17 billion and representing 84.21% of total earners
Insurance brokerage encompasses insurance brokerage firms, insurance brokers or agents, and brokerage fees. A brokerage fee is paid to a broker or an agent for executing a transaction for a client on behalf of an insurer or an insurance brokerage firm.
The positive results in the local insurance brokerage industry bodes well with the projections for the rest of the world. According to London-based market research firm Technavio, the global market is expected to grow at a compound annual growth rate (CAGR) of 4.69% from 2018 to 2022.
However, perhaps more so than other industries, insurance brokerage would need to adapt to a changing landscape brought by innovations and emerging digital technologies. The digital economy poses a significant threat to the industry, encroaching on the responsibilities of brokers and disintermediating them. To remain relevant, there is a pressing need to adapt to, and embrace, digital transformation.
Fintech, for instance, is changing how people interact with insurance brokers. As customers seek out faster, more personalized services through technological means, the broker’s role is being displaced. For even experienced brokers, it simply would not be feasible to compete with the more accurate, more convenient services fintech can offer.
Global professional services firm Accenture, which provides a range of solutions in strategy, consulting, digital, technology, and insurance, believes that brokers all over the world are facing rising customer expectations; the growing disintermediation as carriers and insurance newcomers woo purchasers; changing risk mitigation requirements; increasing competition from rivals using sophisticated data analytics; and a surge in alliances between insurers and smart tech firms that could shut them out of new business. Digital improvements and automation are also saving customers money in the form of lower intermediary commissions and fees.
“Brokers must be looking for ways to combat this decrease through innovation and service changes,” Accenture wrote in its blog.
“We also estimate that brokers’ revenues from mid-sized and large customers could shrink by up to 20%, driven by two complementary factors. On the one hand, increasing automation and improved risk prediction by customers are likely to reduce their need for insurance. And on the other, automation of the risk placement process in the more commoditized sectors of the market is likely to increase transparency and drive down prices, with commissions and fees following in tandem.”
Equipped with such technology, new entrants and start-ups are competing with brokers in their core business, poaching large accounts and small-to-medium enterprises by offering attractive and customized direct-to-customer services, like analytics-driven aggregation.
In Accenture’s report, ‘The broker of the future: Winning in a disruptive environment’, 84% of surveyed insurance executives agree that traditional organizations must hurry to become the first mover, evolving their business before they’re disrupted. Brokers taking the lead in digital transformation are reaping significant rewards.
Part of this transformation, the firm said, should look into platform business models.
“Insurance executives expect platform business models to become a big part of their growth strategies. As brokers look for ways to provide more value to customers, platforms are becoming more vital by increasing efficiencies, risk prevention and scalability,” Accenture wrote.
“Insurance brokering will not become obsolete. Customers will continue to seek out brokers’ independent advice. But, if brokers want to remain competitive in a time of stagnating growth, they must respond and adapt to increasing trends caused by digital disruption.” — Bjorn Biel M. Beltran