As I write this, I’m travelling to Brussels to meet to meet Nic De Maesschalck who runs the European Federation of Insurance Intermediaries to discuss, among other things, the future of our industry. It’s a timely reminder of just how vital insurance brokers are - not only to the functioning of global markets but to the resilience of businesses and communities everywhere.
Yet, after 10 years representing the broking profession, one thing I’ve learned is that those of us who truly understand the central role brokers play are still in the minority. And that is especially true for the specialty sector, what I like to call the glamorous end of the insurance industry, which LIIBA members inhabit.
Most governments, and certainly most regulators, around the world don’t get insurance broking. They presume brokers to be the transactional purchasers of insurance on behalf consumers. They view a distribution chain with more than one intermediary in it and 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 an anathema. 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 government and regulators care about. So the focus is on the growing protection gaps around things like cyber and natural catastrophe - something the relevant authorities are alive to and care about.
The nature of risk is changing. More and more, corporate clients are dependent on tech and data. Cyberattacks and systems outages disrupt services and expose weaknesses in supply chains.
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.
Geopolitical instability is also on the rise, posing significant challenges for multinational clients that rely on the London Market for complex coverage solutions.
And the value of those firms is more and more 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.
So risk is changing fast. And thus far we have not evolved as an industry to deliver the solutions clients need to manage this changing profile. We call that the “innovation gap”. We need to address a number of issues if we are to close it.
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. And then you get to the stage that, in the eyes of governments and regulators, defines your entire role. You negotiate with insurers to get the best cover and price for your clients. And you do all the admin that makes sure the policies function properly.
So, 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.
Regulators also need to stop obstructing the flow of expertise across borders through unhelpful licencing arrangements. If a broker demonstrably owns the relationship with its client and is licenced in the country where the client is based then it should be free to draw on the expertise of other brokers without any need for them to also be licenced 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 - stand up public/private partnerships where required; look to use tax incentives to promote the cover of emerging risk; recognise that insurance brokers are the drivers of growth, not just in the insurance industry but in every industry, in every economy.
Armed with this evidence, we’re now taking the story to those who need to hear it most. Through our global network and our partnerships with associations worldwide, we’re determined to ensure policymakers, regulators, and the wider market understand one simple truth: brokers are not a cost in the system - they’re its engine of innovation.
