In a previous article, we explored the implications for GDPR on distributors and noted that rather than considering data protection a burden, forward-thinking firms think of it as an opportunity.
Regulations are an impetus to change and as such they present an opening to make business-improving changes that have been pushed off for fear of operational disruption. If you're going to be disrupted either way, you might as well get something out of the deal that will pay dividends going forward. Improving business architecture, workflow delineations, data management, and underlying technology all have far reaching benefits.
In this series of three articles we develop that theme further and:
- Outline the business imperative for taking a long-term, strategic view to compliance,
- Consider the business case for a centralized approach to data management and protection, and
- Provide guidance on implementing a future-proofed business management solution.
Insurance Brokerage Is Changing
The general business environment is getting tougher:
- Growing competition and shrinking commissions are causing brokers to find competitive advantage in different ways. Cost savings and customer retention has become critical, forcing brokers to look for ways to drive sales and customer convenience while keeping costs low and maintaining profitability. Their differentiator is not the policy wording but the added-value service they provide the customer in areas like risk assessment, claims management, and streamlined renewals.
- Exposure to risk is growing rapidly due to market trends such as globalization, which require new, more complex, policies. Brokers are expected to quickly find the right cross-border coverage with the right insurer at the right liability limits.
- As older staff retire they’re being replaced with tech-savvy graduates, and compensation structures are changing to reduce salary and increase success-based components. This and the struggle to smoothly and efficiently train a new generation of agents and brokers is contributing to the need for better organized and integrated, more procedurally defined, and more intelligently automated business management technologies.
- The threat of cyberattack is increasing. A survey by Zurich Insurance found that nearly 900,000 UK SMEs suffered a cybersecurity breach in the last 12 months and regular news items remind us of how big and bad the problem is.
The Growing Impact of Regulation
Regulatory compliance isn’t optional and is arguably the main driver for changes to insurance distribution models. Regulations change frequently which means organizations must continually plan ahead and be able to modify their processes and systems to meet new compliance demands while attending to their day-to-day business activities.
All countries have regulations affecting agents and brokers — there's a useful high-level summary here — and some of the main ones are:
- The EU General Data Protection Regulation (GDPR) and the US equivalent Data Security and Breach Notification Act that entered the US Senate in November.
- The EU Insurance Distribution Directive takes effect in October of 2018 with the aim of providing greater transparency in the price and costs of insurance products. It defines the information that should be given to consumers before they sign an insurance contract, imposes certain conduct of business and transparency rules on distributors, and clarifies procedures and rules for cross-border business.
- The Market Conduct Annual Statement is a mandatory filing for companies in the insurance sector, introduced by The National Association of Insurance Commissioners to help US states evaluate company conduct. This, and broader financial services regulations such as the Dodd-Frank Wall Street Reform Act and the Sarbanes-Oxley Act, place a heavy reporting burden on companies that fall under their scope.
- The UK FCA senior managers and certification regime which is being extended to the insurance sector in mid-2019. It's designed to make sure that senior managers within regulated firms are held accountable for misconduct within their areas of responsibility and ensure that individuals at all levels can be held to appropriate standards of conduct.
Failure to comply with any of these regulations could result in heavy fines as well as significant reputational damage.
Old Insurance Distribution Models Fail In the Face of New Business Challenges
The following business challenges mean currently operating insurance distribution models must change.
Many insurance distribution firms are beleaguered by workflows that are disjointed and slow. Manual processes, such as data re-keying and multiple handoffs, take a long time and are error prone, meaning they often require rework. Documents are stored as hardcopy or on local systems, meaning they are difficult to share or re-use. Without integration between offices, countries or teams, knowledge isn’t shared, more time is lost, and customers and staff become frustrated.
If this description applies to your business, regulation is the least of your worries. At the same time, it may provide exactly the type of "kick in the butt" that you need to finally make a change.
2. Information management
Most distributors are sitting on a gold mine of data but are unable to use it because of technology limitations. For these businesses, data is siloed and accessible only to selected departments and cluttered with a lot of historic information that is of no value to the organization. Analytics are basic, slow, and unable to deliver the real-time insights you need.
Again if this is you, smarter, more centralized management systems will not only ensure regulatory compliance, but will breathe new life (and actionable profit-enabling insights) into you daily operations.
3. Business controls
In the absence of valuable information, management can’t control the business properly. KPIs and critical success factors are overlooked, or worse, cannot be accurately measured. Knowledge about the organization’s key asset – its customers – is buried, and there is no single, reliable view of overall business performance. The problem is compounded when managing multinational customers who are serviced by different offices.
While this problem is complex, its solution is usually quite simple. Businesses beset by such troubles need smart CRM, ERP, and documentation portals to track and recommend directives in order to meet well defined KPI benchmarks.
4. Technology support
If your technology platforms are no longer able to support the changing needs of the business, it’s safe to say that you need a technology makeover. Legacy systems are inflexible, meaning that integration with new technologies is difficult if not impossible, and some are nearing the end of their life as suppliers withdraw support. Systems might have a regional or country focus which means support for multinational clients is difficult.
Building a Business Case for Change
Moving from the current to a new operating model that addresses this business imperative isn’t straightforward. In our experience, a business case has to be developed that lays out the likely costs of sticking with current arrangements, versus the costs and benefits of moving to new insurance distribution models. And that’s the subject of our next article.