Brokers have been hearing about the risk of broker disintermediation for some time, which has increased with the advent of digital channels for buying and selling insurance products. However, according to Victor Canada’s Broker of the Future report, disintermediation is just a myth – an argument underscored by the fact that predictions of the broker channel dropping have not yet materialized.
« Disintermediation was a term coined a few years ago and the direct writer model versus the broker channel model, » said David Cook (pictured), President of Victor Canada. He noted that while this risk is not real, changes are underway and brokers need to be careful. « Right now, it’s not about disintermediation – it’s a shift in the industry with more insurtechs joining in, and more about disruption [in the broker channel]. »
Read more: Five key components of the successful « Broker of the Future »
Brokers in Canada have already recognized the power of technology to enable more direct sales of products, including insurance, and some brokers are uncertain how standard retail and potentially small commercial products will be sold in the future, according to Victor’s report Canada. It is possible that some or all of these products will be relocated to online sales channels. However, the report added that complex exposures that require specialized coverage are likely to « remain firmly within the realm of traditional brokers who can also provide valuable risk management advice ».
There is another crucial competitive advantage brokers bring with them.
« Brokers are often at the forefront when it comes to driving new product ideas, » said Cook. « They are the ones closest to the insured and can see where there are gaps in coverage that can lead to new solutions coming to market. »
Read more: To build or buy insurance technology? Brokers have the floor
He pointed to three examples demonstrating this point for a directors and officers discount insurance (D&O), environmental liability and cyber insurance. For one thing, there was D & amp; O first launched in the Canadian market in the 1980s but now it is an established insurance product thanks to the work of brokers. Similarly, environmental coverage was incorporated into the CGL guidelines until brokers and policyholders realized that this coverage had to be a standalone product rather than relying on the often limited CGL coverage, Cook noted. After all, cyber insurance was once a “nice to have” insurance and is now quickly becoming a consideration again for companies of all sizes as brokers recognize the need for it among their policyholders.
« Change tends to lead to innovation, and digital innovation will lead to greater efficiency. Brokers are focused on other things like expanding their expertise, reaching more markets and creating better customer experiences, » said Cook Insurance.
It is in these areas that Victor Canada brokers continue to differentiate themselves, especially now that COVID-19 has affected people’s lives and the Canadian economy so much.
Read more: How will COVID-19 change the face of the brokerage industry?
« Brokers can offer their clients unique expertise in understanding complex exposures, where there may be funding gaps and how to manage the claims process – [they know] how to stand up for the client, » added Cook.
What does disintermediation mean?
Disintermediation is the process of removing the middleman or intermediary from future transactions. In the financial sector, disintermediation means withdrawing funds from intermediary financial institutions such as banks and savings and credit associations in order to invest them directly.
How does disintermediation benefit the consumer?
Disintermediation has several advantages. Not only can this give consumers easier and more direct access to goods and services, but it can also mean lower prices, as supply chains are tightened and fees charged by traders and logistics providers are eliminated or greatly reduced.
What is a disintermediation risk?
Disintermediation Risk – refers to the potential for policyholders to be able to forego policies due to rising interest rates. If interest rates rise too quickly, policyholders can retire policies faster than expected, potentially creating cash flow obligations that exceed the return on fixed assets.
What is the most likely outcome of disintermediation?
Disintermediation can lower the overall cost of customer care and allow the manufacturer to increase profit margins and / or reduce prices. Disintermediation initiated by consumers is often the result of a high degree of market transparency, since buyers know the offer prices directly from the manufacturer.
What is an example of disintermediation?
Notable examples of disintermediation are Dell and Apple, who sell many of their systems direct to consumers, bypassing traditional retail chains. They have succeeded in creating customer-recognized brands that are profitable and continually growing.
How do you prevent disintermediation?
A single approach may not be effective in preventing disintermediation. Therefore, marketplaces need to implement a combination of the two approaches in order to leverage the strengths of both. If you want to own the buying process, you need to provide enough value in the transaction – for both the customer and the vendor.
What is the difference between disintermediation and re-intermediation?
Chaffey (2009) defines disintermediation as “the removal of intermediaries such as dealers or brokers who previously connected a company to its customers” and re-intermediation as “the creation of new intermediaries between customers and suppliers who provide services such as supplier search and product evaluation provide « .
How can disintermediation and re-intermediation play a role in improving business performance?
Disintermediation eliminates intermediaries in a supply chain, and re-intermediation adds new elements to the supply chain. Both events are also important to organizations in the travel industry such as travel agencies and tour operators.
How can a company use disintermediation to gain a competitive advantage?
By removing actors from the supply chain, disintermediation lowers costs and enables the manufacturer to both increase margins and at the same time establish a direct relationship with the end customer. However, it is not just manufacturers who use disintermediation.