The success of the insurer/broker relationship relies on the precision of the alignment between the insurer’s risk appetite and broker submissions. To optimise this relationship, insurers and brokers must share an exhaustive population-scale view of the risk niches they are operating in.
For years, brokers have been instrumental in the selling and servicing of insurance products, controlling large chunks of distribution and firmly entrenching themselves in the market.
In the future, we believe that broker dependency will continue in specific niches and coexist alongside emerging digital channels driven by data availability. Small scale commercial risks will be priced, sold and serviced via digital platforms, and complex heterogeneous risk verticals will remain in the domain of the broker.
From the perspective of the consumer buying insurance for a non-standard risk, the persistence of brokers makes complete sense: obtaining business insurance can be complicated and confusing, and brokers are obligated by law to find you the best deal as well as provide information about risk reduction. But from the perspective of the insurer, these relationships can be less harmonious.
The success of the insurer/broker relationship relies on the precision of the alignment between the insurer’s risk appetite and broker submissions.
At high levels of precision, the insurer gains access to risks that match their target appetite which they believe will enable attractive loss ratios. At low levels of precision, expense ratios grow as the delta between risk submissions and risks bound widens, and an insurer's exposure sprawls outside of their target appetite.
Even if an insurer's portfolio mix is optimised to target the best performing segments, suboptimal broker allocation can result in adverse loss ratios as insurers have no way to gauge the quality of the risks that are being offered to them within their target segments.
The core of the problem is that insurers and brokers do not share an exhaustive population-scale view of the risk niches they are operating in.
An insurer’s view of the market is the totality of submissions they receive from brokers. This is at best unrepresentative and at worst misleadingly skewed. Insurers have no way to evaluate the fit between risks received and risks available within their appetite.
For example, an insurer might articulate to a broker that they are seeking local, mid-market sports facilities. The insurer then receives a set of submissions from a leisure-centric broker, but they have no means to evaluate whether the risks received represent the best risks within the segment, or whether the best risks are being sent to a competitor. Superior risks may simply lie outside of the domain of the broker, but the insurer has no way to gauge this.
Cytora Broker Benchmarking enables insurers to compare the risks received at submission to the total risks available within target segments and communicate to brokers where they are missing the most attractive risks.
Using Cytora Broker Benchmarking, insurers can revise their broker mix continuously, and optimise how they articulate their appetite to better represent their overall portfolio strategy.
Brokers also benefit from having a view of the individual risks targeted by each insurer. A population-scale view enables brokers to improve the precision of risk allocation, ensuring each risk fits the insurer’s appetite.
To learn more about Cytora Broker Benchmarking, please contact us.