Next year will see a massive shift for brokers across the market as a series of regulatory changes comes into force at the same time, creating a perfect storm for intermediaries.
A number of different pieces of regulation will come into effect in the six-month calendar window between April and September 2016. Firstly, the Competition and Markets Authority has given brokers until August 2016 to implement the directive on achieving greater transparency around the protection of no claims discounts.
August will also see the Insurance Act 2015 come fully into force, with reforms across a number of areas of commercial insurance. By then, brokers will have already had to manage the implementation of Flood Re, which guarantees affordable insurance for households in flood-prone areas, along with changes to the rules governing the sale of add-ons following a review by the Financial Conduct Authority (FCA).
The FCA has also just published proposals that would require general insurance providers to publish details of last year’s premium on renewal notices, creating a further regulatory burden.
In particular, the changes to the rules governing add-on sales have the potential to result in far-reaching changes for brokers. From April 2016, the opt-out selling of add-ons will be banned – and, with add-ons defined as anything above base cover, the impact is likely to be significant. The second wave from September 2016 will also bring significant changes, as all add-ons that are currently sold post-quote will need to be included within the quote process itself. This need to ask the questions earlier means changing everything, from all the aggregator sites to every piece of documentation.
It will be interesting to see how this affects the marketplace. Currently some firms are making a lot of money from add-ons, which enables them to offer policies at discounted rates and then recoup the difference through the sale of add-ons. When the changes come into effect, are we going to see stripped back policies? While there will be more paperwork to obtain consent for each add-on, there is also the opportunity for product innovation to drive change and enable brokers to gain a competitive advantage.
For example, some of the larger players may look to circumvent the changes by bundling add-ons together. We have already seen this strategy being successfully deployed in other sectors, with cable/satellite television providers offering different levels of add-on packages, such as the Family Bundle or Sports Bundle.
One thing is certain – while technology providers have a lot to do, technology is not the only thing that needs to change. All of this regulation is set to be both a threat and an opportunity for brokers, and they will need to make fundamental changes across the board to meet these demands. Everything from their business processes and products to pricing and distribution needs to change as a result, and it is difficult to see the upside of such widespread upheaval.
So how can brokers sustain so much change in such a short period of time? To be able to deliver this effectively, brokers will need the extra intelligence to analyse their target market, as well as the impact of change on distribution and pricing, so that they can react quickly. This is one area where SSP can help, as our technology can measure the impact after the changes come into effect.
In such a period of flux, it is difficult for brokers to assess if they are competitive against one another, as all the usual benchmarking points will not be available until the market settles down again. It's just like dropping a pebble into a pond – the ensuing ripples obscure the usually calm surface until some form of order is once again established.
To ensure they remain competitive throughout all this instability, brokers need to have the flexibility to change very rapidly. This requires lots of experimentation in a short period of time, with multiple changes being implemented and tested, and the ability to learn from what does and doesn't work to ensure rapid implementation.
All of this means that brokers need to swiftly move from being a reactive consumer of data to being a proactive one in order to drive their decision-making. Adopting a forward-looking approach through forecasting and predictive/prescriptive analytics based on the data available enables brokers to respond pre-emptively. Such prescriptive analytics can even make the decisions for them based on the information around customers' previous behaviour.
With this need to react rapidly to move forward, it is going to be interesting to see how the industry comes together and responds to regulatory change. Working with trusted partners, and in particular software providers, will dictate who wins and who loses on this roller-coaster ride.
First published on bobsguide.
About the author
Head of Strategy and Propositions — SSP Select and SSP Adviser. “What interests me is understanding how the financial services and general insurance sectors are evolving and helping clients respond to the challenges that this brings. I really enjoy working with clients to identify the business and operational drivers of value and then designing and delivering innovative insurance solutions that help them to meet tomorrow’s challenges.”More content by Sham Gill