One SizeDoes Not Fit All

Earlier in 2009, the IBAO commissioned Navicom Inc. to manage an in-depth market study that focused on the buying behaviours of consumers that purchase personal lines insurance from non-broker distribution channels. The results from this study are compelling on several levels. Most critically, we have validated our concerns that the Ontario personal lines insurance market is starting to fragment. This means new and different insurance purchase criteria that we observe now are changing how consumers make insurance decisions. Furthermore, new segments that have emerged identify different insurance buying criteria that may not be well served-by the traditional broker value proposition, and we have to educate ourselves in order to adapt. Finally, we know “market inertia” is playing a significant role in shaping Ontario’s insurance market dynamics and has the potential to work both “for and against” Ontario brokers. It is imperative that we fully understand the potential impact of each of these market forces and respond swiftly and definitively.

MARKET FRAGMENTATION

Market fragmentation exists when different market segments use different criteria by which they choose their insurance solutions. Market fragmentation means brokers are facing new customer segments that did not previously exist. These segments include customers who are new to the market, as well as current broker customers who are starting to see the market in a new way. The onset of market fragmentation has significant implications for Ontario brokers. For brokers, simply getting better at what many brokers already do well is not enough to help them win back some of the new customer segments who are not necessarily dissatisfied, but are increasingly aware of insurance options elsewhere. The same goes for attempting to attract certain new customers coming into the market who are looking at the various alternatives for purchasing insurance and possibly not seeing what they want in the traditional broker value proposition. Brokers need to change their approach of working in their business and start working on their business.

CHANGING CONSUMER EXPECTATIONS

If brokers are to continue to be perceived as offering superior value to the market, they need to ensure they are actually keeping up with market demands. Many brokers are working towards embracing technology in order to compete with the banks and direct sellers. But they are challenged by insurers that are either ignorant about the brokers’workflow or just don’t care. Introducing workflows like portals that require dual-entry, paper-based applications and automated renewal processes that require intervention are cause for concern. In addition, consumers are changing their communication model and increasingly people don’t want to be limited to doing business from nine to five. Telephone tag is inefficient and annoying, and “snail mail” is slow and tends to get ignored. The new reality is that for some segments of the population, traditional communication tactics are no longer effective.

Looking forward, brokers need to contemplate changes in their business model that will enable them to adapt to the changing demand. We need to work with our brokers and encourage them to get more actively involved in championing changes to internal processes. We need to be mindful that these investments need to be made not just in technology and process improvement, but also more fundamentally as it relates to our brand. Our brand needs to be refreshed and be flexible enough to mean different things to different people. We need to ensure we can reach out across market segments and be as relevant to the 19- year-old who’s moving out and looking for tenants insurance as we can to the 35-year-old parent who has “no time for insurance,” as we are to the 65-year-old who’s been a customer for 40 years.

MARKET INERTIA

Now add to this mix the complicating factor of market inertia. We know from a variety of different market intelligence sources that a significant driving force in the Ontario insurance market today is inertia. High school physics explains the concept of inertia through part of Newton’s Law, which states: “a body at rest tends to stay at rest, unless forces are applied.” So at one level, the biggest ‘plus’ brokers have going for them today is inertia. If people don’t see enough meaningful difference, they’re less inclined to change.

Force, however, is being applied by large organizations such as big banks and direct insurers, many of which are investing significantly in their personal lines insurance business. It’s hard for consumers not to notice competitive advertising in newspapers, TV, radio and of course the Internet. Banks in particular have massive reach. And even though they technically can’t sell insurance in their branches, we have seen recent examples in which they are now reaching out to their millions of customers with their personal lines insurance message. This is an example of market force being applied to the state of inertia. Brokers might not see the effect right away, but over time they will — which is a good enough reason to apply an effective counter force. Failure to take appropriate actions now will allow market forces to create an accelerating desire for change.

So the potential exists for inertia to stop working in favour of brokers, and now the other part of Newton’s Law comes into play: “a body in motion tends to stay in motion, unless forces are applied.” Once broker clients begin to look at alternative insurance options, they become exposed to different value propositions and at some point they may decide to switch. It’s not because customers think brokers are doing a bad job. It’s because they don’t fully appreciate or regularly experience the value of what brokers are doing for them. So brokers need to do more than simply continue what they’re doing, in the same way they are doing things today. They need to do a better job of reaching out to their existing consumer. When existing clients leave, we need to understand that many of them were not dissatisfied. They left because they were no longer engaged with the brokers’ value proposition. So if brokers want to stop the erosion of their market share, it is up to them, the IBAO and other key industry stakeholders to apply their own forces as a counter strategy.

COMMITMENT TO CHANGE

Ultimately, brokers and the IBAO need to be up to the challenge of better understanding how consumers perceive the broker value proposition. We need to sit down collectively and dissect the unique value that brokers bring to the entire marketplace, not just segments of the market. Our value proposition needs to appeal to current broker customers, customers who might leave or those who are just coming into the marketplace. Brokers don’t need to be all things to all people, but they do need to be more things to more people.

The best news is that brokers and their insurance company partners, in conjunction with the IBAO, absolutely have the necessary resources to effect the change that will ensure future success. But it’s time to start applying these resources in new and innovative ways. It’s a new reality in 2009 and now is the time for strong and decisive action. Fortunately for all of our key stakeholders, we are up to the task.

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Brokers need to change their approach of working in their business and start working on their business.