How might commercial insurers avoid a race to the bottom on price in an increasingly commoditized middle market?
The answer may be the adoption of a new business model in which carriers go beyond offering standard insurance policies and related risk-management services to become the hub in a comprehensive network of business support solutions.
To gain firsthand insights into how middle-market insurers could differentiate themselves by bundling an array of non-traditional services, the Deloitte Center for Financial Services surveyed 800 buyers, spread evenly across five industries and four business size categories. We also queried 100 agents and brokers with a large chunk of their business generated by this segment.
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|Behind the numbers
We asked both buyers and intermediaries to look at their insurers in an entirely new light — as a source of services adjacent and even unrelated to insurance that could help policyholders protect their assets as well as manage and grow their business.
Nine out of 10 buyers surveyed said they would “welcome” the chance to receive broader business-support services through their insurance company, while 86 out of 100 intermediaries indicated they would appreciate the opportunity to add such features to their sales repertoire.
While some possibilities seemed much more popular than others among buyers, at least one out of four surveyed expressed interest in each of the options provided (see figure 1).
Figure 1: Percentage of buyers interested in receiving non-insurance business services via insurers
Source: Deloitte Center for Financial Services, Middle Market Insurance Consumer Survey, 2017
Employee benefit administration was the clear favorite, chosen by nearly one-half of respondents. Property safety systems and security services were the second and third choices, respectively. Business-management advice, regulatory compliance help, and tech support were also picked by about one in three respondents.
A host of other possibilities, ranging from group discounts for office supplies and equipment, to business loans, payroll, and cloud computing services drew considerable interest as well.
In addition, when it came to being offered educational and business networking opportunities through their insurers, at least one out of three buyers expressed interest in each of the options presented.
Access to consultants focused on their particular industry and seminars or webcasts about insurance and risk management issues ranked highest, checked off by about half of those surveyed (see figure 2).
Figure 2: Percentage of buyers interested in receiving educational/networking services via insurers
Source: Deloitte Center for Financial Services, Middle Market Insurance Consumer Survey, 2017
|Next steps
What might it take for middle-market insurers to execute such a profound business model transformation?
To start, carriers need to get their distribution force solidly on board. Agents and brokers will likely want to know exactly what is expected of them and how they will be remunerated.
Beyond the potential for more revenue, however, insurers should make the case that they are looking not just to bolster their own value, market share, retention rates, and bottom line with these additional offerings, but to strengthen a customer's connection to their intermediaries as well.
The goal should be for middle-market agents and brokers to become broader business consultants, providing clients with customized, concierge services.
To make this work, insurers will also need to build relationships with non-insurance service providers. Indeed, the ability to create and maintain a comprehensive (and preferably exclusive) services network would be a critical differentiator for insurers following this path.
Carriers that don't feel comfortable creating a hub of their own could decide to join another facilitator's network of providers, becoming the insurance spoke in someone else's services wheel.
|Market pulse
The options laid out in this Deloitte research report are in line with a broader movement across industries toward bundling a wide variety of customized products and services and creating a diverse ecosystem under one central facilitator.
For example, many cable television companies aiming to discourage customers from casually switching carriers or cord-cutting are now offering telephone, Wi-Fi, cloud storage, home security, and cellular phone services as a package.
Indeed, such brand extensions into associated and even unrelated products and services are a fairly routine growth strategy for most industries, yet the vast majority of insurers have yet to explore that business model in depth.
Given the emerging competitive realities of the middle market, as well as how more consumers are gravitating toward greater convenience and one-stop shopping in other aspects of their business and personal lives, now may be the time to give bundling a shot before someone beats them to the punch.
To learn more about the challenges facing insurers in realizing such a transformation and how they might overcome them, please download “Building new ecosystems in middle-market insurance.”
Sam J. Friedman is insurance research leader with Deloitte's Center for Financial Services in New York. For many years, he was the Editor in Chief of National Underwriter's P&C edition. He can be reached by sending email to [email protected], or follow Sam on Twitter at @SamOnInsurance.
The opinions expressed here are his own.
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