What Does The Future of the Insurance Industry Look Like?

For years, decades even, there’s been a predominant way that small insurance brokers become larger entities and that is by merging and acquiring. Two smaller brokers merge, acquire a third, and suddenly, in a few short months, they’re a much larger broker.

But is that model really sustainable in 2023 and beyond? Let’s explore the general market and some of the issues insurers are facing.

The entire insurance industry has seen no end of challenges and issues in recent years, and brokers are operating in a hard market. As you know, a hard market is where there is higher demand for insurance but a decreased appetite to provide that insurance, due to increased risk. On a national scale, issues including Brexit, pressures on the NHS, and skyrocketing inflation have all seen claims costs rise dramatically. The Royal Gazette reported on March 7th 2023 at the Bermuda Risk Summit that this is the hardest market the industry has seen for 50 years.

Globally, geopolitical tensions surrounding Russia and Ukraine, China and the USA are also causing prices to rise. And of course years of Covid-19 lockdowns continue to impact on the economy as a whole.

These are just issues that are already biting. In 2023, the entire insurance industry can expect to see regulatory challenges, further changes to working methods and changing customer behaviours, especially when it comes to digital products.

With all this to contend with, mergers and acquisitions can no longer be the key driver of growth for the insurance industry. Growth will need to be organic, and it’ll need to be steady but what does the future hold in this area?

What does the future hold for the insurance industry?

Throughout 2021 and 2022, even with the dual challenges of Covid-19 and Brexit, the industry saw a heavy focus on mergers and acquisitions to acquire larger market share; however, in these earliest months of 2023, we’re seeing signs that times are changing.

Mergers and acquisitions have slowed, with organic growth seen as the low risk way to ensure success while meeting the year’s big challenges head on. In the US, mergers were down 8% in 2022 when compared to the figures for 2021 and, globally, things are set to be even more unpredictable in 2023.

Here are some of the challenges facing insurers in 2023:

• Underinsurance: The first of these challenges is underinsurance. Spiralling materials and labour costs brought on by double-digit inflation, combined with a lack of consumer education on this issue, means that many customers may be unable to fund rebuilding costs with their existing policies.
• Mergers & Acquisitions being less financially viable: The business valuation multipliers when calculating the value of a brokerage for sale have increased, due to the amount of M&A activity that has been happening in the sector. This means that it’s less commercially viable to acquire a new brokerage in the current financial climate.
• High Customer Demands: Demand for the benefits provided by newer forms of InsurTech is a market disruption that can’t be solved by a merger unless a broker can find a partner who’s already invested in cutting-edge technology.

The only way to meet these challenges is with organic growth in the following ways:

• Growth that is built around improving customer relationships and guiding them towards full coverage.
• Growth that is built around understanding new customers and the risk exposure involved in covering them.
• Growth built around the right data analysis tools and technology.

How can you stand strong against future changes in the insurance industry?

The best way to protect your brokerage from future challenges is by being big enough to tackle them. Growth is a great protection, as it minimises the amount of risk to which an individual customer will expose you, while giving you a solid enough footing to overcome any temporary setbacks.

Organic growth doesn’t happen automatically. There are three things you need to consider to help you stand strong against future challenges as your business grows:

1. Know Your Business (KYB): KYB is crucial for safe growth. Firstly, you’re protected from risk as you’re aware of the individual circumstances of any client you bring on board. Secondly, a higher understanding means better service, happier clients, more recommendations and, ultimately, faster growth.   
2. Customer Lifecycle Intelligence (CLI): CLI tools build upon what you’ve learned from your KYC efforts. As you work alongside a customer, you’re able to predict what the future holds for them, so you can make informed decisions to prevent underinsurance and lower risks even further - all while improving customer service.
3. Data Awareness: Having the data from innovative InsurTech tools is one thing. Having a culture of data awareness is what will help your brokerage avoid or overcome challenges and set yourself up for organic growth in 2023 and beyond.

How becoming more data aware can benefit your brokerage

By being aware of customer data, you’ll be able to support your proactive outlook and constantly advise and protect your clients. With your grasp of data forewarning them about potential underinsurance risks, they’ll trust your services more than ever.

You’ll have increased awareness of key personnel changes at each of your customers - so it’ll be easy to maintain solid personal relationships even as your customers hire and fire. You’ll also be aware if a key member leaves and isn’t replaced - something that’s often a red flag situation.

Personnel changes won’t be the only red flag to look out for. Analysing the data will help you spot financial trouble or credit issues, meaning you can act quickly to either offer a client advice and support, or to plan for life without them - safely future-proofing your brokerage and ensuring growth isn’t hindered.

All of this combined will help enhance your reputation. By understanding your customers and building solid relationships, you’ll build a reputation as the kind of brokerage that puts customer needs first. A brokerage that can see - and solve - problems before they arise.

How can FullCircl help your business grow organically?

FullCircl provides unparalleled support and training to complement our Customer Lifecycle Intelligence platform.

Our tools empower brokers to enrich conversations with clients about their changing cover needs and any issues impeding growth, offering a cohesive method of doing this across your broker teams that helps prevent complaints, legal actions and FCA fines while aiding growth into 2023.

For more information and to start becoming more data aware, email letstalk@fullcircl.com

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