Insurance brokers that stubbornly hold onto traditional business models could face being left behind. Profitable growth in the brokerage business is stagnating after 10 consecutive quarters of underlying P&C commercial insurance price declines. Emerging disruptive technologies are changing the way customers interact with insurance, including cutting out the middlemen. Some insurers are already reaping the benefits of this digital transformation. What does the future have in store for brokers?

The broker’s role will likely never disappear, but it is being disintermediated by disruptive startups and other enterprises offering direct-to-customer services. Insurance “orthodoxies” — widely held beliefs about the strength of the traditional way of doing business — are being challenged by the changing ecosystem.

Accenture Strategy’s 2016 report on brokers of the future features several interesting trends pointing towards the need for brokers to seriously consider how they will remain relevant in an environment where their traditional services are needed less.

P&C insurance rates have dropped 5 percent since 2012, cutting into profitability. Where will brokers make up this lost revenue?

Digital has increased efficiencies and automated processes, connecting customers directly to products and services they can conveniently buy online. This change could erode broking revenues from midsized and large customers by up to 20 percent by 2020, due to decreasing commissions and fees.

On top of that, Accenture forecasts that disruptive business models and digital platforms will account for as much as 20 percent of the P&C SME (small-to-medium enterprise) market by 2020. Unless brokers can break free from their orthodoxies and find new ways to offer value-added services, they risk losing business to insurers which can provide more efficient and transparent customer experiences.

Decreasing broking rates and subsequent revenue declines, combined with a smaller share of the market due to disruptive organizations disintermediating brokers, paints a grim future for insurance brokers who fail to find new ways of doing business. In the next part of this series, we’ll cover how future-forward brokers are finding ways to reap the benefits that digital insurance offers.

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