Donegal Daily’s financial columnist Sean McNulty this week discusses what the future holds for financial brokers and if, like many other things, it may well be online.
Brokers are to insurance companies what clerks were to the banks in the ‘90’s. What do I mean by that? If I had told you in 1999 that the bank would operate with zero bank clerks, you would have laughed at me. Well, today some banks don’t even have branches and operate completely online.
As the inevitable technological disruption of the insurance industry begins to appear from around the long, long bend, the intermediary (broker) sector might feel obliged to quake in their boots.
A handful of years ago the economic turmoil that came about because of over-extending resulted in a radical adoption of lean strategies in the financial services industries. To merely keep their heads above water, banks looked to every corner of their operations to see where costs could be cut.
The industry hired consultants en masse, to monitor what the employees were doing, and why. The resulting reports aiming to eliminate duplication of processes and point out where money was being spent unnecessarily.
This approach was aided by the explosive pace of technology charged by the increasing number of Tech start-ups looking to disrupt a now untrustworthy sector. Soon, the banks were closing branches and even the bigger branches were closing the cash desks twice a week.
You are now greeted by a concierge of sorts and directed to the nearest machine. ‘The machine can do everything you need to do at the desk, and is much faster than queueing. Millions and millions of euros were spent on online banking and a clear message was advertised that the bank doesn’t really want you in the branch, well, not as often as you were going anyway.
There were lay-offs in banking, but what I noticed more is that attrition (when people leave naturally) was not substituted. Unlike before, when people now left and found other jobs, they were not replaced. The remaining employees had to cover the extra workload in the same amount of time. Luckily it was made possible by the fear of redundancy and other advances in technology.
As the banks surge ahead with digital transformation, the question beckons as to where the insurance industry will be disrupted. It can be argued that client on-boarding and commissions to brokers are the largest expense with regards to policy/product sales. With technology providing an indisputable ability to automate the ‘middle-person’ does it not make sense to disrupt to the processes of the broker?
To this point, the rumblings I’ve heard about the ‘death of the broker’ could ring true. However, I think this is extreme considering that after digital publishing came to the fore 15 years ago I also heard about the ‘death of the newspaper’.
Instead, I believe what we will see is something akin to the banking branch. Fewer people will be used to sell more, and technology will slot in nicely so that insurance policies become as accessible to customers and as easy to use as Facebook. A larger pool of data will allow customers to sign-up in half the time and adopt a more personalised policy.
Millennials (who are more often overlooked by the broker market due to smaller commissions) as well as future generations will no longer look for brokers on the main street or through family recommendations. 83% of them currently go online to research financial products before committing to buying them. They will trust a brand, yes, but 66% still want to be able to see or speak to a person throughout the process of a big financial decision e.g. mortgage, pension etc.
The broker has a difficult task ahead, as their engagement levels are on two fronts. On one hand the have to appease the digital desires of their existing and prospective clients. On another front they have to tackle the archaic processes of data collection, input and processing that hasn’t changed much in 20 years.
If anything is certain it is that brokers need a digital arm to survive. Those that stick to what they know and assume things won’t change in the next 5-10 years will be swiftly left behind.
Sean McNulty is the founder and Managing Director of Rethink Money Ltd, a financial advisory company based in Letterkenny. Sean’s company is a digital-first advisor with a bespoke software to help clients best manage their financial needs.
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