Technology has been vital during the Covid-19 pandemic as the insurance industry embraced remote working, but will broker investment in technology continue? 

Brokers investing in technology firms is a trend that started long before the Covid-19 pandemic, although the sector’s reliance on technology has been accelerated due to ongoing lockdowns and the need for remote working.

While some industry voices believe that investing in technology might cause brokers to disappear, others believe that technological innovation will only enhance a broker’s offering.

One firm that is hoping to reap the benefits this type of investment, for example, is The Ardonagh Group, which bought the insurance operations of global broker and financial technology firm BGC Partners in May 2021 for a cash consideration of $500m (£366m), subject to regulatory approval.

At the time of the deal, James Masterton, chief executive of Ardonagh Specialty, said: “The specialist broking and underwriting teams within the BGC operations are highly respected in their fields and their market leading progress in digitisation matches our own.”

BGC Insurance (BGCI), which is part of BGC Partners, rebranded as Corant Global in January 2021. The firm is the holding company for the insurance interests of BGC Partners, which includes global wholesale and specialty (re)insurance broker Ed, Lloyd’s broker Besso, aviation specialist Piiq Risk Partners, German marine broker Junge, UK-based MGA Globe Underwriting, Australian MGA Epsilon Underwriting and European MGA Cooper Gay.

Speaking exclusively to Insurance Times, Jonathan Prinn, chief digital officer at BGC Insurance, said: “The pandemic has poured petrol on the slow burning embers of digitalisation and demonstrated that face-to-face broking is not fundamentally necessary in all areas.

“Our industry is moving in the same direction as the capital market or interdealer broking world where over the last 15 years, the model has moved from ‘voice’ to ‘hybrid’ to ‘fully electronic’.

“Perhaps some of the largest most complex risks will never reach the fully electronic stage – but all risks will move to a hybrid model of face-to-face negotiation supported by electronic placement.”

M&A deals influenced by digital capabilities is not uncommon, according to Clyde and Co partner Eva-Maria Barbosa. She added: “Covid-19 has underlined the importance of having digital capabilities and technology remains a primary driver of M&A.”

Insurance Times explores the trend for brokers investing in technology and how this might pan out in the “new normal” post-Covid-19.

Future of placement

Prinn believes that smart brokers have recognised two fundamentals – that the insurance industry can make enormous change when required and that placement, as one of the core broking propositions, is now going to be digitally enabled.

Therefore, he suspects that the future of placement strategies will be a lead broker negotiating face-to-face with a lead underwriter and the terms being recorded in a trading application of some type.

He added: “The trading apps will most likely be many and varied. Numerous brokers and carriers are building their own, but in a classic hub and spoke model, they will all connect to one - most likely not for profit, owned by the market, [a] central hub that will allow connectivity to all others. The days of thinking we all need to be on the same app are gone.

“Once lead terms have been agreed and confirmed in one of the apps, then algorithmic carriers will pick up the risk via the central hub and make offers of supporting lines to complete the placement.

”If the order is not completed, perhaps the broker will take the risk back to a more face-to-face market to finalise. There are live examples of this in the market today and more will come.”

Prinn said this thinking has driven most brokers to realise they need to upgrade their digital abilities if they want to challenge existing thought processes, spot disruption opportunities and foster innovation.

However, Daniel Lloyd-John, Broadway Insurance Brokers’ chief executive, believes that making interactions ”a purely digital one” would ”not be received well” by brokers’ clients.

He said: ”Brokers rely on a close relationship with clients – for example, in considering cover or making a claim. Making that interaction a purely digital one would, I believe, not be received well given that clients want to be guided through the processes involved.

“In using any new technologies, there is always a need to strike a balance and the use of virtual systems or artificial intelligence by brokers is no different.”

To build, rent or buy

Meanwhile, large and complex brokers are investing in workflow tools to seamlessly link processes, Prinn said.

He believes data collection, visualisation abilities, transactional placement systems and client facing tools will be next on these brokers’ technological to-do lists.

However, “whether to build, rent [license] or buy is a difficult question” when it comes to actioning these innovations, Prinn continued. 

“Many brokers resist building as that’s not their core skill set, but at the same time [they] don’t want to rent and in doing so effectively outsource some of their core activities,” he added.

“Do you want to rent a trading application? That’s like Ferrari not building [its] own engines. Many insurtechs offer speed and agility in delivery and thinking. They lack liquidity and distribution, thus investment from a broker makes sense, providing this does not affect their ability to sell to others.

“Hence the larger brokers have investment entities that can provide financial input and guidance without compromising the insurtech’s actual proposition.”

Prinn suggested that brokers rent a document storage solution.

Striking a balance

Lloyd-John highlighted that technology is likely to become an even greater consideration for brokers in years to come.

This, he argued, is because the industry is undergoing what is “a period of unprecedented change”, as it continues to deal with the Covid-19 pandemic and the implications on working methods.

He continued: “Technology has the potential to allow us to process all the data associated with those developments far more quickly and accurately.

“It is worth, of course, considering who is driving the adoption of such methods and what the ultimate objective is.

“Insurers rely on technology far more to know their target markets more intimately and, therefore, brokers need to ensure that they are able to keep pace with what is required of them.

“Brokers too are eager to find the solutions which might give them an edge.”

Paul Williams, Ripe Thinking’s chief executive, believes insurers will also make global investments in digital and insurtech companies.

He said: “The bigger insurers are waking up to the value of insurtechs and are looking at what’s out there. But insurers need to tread carefully when deciding where to invest as there’s a high risk of getting it wrong. The difficulty is trying to work out which is a proven model versus which is a good idea.”

Williams predicts that over the next five years, several insurtechs will merge or fall away as cash runs out and ultimately, a relatively small number of businesses will scale up and be global winners.

“The trick for the incumbents is to acquire firms at the right moment. If they wait too long, the insurtech might have scaled up and no longer need them. But if they go too soon, they could buy some duds,” he said.

What brokers and insurers have invested in technology or made acquisitions of that nature?

Aston Lark joined Insurtech UK back in April, while Broadway Insurance Brokers has invested heavily in digital.

In terms of insurers, Direct Line Group acquired insurtech Brolly in July 2020 and Aviva partnered with Ripe Thinking in January 2019 - the pair signed a five-year capacity deal.

Why are brokers and insurers turning to digital?

Ripe Thinking’s chief executive Paul Williams said: “There is a desire among incumbent insurers to engage with customers in a new way and to address this, they are turning to insurtechs and digital firms.

“Why are they looking there for the answer? It’s because these companies bring a different mindset to insurance. This isn’t just about accessing new technologies. It’s also about a new approach to insurance.”

What about new entrants into the insurance sector?

Williams said: “We should also be watching the entry of affinities, like Google and Amazon, into the insurance market and the impact this will have.

“Some insurtechs have homed in on the idea of attaching themselves to an affinity brand rather than a legacy insurance one and I wouldn’t be surprised if affinities lead the charge on acquiring insurtechs.”