Insurance myths: The relationship business

“The relationship between you and your agent is the most important part of [the] insurance and risk management process.” – Perk Reichley, Reichley Insurance of Dayton, Ohio.
“Insurance is a relationship business”

It’s a refrain heard over and over again in the insurance industry, coming from every part of the value chain. Insurance is full of business relationships. Business relationships matter. They matter more than anything.

They matter because we want to build strong business relationships with you so we can better serve you, your business, and your family for decades to come. They matter because the business relationships that we have will allow us to find the coverage that you need, better than anyone else could.

Here is a representative quote from some unquestionably infallible industry analyst on how, because people place such a high value on business relationships they have with their broker, the industry overall is protected from the need to change or innovate:

“Commercial insurance brokerages are insulated from the forces driving innovation or changing distribution models in other industries because of the value that customers place on their personal relationship with their broker, and the difficulty to assess that brokers performance.”

It’s hard to overstate how commonly held this view is in the industry. I mean the previous quote was said by… myself, two years ago.

But with all due respect to both Mr. Reichley and my own previous due diligence work on the industry, this sentiment– that relationships are sui generis and primary to all else– is wrong. The reality is quite different. The reality is that the “relationship business is going away”. I heard this verbatim last year from the CEO of a major global broker who knows the business better than anyone I’ve ever met.

Business relationships still matter …

Before I dive in, however, let’s talk about what “the relationship business is going away” doesn’t mean. It doesn’t mean relationships don’t matter.

Business relationships still matter and always will. For all its regulations, calculations and machinations, insurance still requires a personal touch. For one thing, more than most other products, it needs to be sold, and people still sell better than any alternative solution, that I’ve seen at least.

Further, personal relationships still function as a nervous system of the industry, they inform judgment, which informs decision making. The decline of the relationship business and the increasing role of technology doesn’t mean that insurance brokers or underwriters are going to be extinct soon.

Business relationships that don’t benefit the customer will no longer be sufficient to retain business, and, as an industry, we need to be honest that most relationships between brokers and customers right now are absolutely not benefiting the customer

What it does mean is that relationships that don’t benefit the customer will no longer be sufficient to retain business, and, as an industry, we need to be honest that most relationships between brokers and customers right now are absolutely not benefiting the customer.

To the contrary, in many cases the customer has essentially been getting screwed through excessive premiums relative to their risk and the complete lack of investment in innovation.

They just don’t know it, at least not yet. Think about the touchpoints in a broker-customer relationship. Aside from social outings, the two parties generally only talk when one of four things happen:

1. The customer wants to buy insurance
2. The customer needs to change insurance
3. The customer needs to renew insurance
4. The customer needs to make a claim

That’s four scenarios and only one of them – the fourth – actually involves a deep level of actual “service” on the broker’s part, and many brokers, fearful of lawsuits, try and pass this component completely off to the carriers.

The rest are just variations on the sales process, which takes up an unhealthy amount of an insurance brokerage’s time and effort. More on that in the coming weeks, though.

To be competitive going forward, brokers (and brokerages) will need to learn how to actually add value in some way, rather than just monetize their relationships. In order to do that, they’ll need to evolve and learn how to integrate modern technology into every aspect of their jobs.

As I wrote earlier, the coming technological revolution in the insurance industry will first manifest itself by helping us improve customer service, particularly the customer’s digital experience. Brokers will add value when they give customers tools to track claims and coverage, or use data to improve how customers choose insurance.

Doing this will also be a boon to the industry. A counterintuitive history lesson from a comparable industry: while the introduction of technology that changes analog processes to digital ones is generally thought to accompany a decline in the fortunes of workers in that industry, something strange happened to the accounting industry when technology took over.

It made accountants better at their jobs and more useful to clients.

According to Bureau of Labor Statistics, in 1980, shortly before the introduction of the electronic spreadsheet, there were approximately 300,000 accountants in the US. By the year 2000, five years after Quickbooks debuted, there were 863,000 accountants, nearly three times the number of 20 years before when technology was first introduced into the industry.

There are, of course, many other factors involved, but the fact that technology enabled accountants to do more complex work at a much higher volume was a huge factor in that growth.

While what we think of as “business relationships” in the traditional sense might be dying off, relationships themselves will continue to matter, of course, in the insurance industry and all other ones.

However, risk management itself won’t be categorized as ‘a relationship business’ for much longer, and that will certainly be a positive thing for customers, but also for those brokers and risk management professionals that are able to harness sophisticated technology to add value to and enhance the core operations of a business. It’s a powerful vision, and an incredibly exciting time to be pursuing it.

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Other insurance myths covered:

• The good, fast, cheap triangle
• Redemption in data
• Technology and existential dread