CHALLENGES FACING BROKERS AND AGENCIES WORLDWIDE

The insurance industry has been evolving over the years and the key players in the industry have had to adapt to changes in order to stay afloat. From maintaining their financial stability to keeping up with the ever-changing technology and making sure that they comply with a very dynamic environment with regards to the regulations set by the regulatory bodies. No one is affected the most by these changes than the brokers and agencies due to their low capacity of operations as opposed to most insurance companies which tend to have more resources at their disposal. The following are factors affecting the operations of brokers and agencies worldwide.

Lack of awareness of the insurance industry in the market by the potential customers. Most people worldwide are not exposed enough to what the insurance industry has to offer. Most end up taking third-party motor insurance covers because it is mandatory for any motor vehicle owner in most countries, and still do not know their rights in those particular motor insurance contracts. This has become a challenge for most brokers and agencies who do not themselves possess enough resources to raise awareness to the general public about the available insurance products and hence facing an obstacle in getting more than a mouthful amount of clients on a daily basis. For instance, the penetration rate of insurance in the United States of America (which is the best performing insurance market in the world) is 11.43% and has a 2.8% of premiums as a percentage of their Gross Domestic Product (GDP).

Changes in the rules and regulations by the regulatory bodies and the general country’s laws. Brokers and agencies worldwide operate in compliance with the regulatory bodies' policies, both locally and internationally, as well as the general country’s laws. Any changes towards these policies and laws can massively affect the daily operations of the brokers and agencies. For example, recently there was a change made by the Tanzania Insurance Regulatory Authority (TIRA) that inhibited brokers and agencies from receiving premiums on behalf of the insurance companies. This has made it so hard for brokers to maintain financial solvency, especially when their brokerage and agency commissions from the insurers do not come in on time.

Introduction of bancassurance as free agents in the insurance market.  Bancassurance is a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank's customers.  Since the introduction of bancassurance in the Tanzanian market on the 13th of March 2019, more than 50 commercial banks in the country have been granted licenses for such operations. The regulations allow each bank to practice bancassurance with three to ten insurance companies. Although this is a good thing for the insurance industry as it facilitates the penetration rate of insurance as an important financial pillar to the economy, it is the brokers and agencies who ultimately suffer as they lose their pre-existing customers to banks that are more financially equipped to do mass marketing that can easily attract customers. For instance, since the introduction of bancassurance, there have been a lot of marketing campaigns about the insurance products they sell, more than the insurance companies, brokers and agencies. A good example is the UMEBIMA campaign by NMB Bank.

Changes in technology, we live in an ever-changing landscape with regards to technology. This in turn affects how businesses operate, and the insurance business is no different. Constant changes in technology come as a challenge to brokers and agencies whose financial muscle is not as strong as that of insurance companies, and hence take a longer time to respond to such changes. Changes in technology can also have a positive impact on the brokers' and agencies' operations as it has made it cheaper and easier for businesses to market their products and services through social media and google adverts. Also, now there has been a new wave of self-servicing through the internet where insurance companies, brokers, and agencies allow customers to buy their policies straight from their websites.

Asymmetric information, the players in the insurance industry have different exposure to information concerning the insurance field. This mismatch in information creates a gap between them which in turn creates the problem of adverse selection for both the brokers and agencies and the clients. Adverse selection refers to the situation where one party has more information about the quality of the product or service offered than the other party. Typically the more knowledgeable party tends to be the seller, although on the client’s side all material facts disclosed are dependent on what the client is willing to disclose, and this can lead to unfair risk assessment on the insurer’s side.

Competition from other brokers and agencies, as per any type of business, brokers, and agencies face competition from each other as they are competing for the same crop of customers. This can affect the operations of brokers and agencies depending on the amount of experience and capital exposure that the competitors have. After all, customers are always after better quality and exceptional customer care experience, all of which comes with investment in the operational infrastructures at their working stations. For instance,  African Risk and Insurance Services Ltd (ARiS) is the leading insurance broker and risk service provider in Tanzania because they have enough experience in the market and an adequate amount of capital to enable them to compete locally and internationally.

Financial restraint, this can be seen in terms of the inadequate amount of capital to search for new markets through marketing and advertising. Most brokers and agencies worldwide do not possess the financial muscle enough to operate in full strength with regard to the marketing of their services to potential customers. This keeps them at the risk of not only getting new customers but also losing the ones they have to institutions with more capital like banks through bancassurance. Financial restraint can also prevent brokers and agencies worldwide from incorporating new emerging technologies in their operations that could have easily improved their workflow efficiency and bettered their customer service experience to their clients. 

Excessive bureaucracy by the principal. The main role of brokers and agencies is to act as intermediaries who bring together buyers and sellers of insurance products. Although brokers and agencies are allowed to directly underwrite policies on behalf of the insurance companies, they themselves are not a party to the insurance contract that they have helped to issue. That means on the occurrence of loss the claim should be issued directly to the insurance company with the help of the broker or agency, but it is the insurer who decides on how much and when to approve the claim settlement. If the insurer prolongs the claim settlement process the blame normally falls on the brokers and agencies who are at risk of ruining their reputation and possibly losing customers in the process.

Workflow efficiency, the nature of most businesses is changing as technology improves and continues to change. Insurance brokers and agencies need to evaluate their ways of operations if they are to adapt to new changes as opposed to playing catch up. Automating repetitive tasks and processes could go a long way in maximizing their time, and ultimately their productivity. There was a study from the Harvard Business Review that showed that digitization of existing operations could help insurance companies deliver up to a 65% reduction in costs. This could free up more funds that could go on searching for new clients in the market and improving the customer experience of the existing clients.

Misrepresentation by the insured, whilst issuing the insurance policies brokers and agencies operate in good faith hoping that the customer will disclose all the material facts through the proposal form. Through the doctrine of utmost good faith, the law imposes two duties to the parties to a contract: a duty not to misrepresent any matter relating to the insurance (duty to tell the truth) and a duty to disclose all material facts to the insurance contract (duty not to conceal). Sometimes, however, customers have a tendency to misrepresent the material facts in hopes of getting a lower premium without considering the long-term effects. For instance, a customer could under insure their property while buying a policy so as to pay a lower premium, not knowing that on the occurrence of loss the insurance company will apply the average rule and pay a low claim.

Faced with these challenges, it is important for brokers and agencies to address these issues and find immediate solutions so that they can deliver a consistently improving customer experience. They can turn to technology to cut down inconveniences caused by bureaucracy and redundancy in their operations, and make it easier for their customers to buy policies. The authorities on the other hand should enforce policies that will help to level the plane field for the emerging brokers and agencies as they are competing with the experienced ones. They should enforce a reasonable degree of transparency between the stakeholders of the insurance industry so that they all operate in good faith.