Over the past couple years, we have seen the advent of the robo-advisor in the financial services industry. Companies like Betterment or Advizr use software to automate the financial planning and advice they provide for customers. The benefit is clear: automation allows the company to operate with less overhead and then passes those savings along to the customer. Naturally, companies are trying to replicate this model in the insurance industry with robo-brokers but will that be a good thing for business owners?
A robo-broker will probably be an online portal where you can enter in your sales, class codes, etc. It will most likely offer suggested limits or coverages based on your industry and cookie-cutter risk management techniques. It places your company in a box. It boils your business down to its SIC code and assumes you operate in the exact same manner as all of your competitors. The problem is you don’t. Your business is unique, your employees are unique, your goals are unique and your risk management program should be as well. Since the computer treats your company as a generic class code, it cannot help you anticipate and mitigate your unique loss exposures. A generic risk management program is considerably less effective than if it was tailored specifically for your company.
Another aspect of robo-brokers is the automation of your policies, which isn’t necessarily a good thing. The ‘set it and forget it’ mentality works with personal finance because your goals, and how to achieve them, rarely change. Insurance, on the other hand, should be as fluid as your company. The world your business operates in is constantly changing and as your company reacts to it, so should your risk management program.
By the nature of the insurer-agent relationship: a robo-broker will not save you, the policyholder, any money. As you probably know, your insurance agent is compensated by the insurance carrier with commission. Insurance carriers pay a standard commission for each line of business to all of the brokers they work with and this commission schedule is filed with the government. Insurance agents are also not legally allowed to give up commission in order to get a lower premium for the client. So, a robo-broker who uses software automation to decrease its payroll and other costs does not, and legally cannot, pass those savings to the policyholders.
Now think back on your professional relationship with your current agent, could that be handled by a computer? Could everything your agent does for you be substituted by inputting some information online and having a robot take care of the rest? If yes – you may have a serious problem.
Knowing that a robo-broker may actually be a detriment to your risk management program by offering the bare minimum service and not saving you money, why would you accept a human broker who does the same? The majority of brokers all have access to the same insurance carriers, either direct or through a wholesaler. All of your competing brokers can each get you the same policy for the same price so the difference between them is their value to you. You should pick a broker based on his or her individual expertise and trustworthiness. You want a broker who works to help your company achieve its goals throughout the year, not just drops off a renewal annually. If you want to get away from automated risk management, whether it’s by a computer or human, call Insurance Solutions & Services today.