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Future of insurance distribution and services

Reshaping the insurance distribution landscape

Insurance

Transforming insurance distribution 

The insurance industry is continuously evolving, with changes driven by private equity, fluctuating interest rates, and industry consolidation. These developments have presented both challenges and opportunities to industry participants. As firms navigate these changes, the importance of embracing new technologies and fostering an apprenticeship culture cannot be understated. The industry’s future lies in harnessing innovation and embracing talent.

The insurance distribution space has witnessed significant consolidation with private equity firms gaining prominence over the past 15 years. While private equity companies have indicated that they are in the industry for the long haul, their acquisition strategy is becoming more selective due to rising US interest rates. However, current market competition has driven up prices, and diversification for smaller firms may not be sustainable. Moreover, cash flow pressures have created challenges, particularly for heavily leveraged private-equity-backed firms. 

Banks once favored acquiring insurance brokerages for fee income and cross-selling potential, but the landscape has shifted. Most banks have divested their insurance units due to current economic challenges. Opportunities for selective acquirers are limited, with few remaining options that offer significant value.

To succeed in acquisitions within the insurance distribution space, companies must prioritize cultural fit, talent acquisition, geographical expansion, and specialized technology. Decentralized models are preferred over synergies, and cross-selling is viewed skeptically as its effectiveness depends on alignment with the core business.

"Years ago, many held the belief that a large portion of the insurance distribution model would transition online, making producers obsolete. However, despite insurtechs' struggles, insurance brokers still play a crucial role in the industry."

Michael Scherer

Partner, Advisory, Financial Due Diligence, KPMG US

Insurance distributors embrace talent and ESG 

The insurance distribution and services industry is working towards a bright future by offering robust educational and support programs for young professionals. 

The industry remains positive and is convinced that emphasizing the meaningfulness of insurance can entice younger talent and resolve the challenge of an aging workforce.

Recognizing the importance of insurtechs comes with significant investments in technology and data analytics to enhance efficiency and credibility. These investments aim to address critical challenges, such as reduced accessibility, affordability, climate change, and catastrophe-exposed properties.

However, the possibility of higher prices may lead to affordability concerns, and the economic impact of unaffordable insurance. The significant economic impact of unaffordable insurance emphasizes the need to address the issue urgently. It is also important to understand that lack of affordable insurance can impact mobility.

Education and awareness of environmental, social, and governance (ESG) considerations are increasingly gaining traction in the insurance distribution and services sector. Insurance carriers are investing in educating policymakers, communities, regulators, and companies alike, specifically on climate-related issues.

Furthermore, some carriers are committed to incorporating ESG factors into their underwriting processes, influencing which accounts they write and what coverage they provide. This commitment is likely to shape the future of insurance distribution and services. A growing number of companies are also considering ESG factors when evaluating investment and partnership risks, emphasizing the significance of ESG for the insurance industry's future.

Navigating challenges in the sector

The insurance industry serves as a vital safeguard against unforeseen risks, underpins financial stability, and constantly adapts to the changing landscape of modern life. The biggest concerns for the distribution and services sector for the next two to three years are: 

  • Attracting talent. Leveraging technology. Ensuring the industry attracts new talent to augment an aging workforce. Leveraging technology for new capabilities in operations, offerings, and recruitment is crucial going forward.
  • Evaluate and experiment with generative artificial intelligence (AI). The insurance industry is currently in the early stages of evaluating generative AI, with both positive and negative implications to consider. 
  • However, the industry still faces challenges in dealing with unstructured data and paper-based processes, which poses a challenge that technology and generative AI may help address. 
  • Creating an apprenticeship culture. Most companies were operating with a geographically dispersed team and endorsing remote work prepandemic, but now these companies need to prioritize fostering an apprenticeship culture. Organizations recognize that while remote work doesn't hinder productivity, training new hires remotely is challenging. It is essential to find a balance between remote work and in-person collaboration to foster innovation and achieve growth.

As the insurance industry undergoes ongoing transformation, embracing digital distribution and services becomes essential for achieving success and long-term sustainability. The sector is actively charting a course towards a promising future through investments in education and technology, the infusion of talent, and the incorporation of ESG considerations.

This information was originally presented at the KPMG 35th Annual Insurance Industry Conference.

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Future of insurance distribution and services

Reshaping the insurance distribution landscape

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Leading through uncertainty: Shaping the future of Insurance

Dive in to the insights shared at our 35th Annual Insurance Industry Conference.

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36th Annual Insurance Industry Conference

Innovate to elevate

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35th Annual Insurance Industry Conference

Embracing change. Empowering growth.

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Michael Scherer
Partner, Advisory, Financial Due Diligence, KPMG US

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