Insurance broking in a chaotic world

The world currently feels like it's spinning faster than ever, doesn't it? From supply chains fracturing under geopolitical pressure to the relentless drumbeat of cyberattacks & AI evolution, human capital & societal shifts, and the undeniable massive shift in climate, "chaos" isn't just a headline—it's the new operating environment for every business. In today’s rapidly evolving insurance landscape, navigating complexity and optimizing performance requires more than traditional broking services. It demands strategic insight, data-driven decision-making, and a deep understanding of the holistic business environment. 

For decades, the insurance broker was seen primarily as an intermediary, a necessary go-between helping you buy an insurance policy. But that role is as outdated as a ‘‘call box’’. In this era of unprecedented global volatility, simply buying insurance isn't enough to protect one’s enterprise. Our role as brokers is broader now, in that we try to understand a client’s holistic business model and objectives, growth ambitions, return expectations, and risk appetite (across a broad range of risk types), and then provide advisory services to help solve or optimize against these objectives. This involves delving deep into a client’s operations to address business problems, whether they are insurable or not.

The true value of an insurance broker has fundamentally transformed, evolving from mere intermediation to becoming an indispensable strategic risk advisor. We're no longer just talking about policies; we're talking about comprehensive strategies that identify, mitigate, retain, and transfer the complex risks threatening an entity’s survival. As brokers, we must move beyond simply insuring based on the past and start preparing for the future. Our understanding of this profound shift is critical for our business' existence.

In the increasingly complex digital battlefield, the broker's role extends far beyond simply placing cyber insurance policies. Brokers act as critical guides for businesses grappling with the dual nature of AI – its immense potential and its inherent risks, including sophisticated cyberattacks, data breaches, algorithmic biases, and IP disputes. Brokers are assisting clients in collaboration with specialists in conducting thorough cyber hygiene assessments, identifying vulnerabilities, and developing robust incident response plans. They help clients understand the nuances of cyber insurance, which is constantly evolving to cover new AI-related liabilities and educate them on emerging policy developments while offering deeper insights into a client's cyber risk posture and connecting them with specialized third-party security vendors for a truly holistic defence.

The fragility of global supply chains demands a strategic advisory approach from insurance brokers, moving beyond simple transit or contingent business interruption policies. Brokers engage in comprehensive supply chain risk mapping, analysing intricate interdependencies and identifying single points of failure that could be triggered by geopolitical events, natural disasters, or even labour disputes. Brokers advise on the implementation of supply chain diversification and redundancy strategies, helping clients understand how tailored insurance solutions can bridge the gaps during these transitions. This includes exploring bespoke policies that cover non-physical damage triggers impacting suppliers and recognizing that disruptions often stem from non-traditional sources. The modern-day broker must be equipped with real-time data and analyse it to help clients model potential business interruption scenarios, stress-test their resilience, and identify the most effective risk transfer mechanisms.

In addition to securing property insurance, brokers help clients understand and adapt to the escalating physical and transitional risks posed by climate change. Comprehensive climate risk assessments provide insights into potential hazards like floods, wildfires, and extreme weather events specific to a client's assets and operations. Brokers guide clients through scenario planning, helping them quantify potential financial impacts under various climate projections. Furthermore, they explore innovative risk transfer solutions such as parametric insurance, which provides rapid payouts based on predefined triggers like rainfall levels or wind speeds, facilitating quicker recovery and adaptation rather than just indemnification after a loss. 

The evolving dynamics of human capital and societal expectations present a unique set of risks that the modern insurance broker addresses through an advisory lens. Beyond traditional employee benefits, brokers help clients navigate challenges like talent retention, the changing nature of work (gig economy & hybrid working situations), and the increasing scrutiny on corporate social responsibility. They advise on Directors' & Officers' (D&O) liability in the context of Environmental, Social, and Governance (ESG) failures and workplace conduct, ensuring leadership is protected from emerging claims. Furthermore, brokers help design comprehensive Employment Practices Liability (EPL) insurance programs that address issues like discrimination and harassment, alongside advising on broader well-being initiatives that enhance employee engagement and productivity. By understanding the intangible value of human capital, brokers help clients attract and retain talent by demonstrating a commitment to employee welfare and a robust approach to managing associated risks.

So, what does intermediation look like in a chaotic world? It's about being the intelligent conduit that transforms complex risk assessments into actionable insurance solutions and not about simply being a middleman anymore. Intermediation is an enabler to the advisory role:

1. Orchestrating Complex Placements: As risks become more interconnected and specialized, the traditional "market exercise" aspect of intermediation becomes significantly more sophisticated. Brokers now act as orchestrators, leveraging their deep understanding of the insurance markets to identify niche carriers, syndicate placements, and even facilitate the creation of new, bespoke insurance products where market gaps exist. This isn't just about finding the cheapest premium but about finding the right capacity and expertise to match the client's precisely defined risk profile – a profile informed by the advisory services provided. This involves integrating fragmented data sources from various insurers and reinsurers to build comprehensive risk pictures and present tailored options.
2. Facilitating Innovative Risk Transfer: Brokers are now intermediaries for alternative risk transfer mechanisms like captives, risk retention groups, and parametric solutions, extending beyond traditional insurance. They advise clients on whether to retain more risk and then facilitate the establishment and management of alternative risk transfer vehicles, effectively brokering the relationship between the client's internal risk financing strategy and the external risk market. This requires a much deeper understanding of a client's balance sheet, risk appetite, and long-term strategic goals, moving far beyond simply negotiating policy terms.
3. Data-Driven Market Access and Insight: Our role is heavily reliant on advanced data analytics to gain deeper insights into insurer appetites, pricing trends, and claims performance across different lines of business. This allows us to "broker" not just a policy, but a well-informed strategic decision for our clients, providing benchmarks and predictive insights that direct placements might not be able to offer. This elevates intermediation from merely connecting parties to providing a data-backed rationale for specific market choices.
4. Relationship Management and Advocacy: Even with advanced technology, the human element of intermediation remains vital. Brokers will continue to be the trusted advocates for our clients, particularly during complex claims scenarios & placements or disputes with insurers. Our relationship capital and deep understanding of both the client's business and the insurer's processes will be invaluable in navigating these situations, ensuring fair and prompt resolution of matters. The "human touch" in intermediation reinforces the advisory relationship, building loyalty and trust that automation alone cannot replicate.

The future of broking doesn't eliminate intermediation; it elevates it, as it has transformed from a sales-driven function to a highly sophisticated, technology-enabled, and strategically informed process that underpins the broker's advisory services. 

The true power of the new-age insurance broker lies in the ability to integrate the various risks into a cohesive, holistic risk management strategy for our clients. No longer siloed; climate, cyber, supply chain, geopolitical, and human capital risks are interconnected and can trigger cascading issues. As a broker, leveraging deep market expertise, access to a wide array of specialized insurers, and sophisticated risk assessment and analytics tools to provide a unified view of a client's risk profile is a game changer.

It is important to foster conversations between different departments within the client's organization – from finance to IT to HR – to ensure a coordinated approach to risk mitigation. For the client, this translates into enhanced resilience, reduced total cost of risk, competitive advantage through proactive preparedness, and ultimately, greater peace of mind.

As brokers, transformation to advisory solidifies our position as an indispensable strategic partner, fostering deeper client relationships, driving innovation in product offerings, and securing long-term growth in a perpetually chaotic world.

Duncan Ekasi Otiti ǀ Chief Broking Officer ǀ Minet Lesotho