Opinion: Mark Bower-Dyke on broking's digital future

The ability to charge by the hour or the mile is here. Will we have an Oyster card for insurance? Just hold it to your smart phone when you want to drive and happy days – insurance will be cheaper!

Apparently insurance companies and insurtech suppliers will be happy bedfellows making lots of money with clients having much cheaper insurance cover. The magic circle will finally be made and the nasty insurance broker will be gone.

A fantastic dream and a fantastic marketing idea, only the best may apply.

The truth is unfortunately far less glamourous and heady and much more down to earth. 

The base of insurance is two things:

1. Pooling of risk, where the many pay for the few;
2. The educated statistical gamble which indicates the minimum premium required for a risk to cover the costs of claims in its particular pool. It’s a gamble because unknown variables are involved – it all boils down to a pinch of luck.

Insurance companies and insurtech suppliers will be happy bedfellows making lots of money… The magic circle will finally be made and the nasty insurance broker will be gone

Any new way of attracting customers still has to fulfil the above. If with expenses, the burning cost of a risk annually is £1,000 then the insurer, no matter how the premium is calculated, needs to collect a minimum of £1,000.

In essence the customer still needs to pay in excess of £1,000 so there will be no long term saving from insurtech.

Obviously in a good marketing way he or she may feel they are paying less but in reality they will be paying the same or maybe even more. In the beginning it may well be less but this will be due to the losses made by the insurer, not a good survival technique for them.

Why more you ask? Well the economics of it are on an annual premium the insurance company enjoys the full annual premium from the start of the policy whilst under pay-as-you-go policies they do not. This will have quite a high cost to the insurer with Solvency II let alone investment income.

The other major area of concern would be ‘selection against’. Basically these products will appeal to higher risk policyholders and be less attractive to better risk policyholders thus skewing the pool to the higher claims frequency client. So is the end really so near for the broker?”

Mark Bower-Dyke, chairman, Be Wiser