Specialty brokers are the insurance industry’s “innovation engine” but their role is undervalued and not well understood, a UK report says.

The London & International Insurance Brokers’ Association says intermediaries are critical in helping the industry respond to emerging risks as a global $US2.5 trillion ($3.8 trillion) protection gap widens.

Association CEO and report author Christopher Croft says brokers are “connective tissue”, identifying risks before they are widely understood, building data that makes them insurable and working with clients and underwriters to design solutions.

“Specialty brokers are not just intermediaries; they are architects of solutions to the risks of the future,” he said.

The report says clients often judge brokers on cost alone, and even within the industry, 41% of underwriters admit they understand brokers’ roles only “quite well” or “not very well”. The figure rises to 66% among risk managers.

“Regulators and others outside the industry often overlook the breadth of what brokers do, and this needs to be communicated far more effectively across the value chain if brokers are to secure the support they need to drive innovation and deliver change,” Mr Croft said.

Structural, regulatory and cultural barriers risk constraining brokers’ ability to keep pace with change, the report warns.

Barriers include fragmented data, limited capital for new risks, regulatory frameworks designed for consumer markets and licensing rules that block deployment of expertise globally.

Culturally, the industry’s reluctance to experiment and low tolerance for failure stifle progress and “too often, broker remuneration is seen as a distribution cost rather than the investment in [research and development] it truly represents”.

The report calls on regulators to expand sandbox environments for supervised experimentation and modernise licensing frameworks.  

Insurers and capital providers should establish innovation pools to support emerging risk solutions, and broker investment in analytics, data and product development should be recognised and rewarded as genuine R&D.

The industry must also adopt technology sector lessons by introducing faster feedback loops, modular product design and greater tolerance for experimentation, the report says.

LIIBA interviewed more than 200 senior specialty brokers worldwide for the report, published in association with research and advisory company Gracechurch and consultancy Trimstone Partners.