Distribution is a strong focus for 2015 and 2016 and the importance of integrated commercial e-trading will only intensify. Polaris is an insurer and broker owned body that is dedicated to setting the standard for the UK general insurance industry, developing e-trading standards that are used market-wide.
Integrated commercial e-trading is when broker technology is connected to insurer technology and all transactions take place in real-time. The broker manages all aspects of policy quotation, purchase and administration via their system while the insurer manages premium, terms and document generation.
Put simply, integrated commercial e-trading allows brokers to focus on the client and underwriters to focus on the risk. It is the most effective and efficient form of e-trading available. It is also provides the broker with a platform to protect and grow the business in today’s challenging market. There are other options available, such as insurer extranets and B2B quote and buy propositions but they cannot ensure a broker’s long-term survival.
There is a lot to be learnt from the history of personal lines EDI (electronic data interchange). Whilst many still hold this responsible for commoditising personal lines, especially car insurance, the reality is that it has ensured the survival of personal lines within the broker channel beyond its predicted demise.
In the early nineties, broker channel insurers responded rapidly to a competitive threat by developing full-cycle EDI solutions with the major broking software houses. The business logic behind full-cycle EDI was simple. It put brokers in control, allowing them to instantly address client needs. By removing the duplication of effort (rekeying the broker information) it took out a layer of unnecessary timely cost.
But the improved service and lower administration costs didn’t just fight off the threat of direct insurers. It also provided a platform to meet other challenges and opportunities.
Within 10 years, industry specialists were once again forecasting the demise of personal lines brokers with the rise of the aggregator. How could brokers survive? Well it was rather straight-forward, brokers were able to integrate with the aggregator technology and open up distribution with a new route to market.
But broker technology hasn’t stopped there. There are a number of other opportunities; Premium finance, add-on insurance solutions, scheme arrangements, broker B2C services and more recently, connections to data enrichment services and fraud prevention. The result, shown in the chart below, demonstrates that almost 20 years after the personal lines broker channel was first declared on the road to extinction, remains the largest provider of personal lines insurance.
Commercial lines e-trading
It has been possible to e-trade commercial lines products for almost a decade but it is fair to say progress has been slow. It has been much more challenging than the personal lines because early broker technology was not embraced with any enthusiasm and it isn’t hard to see why:
No serious competition
There has been no big event in commercial lines creating the momentum for change and insurance isn’t great at change, however positive the impact.
Commercial lines is complicated
Commercial risks are more complex and the product range is much wider. There is a multitude of distribution models; Face to face, phone-based, delegated underwriting, in-house underwriting, networks and MGAs etc. so it’s hard to develop e-trading technology to include them all.
It’s on a different scale
There are 35 million vehicles on our roads. It’s easy to achieve significant volume and therefore significant administrative savings by e-trading motor and personal lines. But with only 4 million businesses split over so many channels, it’s hard for commercial lines to achieve economies of scale.
Fear of commoditisation
Many have blamed full-cycle EDI for the commoditisation of personal lines so there has been an understandable effort to avoid the same outcome for commercial. Insurers have built broker extranets to enable e-trading and administrative savings but without the risk of commoditisation caused by the quick and easy comparison of prices.
Momentum for integrated commercial e-trading is gathering
E-trading is gathering e-trading is gathering significant momentum, quotation volumes and policy count has grown dramatically in the last two years, being counted in the millions and hundreds of thousands respectively. And this is predicted to continue, with a step change expected over the next few years.
Broker numbers using integrated e-trading remained stable in the low hundreds for years but are now growing rapidly. With major technology providers now connected to a universal e-trading hub it is estimated that over 2000 brokers will connect to integrated e-trading technology by the end of 2015.
Brokers make their living by helping customers make the right choices, a key element is being able to help a customer compare and contrast the various policies available. This can only be done effectively by working with a single system because extranets do not enable simple,
consistent comparisons. Customer needs are changing. More business owners want to manage their insurance online and a broker cannot do this using an insurer’s extranet. They need to retain the customer policy record on their own system with easy access via their own front-end servicing to meet customer demand.
Broker consolidation has resulted from the need for business to streamline technology and process to drive cost savings and benefits promised by mergers and acquisitions. Meanwhile insurers face constant pressures to reduce overheads. These two combined represent significant drivers for change in a market where the culture is recognised as hard to change. Moving forward, consumers will increasingly look to purchase commercial insurance online, including using aggregators. For brokers to retain their market
leading position in commercial lines they need to operate off technology that provides access to these emerging distribution trends.
So from a slow and reluctant start it would seem that insurers and brokers are now beginning to find value in integrated commercial e-trading. Recent independent broker surveys show that e-trading makes up to between 50% and 75% of all transactions made by brokers and with some insurers expressing a preference for it over their own extranets it looks like the industry might finally embrace this long awaited change.
This article is an extract from SSP eye issue 6
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