Bringing Down Goliath

Small insurers have achieved success in the market by a mixture of practices, including getting close to their customer; developing a local or regional market presence; creating a knowledgeable broker channel that presents a “face” to customers; developing products and services that meet local needs and through competitive rates.

This mixture has stood up for hundreds of years. However, small insurers are now facing pressure from large competitors that are creating new distribution models — including large call centers and elaborate online portals. Many of these competitors are global in scope, have deep resources and offer a bundle of products that make competition difficult.

To compete and maintain long-term success, small- and mid-sized insurers need to strengthen the factors that served as the foundation for their success. They need to counter success factors that draw customers to large national insurers.

One way to do this is to strengthen the broker-insurer relationship. This can be done by enhancing the ease of doing business, through the introduction of new technologies and connected processes. Investments in this area will pay off via improved customer retention rates, improved customer satisfaction and new growth.

THE BUSINESS PROBLEM

Large carriers with market territory either national or international in scope are levering the power of online sales to reach new markets traditionally served by smaller insurers. They have expanded advertising efforts and promoted “self-service” for securing new business. In this way, they avoid the costs to create a local presence. Instead, they generate economies of scale, drawing customers from across the country.

Large carriers have successfully rolled out new technology. Web portals may have missed the mark in the early years, but newer projects have been refined and improved. The first generation of Web portals was fraught with problems. In effect, they automated underwriting-oriented legacy systems in a manner that was not user-friendly for sales or service. Early Web portals, for example, did not support the way brokers or customers wished to quote, purchase or service their insurance. However, second-generation — and now third-generation — solutions are more flexible, user-friendly and reliable. Some problems still exist, but the share of the market using real-time, online transactions is expanding.

Nationwide call centers also siphon business from regional insurers. Not only can they offer real-time transactions, but they involve assistance from skilled call-center brokers.

And yet, all is not lost – not by a long shot. People like to deal with people they know and trust. They want to work with companies that meet the specific needs of their customers.

Small regional insurers tend to excel in this area. The one missing gap is technology: Small carriers are looking for technology to support their method of doing business, so that the personal solution provided by a small provider is as complete and comprehensive as that offered by competitors.

This goes beyond information-oriented portals and non-transactional-based connections. This entails bringing information and processes together to provide brokers with fully underwritten and rated new business and policy change capability at the point of sale, through streamlined process automation. This can be done through integrated business rules, workflow and communications technology.

The implications of not doing this are enormous.

According to Brian Bessey, the assistant general manager of Peel Mutual Insurance Company: “We were faced with a strong competitive challenge and knew our business operations had to change. Our goal is to introduce a real-time, fully transactional solution to connect our independent brokers with these systems.” Bessey added Peel needed to accommodate multiple broker management systems from several suppliers, recognizing that brokers want choice as to how they prefer to interact with Peel. “We could not develop a single-point solution,”Bessey said. “Instead, we needed to open up access to numerous broker or broker management systems.”

The ACORD User Groups information exchange in 2006 conducted research in which more than 97% of independent brokers surveyed said their ease of doing business with a carrier had become an increasingly important factor in their decision to place business with that carrier. The research goes on to say that more than 75% are more likely to choose a carrier, regardless of price, if the BMS could pre-fill some of the fields on a carrier’s proprietary Web site.

THE BUSINESS SOLUTION

Your broker channel requires investment — a focused, targeted, strategic use of technology, backed by business processes that support the technology. Providing true “ease of doing business” to brokers includes the following four critical factors:

i) Sales and service functionality

Functionality of the underwriting process needs to be pushed to the point of sale, with sales and service workflow. This can be done by connecting broker systems to company systems. Underwriting rules can be defined and automated; they can be implemented in different places and distribution channels. The traditional linear process of underwriting is replaced with a customer-facing sales and service transaction and information-gathering process. Manual touch points are reduced, costs are better managed, timing is accelerated and customer service enhanced.

Technology can enable this action. An application has to be able to run the rules, detect issues for risk management, notify the user and resolve risk management issues.

This is where business process automation comes in. This can be done through pre-built, insurance-specific applications on a business process management platform — a process that increases flexibility, speed and functions. The freedom to work in a service-oriented architecture (SOA) means lower development costs and faster time to market, since business rules can be changed with minimal hassle and costs. They can be changed to reflect shifting business conditions, and they can respond immediately to feedback from brokers who are dealing at the same time with potential customers.

ii) Retrieval of external report data

Underwriters need to retrieve and integrate external report data such as driver, vehicle, prior claims, credit and other records. In the past, this cumbersome process has involved faxes, written documents, couriers and disconnected request and retrieval services. Today, the technology exists to access electronically and integrate third-party data where it is available — such as credit scores, motor vehicle records, and loss histories — right at the point of sale to ensure the transaction is right the first time. The ACORD XML standards, which are currently being adopted, should vastly improve the underwriting process.

iii) Streamlined hand-off to underwriters.

Skilled underwriters should not focus on administrative tasks, information and document collection or risk submissions not suitable for the carrier. Instead, if technology can automatically review incoming submissions and generate a decision or recommendation, then the underwriter can concentrate on exceptions. If this capability is combined with underwriting workstations that provide better visibility management and reporting on underwriting tasks, then underwriting productivity would vastly improve.

Cost savings would be substantial. A customer of iter8 once reported that during one period when the company’s revenues grew by more than 200%, costs increased by less than half the growth rate.

For small- and mid-sized commercial lines, costs can be reduced less from automation and more from automating processes that gather the right information from the right sources. Underwriting teams are then permitted to make better decisions, manage workflow and work management. Collaborative underwriting can emerge and generate significant ef
ficiency improvements.

iv) Connecting broker systems to carrier functionality

In order for technology to be declared a success, brokers must not perceive that “extra work” has been imposed upon them. Instead the thrust needs to be on improved relations between brokers and carriers, and enhancing the ease of doing business. To achieve this, technology needs to provide brokers with choice.

Most brokers prefer to begin transactions within their BMS. Technology can integrate the BMS with the insurers’ portal and policy administration systems. Integration can be done in real-time and instantiated within the broker system. Any gaps, errors or omissions in required information are identified in real-time and quickly fixed. Workload is not passed on to the broker; rather, technology tools enable a complete, accurate submission to be made. Automation of the underwriting process allows the broker to bind the customer.

“Too often insurers enforce their will upon their brokers,” says Trillium Mutual Insurance Company general manager and CEO Joe Dietrich. “What we plan on doing at Trillium Mutual is to work with our brokers to give them choice in how they interact with us. This means developing a solution that works with them in a way they want to. Ultimately we want our brokers to deal with us because of the overall ease in which we interact.”

For brokers who wish to use an insurer portal, technologies are required that allow sales and service transactions to be completed in real-time, via a portal. Given faster processing times and the automation of routine, brokers will receive faster response; the ease of doing business is therefore improved.

Everyone benefits. The customer will get more accurate quoting and binding, and the policies will be issued quickly. The broker expands his or her power to make decisions, receives quicker response, benefits from the use of a functionally-rich, easy-to-use software system. The insurer better manages workflow, automates routine transactions, enhances service levels to brokers and customers and consistently deals with a variety of underwriting risks.

A SUCCESSFUL OUTCOME

Dealing with competitors and business change is not new to anyone in the insurance world. The threat posed by large insurers with deep resources is significant, but not insurmountable. In fact, the strength of a local presence, gained through years of superior customer service and a wealth of experience and expertise, gives regional insurers a business advantage that is tough to overcome.

To succeed, the broker-insurer relationship needs to be strong. Both groups need to work together and ensure they have compatible goals.

Colin Simpson, the chief operating officer of York Fire and Casualty Insurance, mentioned the solution they installed gave them “100%-accurate point of sale… [T]he underwriting rules are there on the Web-based portal, and what you get is what you see. The broker just keys it in and that is it.”

By investing in their distribution channel, York Fire has successfully automated more than 70% of its personal transactions and paved the way not only for the company to compete, but compete and win.

Technologies and software applications exist that can enhance this relationship and benefit customers through providing “ease of doing business,” lower costs, improved speed and better information flows. Such technologies are cost-effective and user-friendly. Investments and investments made today can pay off in years to come.