Commercial Hit List

In the world of insurance technology, personal lines business is “king”. Most of the energy in the past has been dedicated to automating “routine” transactions, such as personal auto. And, there has been success with comparative quoting, electronic data interchange (EDI) and single entry. The best brokers have used their broker management systems (BMS), imaging and EDI to create a more or less paperless environment. But, the problem is that progress typically ends with personal lines.

For commercial lines, the general feeling is the business does not fit standard automation systems: it is too varied and complex. The result is that the process of writing business insurance remains paper-intensive, manual and duplicative. Underwriting submissions are sent in a wide range of formats, from handwritten to fax to voice to electronic. Re-keying of information from broker to insurer is prevalent, and often leads to errors.

OUTDATED COSTS

There is a simple rule: the more you touch something, the harder it is to avoid mistakes. A commercial brokerage in Canada with 14 employees estimates it has one person dedicated to correcting errors and rework projects. What about the larger tier-2 and “alphabet brokers” – how many full-time jobs involve righting the wrongs?

Of the $22 billion in premiums that Canadian insurers write each year, roughly one-third, or about $8 billion, is commercial business. The lion’s share of distribution in this segment is through brokers, at about 90%. The expense ratio for the insurance industry has clung stubbornly in the low 30% range for the past several years, but that figure applies to all insurance transactions. Many speculate that the expense ratio in commercial lines is higher, as much as 40%. That means at least $3 billion in commercial insurance premiums goes directly to expenses.

Even with the advent of standards for the electronic exchange of commercial lines data, it is estimated that 95% of all interactions in commercial insurance continue to rely on antiquated paper processes. With the error rates customarily found in manual keying or hand writing of forms, how much money is the industry spending on errors and re-keying of data? What does it cost your brokerage to continue with outdated practices? And what does it cost your customers?

BROKER PRESSURE

The current hard market throws the issues of turnaround and accuracy into bold relief. Clients are asking brokers to do more in terms of quoting, counseling and providing loss prevention advice. The requirement to remarket and provide broad subscription policies are recent trends that affect virtually all brokers in today’s commercial lines environment. Underwriters are much more selective in risk selection and class of business, asking for detailed information and airtight submissions. Brokers are now faced with the necessity of making two sales – to the underwriter and client.

Now is the best time to dispel the notion that commercial business is too complex to automate and acknowledge the atrocious error record in commercial lines compared to virtually any other industry. Brokers and insurers should seek some quick wins in efficiency and service. In fact, by capitalizing on new technology, brokers can forge new relationships with their companies and gain a competitive edge in both attracting and retaining clients.

PUSH & PULL

But how exactly did the industry get in the current situation? There are two sides to every story and the p&c insurance industry is no different. Both insurers and brokers have created the status-quo – and both will have to make changes in the way they approach commercial lines.

Insurance companies have pursued many commercial (and personal) lines initiatives in recent years, such as proprietary point-of-sale systems, call centers, web-based access to mainframes and even outright purchasing of brokerages. The irony is that little of this supports the fundamental reason the broker exists – to provide clients with access to multiple markets. The reality today: insurers that help their brokers write more business, not just with themselves but also with other carriers, will be the most successful and hold the most loyal broker force. Call it enlightened self-interest.

In fact, there are two primary areas where insurers can especially streamline the broker side of the distribution channel – minimizing turnaround time and extending ownership of data. In the first, there are five main functions that insurers can help brokers with:

Achieve single-entry;

Reduce rework;

Create a uniform way to deal with all companies;

Pursue faster response time; and

Provide point of sale service.

SINGLE-ENTRY

Single-entry is the cornerstone of achieving faster turnaround time because it reduces errors and rework. Brokers who painstakingly entered their commercial client data into their systems should not have to re-enter it into a proprietary company system, web-browser or call center. Instead, brokers need a uniform way to deal with all their companies – not a disparate set of solutions.

Once client data is entered, the broker should be able to simultaneously send submissions to multiple carriers “with the click of a mouse.” Companies, realizing that the first quote in often wins, can take steps to reduce their response times, particularly if the submission is received in a standardized format. And point-of-sale issuance is the ultimate way to provide better service and immediate turnaround, especially for standard commercial risks. Insurers have been slow to extend authority to brokers’ offices – wasting both the underwriter’s and broker’s time.

DATA OWNERSHIP

Ownership of data is another critical issue for the brokerage profession. In particular, brokers need client data to:

Reduce reliance on paper files;

Set standards and enhance professionalism;

Achieve E&O protection;

Subscribe risks; and

Remarket risks.

To a broker, ownership of data means that client information resides not only in insurer systems, but their systems as well. The broker’s system must be able to manipulate this data to efficiently perform these tasks. For example, many brokers are spending too much time shopping risks around due to inefficiencies in insurance company systems and poor response times.

BROKER CONSISTENCY

In addition to the problems plaguing insurance companies, brokers also face internal challenges in how they manage commercial business. As brokerages get bigger, they add more staff to sell and service clients. It becomes increasingly difficult to accommodate the different work patterns and personalities of the growing staff to certain standards. In some cases, submissions to underwriters vary depending on the individual involved.

The nature of the business requires specialists, often in both sales and service. But at the same time, the brokerage requires consistency and standards in its submissions. This balancing act must be incorporated into any potential technology solution.

Progressive brokers have exploited the commercial lines capabilities built into their broker management systems. Some have used the BMS integrations with Microsoft Word and Excel to achieve a measure of efficiency in their commercial business. But, as a broker’s commercial volume increases and the complexity of risk increases, this approach can show limitations. Many of these systems were designed primarily for personal lines.

That is why many brokers today are turning their focus to commercial management systems (CMS), a new breed of software designed from the ground up to manage commercial data, streamline submissions and provide a platform for standards and professionalism. A CMS augments the BMS to take care of the broker’s side of the distribution channel. It mirrors many of the benefits leading insurers are focusing on – ownership of data and turnaround time.

For example, a CMS provides full client history, with “drill-down” capability and imaging, to reduce reliance on paper files. It also gives secure documentation of every step in the marketing and policy l
ifecycles to protect against E&O claims. For subscription risks, the CMS automatically calculates premium distribution on full-term transactions (i.e., new, renewal) and produces a schedule of subscriber adjustments on mid-term transactions. For remarketing, it helps brokers electronically send requests for quotation to multiple insurers for new and renewal business.

Most importantly perhaps, a CMS can set new standards for commercial business transactions, creating thorough, well-organized submissions. Integrated commercial systems also provide true single-entry on the broker’s side of the distribution channel. In the future, these systems will exchange commercial data electronically with insurer and industry portals.

FOUNDATIONS

And this is where the big question mark comes for commercial lines – when will insurers start work on an infrastructure to support electronic exchange of data with broker systems?

There are some direct things insurers and brokers can do now. Insurers should first accept non-company specific paper applications from brokers. They should also grant limited authority to their best brokers, allowing for policy issuance at the point-of-sale using industry-standard wordings.

Both sides of the distribution channel have to realize and push for technology advances, such as electronic exchange of commercial lines data through the implementation of XML-based standards (ACORD and CSIO). At a minimum, insurers should support basic transactions – request for quote, response to request for quote (quotation, referred to underwriter, rejection) and bind.

For brokers, technology solutions have to complement, not replace, talent in the brokerage. Commercial management systems should not force specialization out of the business, but find ways to harness diversity, set standards for submissions and improve a broker’s ability to write business.