Industry SEMCI: at Critical Mass?

What has long been an elusive aspiration for the Canadian property and casualty insurance industry could soon become a reality – or not. The industry’s attempts at implementing a single-entry, multi-company interface (SEMCI) technology solution at the distribution point of the business have in the past been marred by company infighting and a distrust by independent brokers to the true intent of insurers. Thus, after years of disparaging failures at getting SEMCI going, there is a new sense of excitement – which some in the industry describe as almost a religious “conversion” of non-believers to believers – that the Centre for Study of Insurance Operations’ (CSIO) Internet portal will deliver the goods.

The frailty behind past attempts at SEMCI ultimately came down to “critical mass” in terms of user support – or rather, the lack thereof. The CSIO believes that it has now achieved that critical mass support from both brokers and companies as the portal is set to go “live” with phase II, which many in the industry regard as being the first beneficial stage of the project. The portal’s phase II, scheduled to be launched in March this year, is intended to offer brokers “single sign-on” access to those insurers participating, with guaranteed quoting and the ability to submit all new business. The workflow process reduction achieved through “single sign-on and submit” is what many brokers regard as being the pinnacle advantage of the portal.

The bad news is that the portal’s phase II implementation date has been moved out by the CSIO due to “technical problems”, without any specific timeline given to when its supporting brokers and insurers can expect the service to become available. Failing to meet on its promises has been the biggest factor undermining industry confidence in the CSIO’s ability to come through with a viable SEMCI solution, admits the organization’s interim CEO David Patrick. “People need to understand that the portal is not like running a single IT project within a company…you’re dealing with a very different model,” Patrick observes. In addition to limited resources available to the CSIO, progress made on the portal is very much influenced by the significant number of parties involved with the process, he adds.

As such, Patrick says the “single sign-on and submit” function of the portal is still being “evaluated” in terms of what the most appropriate technology approach would be in terms of online security. “Single sign-on is not a difficult technology, it’s about getting consensus [from those participating] on security issues,” he notes.

Randy Carroll, vice president of operations at the Insurance Brokers Association of Ontario (IBAO), is willing to venture a launch date of “sometime in early 2005” for the portal’s phase II, including single sign-on and submit functions (the IBAO has over recent years become the a major driver behind the CSIO portal). “We won’t have single sign-on ready by March [2005] because of technical glitches,” Carroll confirms. He points out, however, that the biggest hurdle to moving forward with the portal’s phase II implementation has been overcome – that being achieving critical mass support from the independent broker community.

SUPPORT FACTOR

With the initial phase of the CSIO’s portal having been brought online in Ontario toward the beginning of last year as a kind of “test run”, moving forward with the project meant attaining support from about 30% of independent brokers, explains Carroll. The target set for the IBAO in achieving this level of support was originally placed at the end of 2004, he notes, although this was later shifted to the end of January this year. With the results almost ‘just off the press”, Carroll says the response from brokers in backing the portal has been tremendous with nearly 50% of the IBAO’s members having either signed on or currently engaged in trial testing.

So far, 218 brokers have registered for the portal with a further 23 brokerages pending, observes Carroll. Broker support is definitely behind the portal, he says, and this has been a determining factor in motivating insurers to get onboard. “The portal has been a bit of a ‘chicken and egg’ situation,” Carroll notes with regard to past efforts made to drum up support from brokers and insurers as each group has waited to see how the other would respond before committing. “People are now getting over their reservations and are realizing that the portal is here to stay, and it’s going to keep going forward.”

“Our [CSIO] priority right now is to increase broker usage of the portal,” says Patrick. He concurs that the biggest problem in the past with getting brokers to support the portal was the lack of markets available. “It’s not reasonable to expect brokers to use [and pay for] another rating engine as well as the portal if the market’s aren’t there,” he notes. The situation has changed, Patrick observes, with the number of insurers, or markets, participating on the portal having jumped toward the end of last year from around 15 companies to 32 companies (not all the insurers in question are currently active in offering rate quotes, with only two markets providing guaranteed rates – see accompanying chart).

With the 21 active insurers on the portal, and the 11 companies that have signed on to participate in future, Patrick believes that the necessary company critical mass has been achieved along with a high level of support from brokers. “We’ve now got a critical mass of brokers in Ontario, and with the insurers that we have in the pipeline, I think we’ve cracked the nut,” he adds. “I’m very happy [with the current level of insurer participation on the portal],” comments Carroll. The number of insurers involved with the portal more than doubled from October of last year, he notes. And, he adds, “when we set up our [portal] business plan, our ‘critical mass’ was to get the support of the ‘top seven’ companies. We now have that.”

Furthermore, Carroll points out that, as the number of insurers offering guaranteed rate quotes rises, the attractiveness of the portal to brokers will increase. At this stage, two companies – AXA Canada Inc. and North Waterloo Farmer’s Mutual Insurance Co. – are offering guaranteed quotes over the portal, he notes. Aviva Canada Inc., as well as Pilot Insurance Co., will begin provide guaranteed rates by the beginning of March, he adds, with Royal and SunAlliance Insurance Co. of Canada expected to do so by the end of the first quarter of this year.

“The brokers we [deal with] are extremely enthusiastic about the portal because of the number of companies now supporting it. That has been very positive [turning point for the portal],” says Bob Hornick, president of CIM-Data, a broker management system (BMS) vendor. Although he believes that the CSIO’s original business model resulted in technical flaws being built into the initial structure of the portal, which have proven expensive to overcome, the technology driving it is now working, he confirms. The main benefit of the portal for brokers is to access insurer systems through a single online access point, which is essentially what the portal offers, he notes. But, whether the portal succeeds as the industry’s future ultimate SEMCI solution will depend on financing, and thus the level of support behind it – rather than the “technology” being the deciding factor, he adds. “Has the portal got to the point of achieving that critical mass support? I don’t know.”

Bruce Etherington, senior partner and owner of Etherington Insurance Brokers Ltd., sees the portal as the future of broker-to-company interface. “We’re big supporters of the portal. I believe in its future. We’re [the portal] past the implementation stage.”

OVERCOMING HURDLES

Previous attempts by the CSIO to get its portal beyond the drawing-board have been hampered by poor communication within the industry as well as the technology vendors involved – particularly the BMS providers. Achieving technological compatibility between the p
ortal and the BMS products therefore became a critical issue for brokers in moving forward. The other drawback for the portal lay in its funding, with insurers thus far having footed about 95% of the portal’s development cost without any clear plan in place to how the portal will sustain itself financially in the future (the CSIO has not publicly disclosed the production costs associated with the portal).

In the first instance, cooperation between the CSIO and the BMS vendors has increased tremendously, observes Patrick. “We’ve gone from an ‘abyss’ with the BMS vendors to an excellent working relationship. This has been one of the biggest hurdles to overcome,” he adds. Carroll notes that there are four BMS vendors in Ontario: CIM-Data, Applied Systems Canada, Keal Technology and Zycomp Systems (Power Broker). Of the four BMS products, three are now fully functional and compatible with the portal, Carroll says, “and the fourth BMS vendor is just weeks away”. He adds, “the [BMS] vendors listened to brokers, and cooperation [with the CSIO] has never been better”. Hornick confirms that the technology problems encountered in the past have been overcome. “We’ve got upload and download running. The technology on our side is now working well [with the portal].”

With regard to financing, Patrick notes that ultimately the portal will become self-funding in terms of user fees paid in part by brokers. While some brokers are currently paying fees, he would not elaborate on details or what time frame (if any) has been set for the portal to achieve self-funding status. “Brokers are currently paying user fees, but its still new. We’re just migrating from the pilot stage [of the portal’s implementation].” The financial viability of the portal also depends on its implementation countrywide, with Quebec identified as the next province in its advancement. However, Patrick notes that, “we have to be one hundred percent successful in Ontario before moving on”.

Even though the current “usage value” of the portal is limited relative to the fee charged, Etherington believes there will be money savings over the longer term simply due to the reduction in data processing. “The portal offers integration of software and access to multiple company processing systems, which means we won’t have to duplicate data entry [in processing new business].” Furthermore, he points out that the cost of the portal fee is also very competitive relative to that currently charged by the outside rate quote provider. “If you think of the portal fee as a replacement of the cost associated with the existing rating service, then the ‘add-on value’ of software integration available through the portal makes it a clear winner.”

Etherington also notes that the portal offers the potential for guaranteed rate quoting. Although the competitive rating agency is moving toward guaranteed rate quoting in response, this has not been a feature available to brokers before, he adds. “If the portal works like its eventually supposed to, then the comparable rating should be accurate as the rates will be generated directly by insurers’ systems. So, whether they’re [rates quoted] are guaranteed or not, the accuracy is really this issue.”

While all of the markets which Etherington Insurance places business with are now participating in the portal, Etherington says that, in the event either company was not represented, this would have “meaningful impact” in terms of whether he would place any business with that insurer. Basically, he says, the point of comparable quoting is comparing “apples with apples” and “oranges with oranges” – if one insurer’s rates were not immediately available for doing so, then this would be a factor in selecting where to place the business. “Had one of my companies not been on the portal in an open market, I think this would have a significant impact [against placing business with that insurer].”

NEWCOMER VIEWS

Kingsway General Insurance Co., a newcomer to the portal, is viewing its participation as an “experiment”, according to the company’s president John McGlynn. ‘We’ve put up our rates there [the portal], but haven’t got involved in the [CSIO] technology issues.”

McGlynn says Kingsway has taken a “one year trial” to see what broker interest might be “out there”. He adds, “the portal is just one option [for us]. The most important thing is whether there will be adequate broker acceptance [for the portal].” As an “open market”, in other words open to doing business with all brokers, the prospects possibly available through the portal can not be ignored, McGlynn comments.

Echelon General Insurance Co.’s decision to sign on with the portal was “strategic motivated”, says Stephan Steele, vice president of auto underwriting. With both broker and insurer participation through the portal having gathered momentum, it became important for Echelon from a competitive standpoint to be on the portal, he notes. And, he points out that competition in the non-standard auto insurance marketplace, which Echelon operates in, has been heating up. With Kingsway having joined the portal, this would have been a motivating factor on its own for Echelon to be on the portal, he adds (even though Kingsway’s signing on with the portal had not been known when Echelon made its own decision).

Steele says the insurer was also being urged by its brokers to join the portal. The message the company was getting from brokers was that they were not willing to support two rate quoting engines in their offices, he notes. As such, the decision to sign on with the portal was not difficult. “Anytime you can get in a broker’s face for the right reason is a good thing,” he adds.