Breathing New Life Into Brokers

In March 1999, Internet economy magazine “Business 2.0” boldly proclaimed that 20 industries — insurance figuring prominently among them — were about to become “fossilized” thanks to the Internet. And, the Meta Group bleakly predicted that the individual insurance agent/broker would become a “rare bird” fading to virtual extinction by 2005.

Despite these dire predictions, it is now clear that the Internet will not cut brokers out of the picture anytime soon. Perhaps ironically, the very tool that was supposed to have sealed a dire fate for brokers, is now the tool that is helping insurance brokers build stronger relationships with both their markets as well as their policyholders.

Added value

Despite the lower prices that customers can potentially achieve when going directly to a manufacturer, there are still a great number of products and services that require “added value” before the average consumer can use them. The analysis and customer service that intermediaries offer has traditionally been, and continues to be, their primary contribution to the supply chain.

Insurance, with its complex and potentially bewildering array of options, details and processes, is certainly one of those products that is greatly enhanced by intermediary services. The value of such services is not negated by the mere introduction of the web.

In the 1990s, people mistook the Internet for a new business model, and therefore concluded that traditional business models with a supplier-middleman-customer structure would disappear. With some notable exceptions (such as the book industry), these conclusions were misguided because the Internet is not so much a business model as it is a “business tool”. As a tool, it can be used to good or bad effect, but it does not ensure success or failure merely by its presence.

Five stages

There are five increasingly sophisticated phases to web applications created for brokers. These phases parallel the stages of services that insurers offer to retail customers (see “Online Innovation: Playing Catch-up” of the Feb. 2002 issue of CU).

The web brochure. Nearly all insurers now have at least a basic website where they can present a vast array of details about available products and services. Many also list brokers that sell their products, providing the brokers with market exposure. Broker associations are also giving consumers means to locate brokers in their area.

The Internet storefront. At the next stage, insurers offer password-secure web applications. Brokers may be able to access sales tools, view and compare products and quotes, create proposals, and register policies directly. Increasingly, customer and business reports representing the broker’s book of business with the insurer are also available within this Internet storefront model.

Preferences and portfolio services. At the third stage, insurers are “personalizing” the services they deliver. They may create a “mask” that makes the brokers feel they are using a system tailored to them. The most innovative of these systems provides tools and reports that help brokers measure their most profitable business and customers so that they can focus on high value activities.

Internet commerce. Today, this level of sophistication includes online claims processing, automated payments by customers and to brokers, and the standardized exchange of documents.

Value processing. When insurers offer value-processing capabilities to their supply chain partners, the win-win of the Internet emerges in full expression. Examples of such initiatives are portal and e-mail services, where brokers can create and maintain web pages using the insurer’s infrastructure, or can have e-mail services hosted by the insurer. These are low-cost extras that insurers can offer as loyalty rewards or value-added services to their “commercial constellation”.

Reducing “churn”

Brokers, no matter what their size, are still small when compared to insurers. This means that the relative financial impact of service failure is higher for brokers than it is for insurers. Conversely, the relative benefits of good service are greater for brokers.

Using web services from insurers allows brokers to improve customer satisfaction levels by providing faster, more efficient service. Since a broker’s true value rests solely with this customer service, such improvements can only contribute to success. A happy customer is a loyal customer and is not likely to defect to a competitor, even for lower prices. And in an industry where the cost of initial sale is so high, anything that can reduce churn is a welcome development.

People used to think that brokers, especially the smaller firms, would not be able to compete in the new Internet economy because they would not be able to support the extensive (and expensive) technology infrastructure required. It is true that most brokers do not have the resources to invest in industrial-strength, cutting edge applications, which is exactly why web services have been such a boon. For the relatively minor cost of a computer and Internet access, brokers can benefit from the infrastructure provided by the large carriers. Far from spelling death for the small brokerage, the web has improved the ability of even the tiniest firms to perform competitively in the market.

Perhaps the only downside for brokers at this stage is the lack of integration between web services and the portfolio management applications they use in their own office. In most cases, a broker must key information once into the web service, and then again into their office software when the information is processed and approved.

The industry is working diligently towards standardized processing, however, and the future holds the promise of truly integrated systems that provide maximum efficiency and cost-savings for all involved.

Channel loyalty

So far, web services seem like a pretty good deal for brokers. They pay virtually nothing to maintain the system infrastructure but they reap the full benefits of using it. So what is in it for insurers?

Traditionally, insurers have relied heavily on brokers and agents to sell their products. While some of the more straightforward products can now be sold directly to consumers online, insurers still need brokers to explain more complex products, up-sell and cross-sell, nurture client relationships, and provide a sorely needed human touch. In other words, insurers need to retain the loyalty of their traditional sales channels in order to maintain marketshare. To actually increase marketshare, carriers must also provide ways for the broker channel to better capture, serve and retain clients. Web services achieve both goals.

At a time when carriers are facing severe competitive pressure in the market and fears of channel conflict are aggravating business problems, broker-integrated web services demonstrate a real commitment to intermediaries that does not go unnoticed or unappreciated. Insurers who exclude brokers from their web strategy do so at great cost to their ultimate competitive ability. Even though an effective web service system is a large financial commitment, the implementation and maintenance costs can be offset almost entirely with the money saved in resulting reductions to back office data entry and call center support. Furthermore, when brokers key in customer data directly there is a demonstrable reduction in the number of data errors.

Customer choice

Now more than ever, customers are pressed for time. Despite technological advances, their basic need remains the same: fast, convenient, and effective service. They want direct access to information but they also want to choose how they interact with their service provider.

A direct-to-consumer approach to web services is not enough to answer these demands. Instead, a dual approach that also offers web services to brokers brings value to both constituencies. Customers can then choose to access information and perform simple tasks on their own, but can also choose to include a broker in their insurance experience without losing the benefits that web services confer.

Contrary to views in the late 1990s, a broker-integrated web strategy makes sense for the insurance industry. It offer brokers greater opportunities to excel in their role, provides insurers a way to increase marketshare while saving money, and delivering more choice and better service access to customers.