Illusion or Reality? CSIO Portal Launch Looms

The property and casualty insurance industry’s joint company/broker technology development body, the Centre for the Study of Insurance Operations (CSIO), is set to roll out the first-phase development of its Internet-based insurance portal in April of this year. The first-phase of the portal, which initially will be made available in Ontario and then gradually introduced to the other provinces, will provide brokers with a real-time online price quoting service province-wide. The latest launch date follows roll-out cancellations from September and April of last year, presumably due to the fact that an insufficient number of insurers were prepared for participation.

After three and a half years in development, the CSIO portal is now ready for its first-phase debut, says the organization’s president Klaas Westera. In fact, from a technology standpoint, the portal has been ready since the fall of last year, he adds. Delays to the launch arose due to individual company development in integrating their legacy-based systems to accommodate the flow of information via the portal. The CSIO expects to have 18 insurers participating in the portal by the April launch date (expected to account for about $8 billion in premiums). Westera says the portal will need to attain transactional volume of about 75% of all personal premiums in Ontario to be cost-effective. “We now have eight of the top-10 insurers operating in Ontario.”

The companies signed on include: Axa Canada Inc., CGU Group Canada Ltd., Traders General Insurance Co. (member of CGU group), Scottish & York Insurance Co. Ltd. (member of CGU), The Dominion of Canada General Insurance Co., Chieftain Insurance Co. (member of Dominion group), The Economical Insurance Group, The Facility Association, Farmers’ Mutual Fire Insurance Co., ING Insurance Co. of Canada, Lombard Insurance Co. Ltd., The Mutual, Pembridge Insurance Co., Pilot Insurance Co., Royal & SunAlliance Insurance Co. of Canada, Waterloo Insurance Co., The West Wawanosh Mutual Insurance Co. and Western Surety Co. The CSIO is in discussions to bring other insurers online after the first-phase launch date, says Westera. “We’ve focused on getting critical company mass, and now we can push to get critical broker mass.”

Broker support

Prior to the release of the portal, the CSIO had been involved in pilot testing with 22 brokerages across Ontario, says Westera. He expects that by the April launch date, the portal will have about 50 broker subscribers. The CSIO’s setup (including training and help support services) for the portal will allow for about 50 new broker sign-ups per month, Westera notes. “Our plans are for a take-up rate of 50 brokers a month. We’re working closely with IBAC [Insurance Brokers Association of Canada] and the IBAO [Insurance Brokers Association of Ontario] to achieve this. In terms of the pilot testing, we looked for a variety of different brokerage operations with regard to type of BMS [broker management system] and size of operation. We believe we can get a majority of brokers in Ontario to support the portal based on their business mix.”

The portal needs about 750 brokerages out of the approximately 4,500 licensed operations in Ontario in order to “break-even” on cost, says Danny Craig, past president of the IBAO and IBAC’s chief representative on the CSIO board. “At the moment, we’re just waiting to get this thing [the portal] out after three and a half years.” Craig concedes that gaining strong broker support in Ontario will largely determine the future of the portal. “We have to have a critical mass of brokers on the portal by the launch in order to gain further company money [for development]. Companies want a business plan to go forward.”

After the initial roll-out in early April, Craig says the CSIO will be able to facilitate bringing on about 50 brokers a month in terms of training and support. With this target in mind, he expects the portal to achieve cost break-even by January of next year. While IBAC and the IBAO will not financially benefit from their involvement with the portal, which Craig describes as, “an industry-owned non-profit tool”, members of the broker associations will be given a preferential rate on sign-up. “Anyone can become a subscriber to the portal, however, as broker associations we’ve put a lot of time and money in getting the portal going, and there’s not going to be any ‘free-loaders’,” Craig comments.

Although smaller brokers are less likely to realize immediate benefits from the portal’s price-quoting service, for instance those operations representing only two to three markets and therefore do quoting manually, Craig points out that the longer-term benefits are immense for all. Plus, he adds, the average brokerage operating in Ontario currently has about five to six markets. “I really don’t care about [the first-phase] price quoting, if you look at it [the portal] just in terms of rating, we’ve built the most expensive rating engine in the world. This, however, is just a ‘means to an end’, a start to our only shot at achieving SEMCI [single-entry, multi-company interface].”

From Craig’s perspective, brokers getting in on the “ground floor” of the portal’s development will truly benefit when the project moves to the next phase of development which will hopefully allow for policy changes and policy endorsements. This, he adds, is the true functional value that brokers have been pushing for. “I think broker participation will increase substantially once the second-phase of the portal kicks in.”

At this stage, Craig notes that nearly all technological glitches associated with integration of the major broker management systems with the portal have been resolved. Applied Systems and Keal Systems have undertaken extensive testing of their systems while PowerBroker has begun its own testing, he adds. “The only disappointment is I wish we had one hundred percent participation by insurers…My biggest disappointment is that Wawanesa Mutual Insurance Co. hasn’t signed on yet. But, the company’s president Gregg Hanson has assured us that once we [the portal] have 250 brokers onboard, the company will be there.”

Chris Lube, vice president of personal lines at Wawanesa, notes that the company had begun its own online technology solution before development began on the CSIO portal. At this point, the insurer has made a substantial investment in its online system which handles transactions from about 300 brokers. The amount of effort already made by Wawanesa into its own system is the reason the company has opted against joining the CSIO portal at this stage, Lube says. “Although, we don’t have any hard and fast rules against new solutions such as the [CSIO] portal. If we have a critical mass commitment from our brokers in using the portal, then we may go that way.”

Portal pricing

Perhaps one of the greatest industry confusions surrounding the portal is pricing. Throughout the portal’s long development, the CSIO has avoided releasing specific development costs as well as user pricing. Now, in the eleventh-hour of reckoning, Westera says a user fee-schedule will be sent out to brokers having expressed an interest in subscribing. “The fee schedule has not been published, but I can say that the pricing has been determined to be favorable to other price quoting services.”

Craig confirms that a pre-registration package, including pricing, is being prepared for distribution to brokers. “Pricing hasn’t been released for competitive reasons, we didn’t want other price rating services to reduce their prices in anticipation of the portal’s launch.” He adds, “we’re not trying to compete with third-party rating services, or to gain a monopoly over the business,” only to give the portal a fair chance at a running start from the ground.

A major benefit of the portal’s pricing is that subscriptions will be based on “per brokerage” and not set according to different regions, says Craig. As such, brokers will have access to pricing across Ontario without being subject to additional costs. While most brokers tend to handle personal lines business within their communities, Craig points out there is a fair amount of “out of town” requests that come into a broker’s office. “This could be from customers who have moved to a different community or from referrals from family and friends.”

Guaranteed quoting

The greatest concern brokers have with the first-phase launch of the portal is that not all price quotes made available will be guaranteed. In fact, early indications from companies suggest that the bulk of the quotes provided over the portal will not be guaranteed.

Much of the time delay affecting the portal’s launch over recent years arose from lack of preparedness by insurance companies to provide secure, online quoting. Most companies have in the past relied on third-party application service providers (ASPs) to provide online rating, which required the broker to follow up with the insurer in question to secure the price and terms of the policy. To expedite the launch of the portal, the CSIO has allowed insurers to continue providing rate quoting through ASPs while they continue to develop their own inhouse price rating engines. “Use of ASPs will continue,” says Westera, “depending on the arrangements of each insurer. The only difference to a broker is that an ASP rate may not be guaranteed.” However, Westera notes, portal rates will show “critical data” with each quote, in other words, the information needed to differentiate features from one cover to the next. “Products [personal lines] are becoming increasingly different, this is definitely not a commodity business,” he adds.

Craig confirms that, until every insurer is running their own rating engine, then pricing provided over the portal will not be guaranteed. This will require the broker to duplicate some of the processes involved, he concedes, as each quote will have to be verified with the company in question. But, he point outs, testing of rates provided by ASPs has thus far proved to be highly accurate.

Broker concerns

“There are a lot of hurdles here [regarding integration of the portal by brokers into their daily processes],” says Leslie Lacroix, office manager at the Unity Group. The brokerage has approximately 60 staff members engaged in customer support, and her prime concern with the portal is the cost in time and money in the training of staff to use a system that will essentially duplicate existing functions. “The portal today will just be a rating system. I realize that there has to be a starting point, but from a value perspective, I’m finding it difficult to justify it [portal integration] and see value over the next two to three years when we’ll really get what we want [policy transacting].”

A significant issue at stake is the timing of the launch of the portal, Lacroix says. “The portal was a hot topic two years ago, now it’s not a priority as brokers are focusing on retaining business in a difficult marketplace.” This, she points out, calls into question the long-term viability of the portal as further development toward policy transacting will depend on broker participation.

Lacroix also points out that the cost of price rating/quoting is a relatively minor expense for brokers. As such, even if the portal is made available at favorable pricing relative to other third-party rating services, there remains increased overhead in staff training as well as the fact that most brokers are unlikely to throw out there existing processes and place all their eggs in the one basket of the portal. “The third-party price rating vendors will likely reduce their own pricing to remain competitive,” she adds.

And, even if the fee charged for the CSIO portal’s rating service is made available at a very attractive discount, a major concern for brokers is how many rates quoted will be guaranteed versus estimates, Lacroix notes. “How many companies will be able to provide guaranteed versus estimate rates? Most companies still need to process transactions through batch load-up overnight.”

As a result, Lacroix says that, while the Unity Group has not ruled out participation in the CSIO portal, the brokerage will be taking a cautious stance. “We may, say use five people in the office to test the portal. But, from what we’ve seen, we wouldn’t try it en masse. We’re not going to throw out what we already have.”

“I’m not against the concept of the CSIO portal, not if it works like they [the CSIO] say it will,” comments Mike Burke, president of Shillington Rowlands Insurance Inc. However, he too holds reservations concerning the approach the CSIO has taken in launching the portal. “I’m concerned that the [CSIO] portal is being sold as the next best thing to sliced bread, but in reality we really don’t how it will work.”

Burke believes that launching the CSIO portal as a “selling tool” in providing online rate quoting was the wrong approach. He feels that greater focus should have been placed on getting the second-phase development of policy change and endorsement into place. “I’m concerned that brokers are going to be used for research and development for the next two to three years. This is going to be a waste of the broker’s time, and I have to wonder whether the cost is worth the end result.”

Furthermore, Burke concurs that the cost of price rating is minor in terms of revenue and overall brokerage operational expenses. For instance, in Shillington’s case, the annual cost of using Compu-Quote’s rating service as a percentage of annualized commission income equates to a ratio of about 0.20%. As such, he notes that roughly 70% of a broker’s transactional activity relates to policy change. The latter area should have been focused on by the CSIO, he adds. Another concern with regard to the CSIO portal is its transactional capacity and the responsiveness of companies in being able to provide real-time pricing. “We do about 150 price quotes a day. I don’t want the CSIO portal to turn into a transactional bottle-neck.”

Burke is also dubious of the value in a broad-based price rating system – such as will be on offer through the CSIO portal. The reality of the marketplace, he adds, is that brokers are limited to placing business with their own markets. “So what’s the point of comparative pricing if you can’t place the business?”

“The CSIO has the right idea, but the reality is, there are still a lot of questions about how it will work,” says Rick Purdy, president of Cowan Dalton Inc. The brokerage group has been among those involved in the testing of the CSIO portal.

Purdy notes that getting insurers to take on new business in the current market environment is the biggest challenge facing brokers. “Even if you get seven quotes on the business [via the CSIO portal], this doesn’t mean that you’ll be able to place the business.” As such, he does not see much value in the price quoting service of the CSIO portal, but remains “cautiously optimistic” with regard to the long-term development of the project.

Furthermore, Purdy points out that the initial idea with the portal’s development was to get insurers to integrate their legacy systems to provide online access to brokers. This is still a long way off from development, he notes, and even the price rating that will initially be made available through the CSIO portal will be through third-party rating services (ASPs). In response to whether or not Cowan Dalton will be signing up to the CSIO portal, Purdy comments, “let me put it this way, the world won’t stop for me if the portal’s launch [in April] doesn’t happen”.