Profile: Staying in the Game

“It was 20 years ago today…” or so the song begins. Insurance software vendors, like Sgt. Pepper’s band, have been going in and out of style, but very few have been “guaranteed to make you smile”. In no other industry does a 20th anniversary mean as much as it does in the technology sector, and with the swinging fortunes of the insurance sector thrown into the mix, this year brings extra cause to celebrate for Compu-Quote.

Founded in 1983 by John and Stephen Savage and Brian Schwab, the rating service provider has weathered both the throes of the high-tech bubble and bust, as well as shifting insurance cycles. “The rating service business is hard, says Compu-Quote president John Savage. “You need to listen to customers.”

And, the company will be listening even more carefully as it watches the development of an industry Internet portal to link brokers and insurers from the Centre for the Study of Insurance Operations (CSIO). While some may see the promise of the portal as a death knell to Compu-Quote, Savage remains confident that his company fills a need and has the flexibility to withstand challenges from CSIO or any other competitor.

FILLING A NEED

Savage recalls it was a broker friend who first contacted him with the concept of creating a rating system. Already involved in software development, and with links to the insurance industry, Savage understood this old contact’s need, “to automate underwriting and rating”. Savage, along with other founders, saw that need as an opportunity to create a larger company.

But, as with any technology solution, the road was neither quick nor simple: 18 months were spent in development, with the first sale made in late 1984. Part of the original challenge came from the relatively low level of brokerage technology in the early 1980s. The personal computer had only been around for a year to a year-and-a half, and many brokerages had just one of these, with brokers lining up to use it.

As with any new entrant, Compu-Quote had to be patient to wait for returns, but by 1986 the rating service became the primary focus of the company. Part of this early success relates to fulfilling a broker need, Savage says. With many brokerages linked to 10 to 12 carriers, a means of instant rate comparison was long overdue.

At the time, the market was soft with insurers engaged in cash-flow underwriting, but by the mid-1980s the market shifted and in Ontario and auto insurance became a “political football”. This led into the threat by Bob Rae’s NDP government to institute public auto insurance in Ontario, “which we fought hard against”, Savage says. Along with brokers, he marched on Queen’s Park to protest the proposal, which was eventually abandoned by the province. “Life has been pretty steady”, he allows, despite the slide between hard and soft market conditions, the prospect of broker consolidation and other changes moving the industry forward. “The biggest change I’ve seen is the maturation of the vendors. In the early days, most were young and saw their solution as the only one.” This approach had some validity twenty years ago, with broker consolidation on the table and big brokers controlling a sizeable portion of the market. “One size could almost fit all.”

FINDING A NICHE

Today’s market is very different for brokers. With consolidation not sweeping the industry as expected, and the current hard market seen as perhaps the most trying ever for the insurance distribution force, brokers have had to adapt. They are now a diverse group, Savage says, finding niches, writing more complex products. And the small, community broker is still very much a force in the industry.

“Brokers sold auto and hab[itational] before, now they sell auto and hab and travel and so on,” he explains. There is less dependability in the market, adds partner Schwab. Mergers and acquisitions among insurers has resulted in a reduction of markets available to brokers. However, the diversification of brokers means that many still have around seven markets, now placing lines like condo and rental coverage and commercial lines, along with the traditional auto and homeowners.

Such diversity comes with a cost, with underwriting no longer a simple process. And it stands to become even more demanding. “Rating and underwriting have become much more complex…the number of changes from FSCO [the Financial Services Commission of Ontario] must have been at an all-time high last year,” observes Savage. Furthermore, vendors are specializing. Rather than the “one size fits all” solutions of the past, they are now targeting key business processes and workflows and building specific software for these. “If you try to provide a solution that’s generic, you’re going to have a tough time,” he comments, adding that such specialization is likely to continue in the future.

ASSOCIATION COMPETITOR

Potentially the biggest challenge the company faces is the development of the CSIO portal. Originally, it seemed as though Compu-Quote would play a role in the portal, when the vendor became a member of the industry association in mid-2001. But, to the surprise of many, Compu-Quote and CSIO are now facing off as competitors. “Unfortunately an industry association has come out and positioned themselves as a vendor,” Savage notes. “It allows them to cloak themselves as unbiased.”

He feels the project still faces a significant number of logistical challenges, and worries that, like vendors of the past, the CSIO is marketing its solution as the “right fit for everyone”. Given the diversity of products being offered by brokers and the fact that many brokerages are not equipped for full online quotation and policy processing (many are still using old DOS systems, for example), Savage believes that if the CSIO project does come to fruition, it will not be for some time. By that time, Compu-Quote hopes to be offering a more extensive product for brokers, as well as continuing to develop new products for the carrier and Internet marketplaces.

RAPID RESPONSE

While Compu-Quote had the advantage of being “first in” to the rating services market, that advantage could only last so long. Willingness to provide brokers with what they need is the company’s driving force. And what brokers want is access, to have as many companies offering rates to the system as possible. “To develop this [access to company rates] there is a significant cost to us, but we knew this was important.” There are now 700-plus company rating plans on the system.

The company has also expanded the capabilities of their rating system from quote to issuance and formed partnerships to offer company and consumer-level products. One example is their work on “B2C” projects, including providing ratings for web-based Kanetix and “The Consumer’s Guide to Insurance”. Savage notes that, “we plough back the largest amount of money in research and development and in servicing our customers. In the past year, we’ve delivered more new products than in any other single year.” These typically include farm products, web-based rating and insurer back-office products, he adds. Through holding company Cypher Systems Group, parent of Compu-Quote, Savage and partners also own call centers, brokerages and other insurance ventures. These act as a development foundation for software solutions.

But what will drive insurance auto-mation into the future is the same factor that has allowed Compu-Quote to flourish the last 20 years. This is the sharing of information. Savage hopes to continue to bring together insurers, brokers and other vendors in the broker management and insurer software business to automate the industry. “We have a forum, an open exchange of information. That can’t be underestimated.”