Surviving a Soft Market

Signs of a softening, particularly in commercial lines, have been visible for some time now. Improved insurer combined ratios and respectable underwriting profits, coupled with solid loss ratios, led to price erosion in key business lines. At the end of 2005, the loss ratio for commercial property alone was 58.3%.

While the pricing change is nowhere near where it was in the ’90s, many commercial buyers are seeing rate relief. This may lead to a greater chance of shopping for better premium, especially on renewal business. In addition, competition heats up in a soft market, especially after the pain of double-digit – or even triple-digit – rate increases for commercial customers.

The curious dilemm in which brokers now find themselves is that, despite this softening, insurance underwriters have not necessarily relaxed the level of detail they require in their submissions. Carriers have shown an increased appetite for certain kinds of business, but they are sticking to their rhetoric of discipline in terms of underwriting, loss control and risk analysis. While clients are increasingly interested in shopping the market, insurers still want detail, completeness and accuracy in policy submissions and renewals.

This situation is quite a change for brokers. Now they have to try hard to hold onto all of their customers as prices are falling and lower margins are potentially draining their revenue stream. Changing conditions have created more work for brokers in the marketing, and remarketing, of commercial accounts.

In a softening market, many brokers tend to remarket accounts actively, because they don’t want to get caught with a non-competitive price. There are even examples of accounts being taken from one broker by another through the same carrier. Some are taking the tack of remarketing every account to ensure they are current with changing market conditions and that carriers are giving a fair price. This decision must be made upon renewal if accounts are to be retained.

As the market stays soft and prices continue to fall, brokers must aggressively take care of their client base. They have to stay particularly proactive with their renewals. This remarketing process can be incredibly time-consuming for a traditional brokerage that operates with a broker management system (BMS) geared more towards personal, rather than commercial, lines business.

STAYING STRONG IN A SOFT MARKET

Progressive brokers know there are ways to cope with a softer market. Smart firms can, in fact, take advantage of changing conditions by growing relationships with their most profitable customers. The method is to allocate sales resources to the most productive areas tand use technology more effectively.

This last point is key. As remarketing and protection of renewal business become more critical, so, too, do speed and responsiveness. However, many brokerages are using patch-together technology applications with limited efficiency. For example, they may be using Microsoft Word or Excel with their BMS to to manage commercial lines.

Cutting and pasting information out of a BMS into Word files is time-consuming and prone to errors. Renewals and remarketing can be painstaking, as brokers must go through the entire process again to make revisions to existing policies.

This is where technology can pay huge dividends. A properly constructed Commercial Management System (CMS) can provide brokers with relief from continued soft market conditions.

DEVELOPING CMS TECHNOLOGY

Over the past 10 years, CMS vendors have been quietly developing sophisticated systems to manage a broker’s commercial book.

Like a BMS, a CMS electronically handles policy administration but is specifically designed to manage the complexities of the commercial insurance business. An effective CMS is designed to manage policies at every stage of the policy life-cycle, from gathering information to renewing or remarketing. These systems provide brokers with a central repository for all of their commercial accounts, along with a natural workflow that is integrated to their BMS. A professional CMS can generate proposals, schedules, submissions and renewals directly from this data depository rather than starting from scratch.

A key feature of a CMS is the ability to enter commercial information once and then use it for any purpose during the marketing and policy life-cycles without ever re-keying data.

Another important aspect is high-quality, standardized documents for underwriters and prospects. Those who adopted CMS early report faster turnaround times and higher acceptance rates with their underwriters, improved client close ratios and better use of staff.

It also vastly speeds up the renewal and remarketing process. In many cases, brokers are asked to manually gather, confirm and update existing information on accounts for renewals. With a CMS, brokers can enter information into the database and renewals are processed in a timely, professional manner. Brokers can see the ongoing sequence of accounts. They can quickly identify the specific stage of the account – for example, when it needs to be renewed or to which companies it has been remarketed. With the click of a mouse, the CMS transforms the cumbersome process of cleaning up individual submissions, sending them to various markets and waiting by the phone.

NEXT STEP: CSIO XML STANDARDS

CMS technology is now mature, but it is more likely the prevailing market conditions that should be credited for any coming of age. Broker consolidation, pressure from direct writers, and the proliferation of insurers’ commercial-quoting Web sites have spurred the growth of new CMS technology. Assuming continued soft market conditions, we expect to see brokers’ interest in these solutions continue. Brokers are no doubt eager to transfer paper-based files to an electronic, centralized data depository.

The crucial next step is the consistent transmission of data from the broker CMS to the insurance carrier’s Web services or portal through CSIO XML standards. As softer market conditions continue, leading insurers to target key lines of commercial business and compete aggressively on price and re-examine growth, there will be increased pressure on broker competition and remarketing. At this point, it is the brokerages with a proper CMS that may boast an advantage.

For many, success in retaining clients and preserving margins will be measured by the phrase “first in wins.”