Technology: Reaching for the Future

The answer to industry automation might never have been the Synchron Project or any vendor based initiative. There is rising sentiment that it always was the internet. This industry-wide realization has struck home, and insurers are now rushing to get online. It is no longer talk, or abstract theory. it is the here and the now, and carriers must soon walk the talk, or risk marketshare erosion. Industry Canada statistics predict that worldwide business-to-business internet commerce will reach us$2.69 billion in 2003. Insurers will have to gear up to the e-business revolution, some observers charge, or broker partners will take their books of business elsewhere.

At a recent KPMG conference, property & casualty insurance delegates were barraged with an array of data indicating insurers are lagging behind other financial institutions in exploiting the Internet’s business potential. Surveys indicate only 58% of insurer Internet sites allow consumer feedback e-mail options, while more than 50% of polled companies indicate they are spending less than US$500,000 a year on Internet capabilities.

So far only a handful of Canadian insurance companies have begun development of full-service online offerings, with the market by and large focusing on limited business-to-business support services, such as with broker partners. In contrast, the move toward developing full business-to-customer Internet applications has been far greater in the U.S., although no meaningful revenue has so far been generated through customer e-commerce.

The fact that Canadian insurers have lagged their U.S. cousins in e-commerce could, ironically, work to their favor, says Corrine Charett, vice president of e-strategy and integration at KPMG Canada. She confirms that U.S. online insurance is progressing more rapidly than in Canada, however, the latter has the advantage of avoiding mistaken approaches down south. As a result, the leading companies embracing Internet application in Canada have planned well in advance and are ready to go online with business-to-business and in some cases, even consumer-based e-commerce in the not-too-distant-future, she predicts. “Insurers who are not ready to do business online, either with their brokers or consumers, are going to be suddenly surprised.”

Insurer-to-broker applications

Nobody denies the current race within the insurance industry is to get Internet systems online to conduct business with brokers, with an eye towards more immediate point-of-sale capacity. Industry insiders routinely mention Royal & SunAlliance Insurance Company of Canada and Zurich Canada as front-runners in standardizing online transactions between brokers and carrier, both companies having launched trial programs allowing brokers nationwide to conduct an array of business transactions online.

Linda Matthews, chief operating officer at Royal & SunAlliance, says business-to-business on the Internet, like call centre technology that improved customer service this past decade, will add value to the broker distribution network. “It is a way to streamline our business processes to allow us to deal with our suppliers and business partners in a more efficient way,” she says.

The carrier began piloting an online program for brokers who can conduct billing inquiries — one of the most common and routine inquiries by insureds — online. “The pilot program was well received so obviously we are looking at a rollout strategy to get more of our brokers participating.” The time saved through online transactions, plus the costs saved by automating routine inquiries, will save both carrier and broker costs, she adds. “The savings will flow through to the consumer in a reduced price for the product. The more we do electronically, the more we reduce costs and premium prices.”

Zurich president Barry Gilway predicts the carriers that provide more convenience for brokers through electronic business will succeed in the competitive Canadian marketplace. “My feeling is within the next eighteen to twenty-four months, if you don’t have web-based capability, particularly on the life side as well as p&c personal lines, you’re going to be on the outside looking in,” he explains.

Gilway, whose company currently allows brokers to process and modify policies online, says brokers are demanding companies create front-end Internet capability to allow for e-business. “The companies who make it simplest for brokers to access will be the winners,” he notes.

Broker misgivings

There are some mumbled concerns among the broker contingent about business-to-business Internet development. Market observers suggest the profession fears Internet transactions as one step towards direct sales penetration by broker-friendly carriers, that being a part of the electronic commerce revolution will lead towards erosion of the broker distribution channel.

Gilway and Matthews contest this notion. “The assumption that brokers are concerned the web will push them out of the process is invalid. In commercial lines, risk managers do not make decisions without consultation. They need broker support. Same with personal lines. The Internet cannot duplicate the type of support and advocacy brokers offer insureds,” insists Gilway.

Matthews believes the Internet will add further convenience to broker interactions, not reduce them. “The Internet will not jeopardize the independent broker’s ability to conduct business. It is an enabling tool to provide an opportunity to keep customers because the insureds will be more efficiently serviced.”

But, according to Don Walker, marketing manager at Tec4 Systems Inc., designers of policy rating and management systems for commercial lines brokers and carriers, the problem for personal lines brokers is not conducting the business online, but the use of the Internet for carrier competitive advantage. “For servicing accounts, individual company web sites are fine. But what the carriers are talking about is trying to force brokers to go into individual sites to examine quotes and not deal with multiple quotes at the same time.” Walker says brokers might resist this process because it is a new variation on an old theme. “For brokers, it is like going back into the seventies when they had individual company terminals.” Walker concludes while current and proposed Internet use is an added convenience to many personal lines broker processes, a true point-of-sale industry initiative will not come until all company quotes are available centrally online.

Carriers progress online

Vendors report a lukewarm Canadian response by carriers in engineering Internet capabilities. While most are discussing going beyond billboard online presence, many are still in the talk stages.

Ted Schmitz, chairman of technology provider The Amberdon Group, says carriers are fixated by two hurdles to getting online. Despite inroads by the banking industry in allaying public concern about Internet security, Schmitz says insurers still believe their customers are not comfortable conducting business online. “Also, many insurance companies have very conservative hardware systems, legacy mainframes which they’ve only recently spent a lot of money on due to Y2K compliance. Some executives consider further heavy spending in information technology to be a big pill to swallow.”

Schmitz believes the heavy merger and acquisitions environment surrounding brokers and insurers should be the catalyst for updating systems. “When you are merging large amounts of data from various products and policies, it is the perfect time to go to a new system.”

Carrier software developer HUON Corporation’s international technical director Roy Freake believes the perception surrounding the Internet is changing, that more Canadian carriers will prioritize online business in the coming year. “We’ve seen a lot more activity especially in the last twelve months, and this is going to continue to grow. People want to do business through the Internet, companies that are not online are going to losebusiness from brokers who want to be online.” Freake says the cost savings through Internet business i s becoming more readily substantiated. “Companies we talk to are saying this is a good way to save money because by having a technical solution to many routine inquiries, they do not need to maintain a heavy call centre staff.”

Greg Thornton, president of Concise Technologies, warns insurers should not be restrained because of the previous IT costs surrounding Y2K. “Information technology spending across the board will not go down in the next five years, if anything, it’s going up. Broker-driven insurance companies do not have a choice. The broker community will force insurers to deal with them on that basis.” Consolidation at the broker level has, he adds, given the profession more concentrated power — in essence, carriers will have to conduct business on broker terms. “The cost of manual processing cannot support the level of expense savings the consolidators are looking for.”

One important, but vastly overlooked aspect to the move online is broker operations and the relative lack of Internet sophistication among broker ranks. Jeff Purdy, president of The Agency Manager, says broker management software vendors are pushing their broker customers towards the Internet. “Our focus is to get clients connected. Just get them online. To many insurance brokers, the Internet is not accessible from every desktop. Until that happens the industry cannot leverage the power of that connection.”

Industry vendors have adapted Internet compatibility into their products, says John Savage, president of Compu-Quote Inc. “The relationship between the company, the broker and the consumer will determine how far Internet use goes. It is a question of philosophy for all parties.”

The allure of direct writing

Chief among broker fears is the prospect of all of this Internet investment leading to companies going direct. Certainly, the allure and potential marketshare gain is not lost on broker-supporting insurers. Especially considering direct writers are already harnessing the Internet as a sales channel.

According to David Lincoln, senior vice president of Belair Direct, the company began selling its insurance products online in April. Currently, consumers in Ontario, Quebec and New Brunswick can purchase Belair insurance through the Internet. Despite the rising tide of online consumerism, Lincoln reports the company is showing, at best, moderate results through its Internet sales. Lincoln says 1% of current sales are closed online, and between 7% to 10% of call centre sales reportedly relate to the Internet quote engine. With 80% of Belair’s Internet visitors under the age of 30, the percentages could very well increase, he reports. “The response has been phenomenal to the online quotations, but people still want to confirm through our call centre that the online quote is correct. They prefer to speak to someone directly.”

Belair welcomes online competitors, Lincoln says. “As more retailers in any field get online, more consumers are comfortable purchasing from that arena.” He warns carriers looking to go direct, or utilizing the Internet in any active manner, that the cost saving advantages of being online could be overrated. “You are offsetting the online costs by marketing the site and maintaining call centre support. It’s fine to provide claim filing potential online at two in the morning, but most insureds want to feel comfortable that there is someone at the company to talk to. At this stage of the development, where we stand, fully manned call centres are still required.”

Clearly, the Internet future does not provide guarantees of cost-savings. Terry Squire, president of Co-Operators General Insurance Company, admits that despite companies being ahead of the game, and others not yet with fully formed Internet plans, all are unsure what the cyber-future offers. “We’re all nervous about where it’s going to go and about our ability to deliver what we know we need in order to retain and grow our customers. And to some extent we’re all in the same boat.” Squire is quick to point out many of the Internet so-called “dot com” companies are experiencing growing pains with the new medium. “There are not a lot of industries making money on the Internet. Sales are going up, if you look at these companies, but some disenchantment is being felt in the marketplace because the revenues are not keeping track with the investment.”

Nevertheless, with branding initiatives taking a priority among contemporary insurers, Squires says Co-Operators counts itself among carriers intensifying its online presence.

CSIO boards Internet bandwagon

The proliferation of Internet use among insurers has reached a high enough level that the Centre for the Study of Insurance Operations (CSIO) is engaging in a standards project entitled Web Screens Standards and Guidelines Workgroup. The purpose, according to CSIO president Klaas Westera, is to standardize web screens among insurers for business to business functions, to ensure greater efficiency for brokers conducting online business.

The workgroup is seen as an industry initiative — not on the level of Synchron — but one that indicates carriers will not seek competitive advantage through website construction. “The process is ongoing and will continue through this year,” says Westera who adds company initiatives are eyeing a more immediate point-of-sale transaction process for brokers willing to conduct online business. “Our workgroup supports the ability of the broker to provide immediate service to the consumer. If a policy change is being entered into a web screen with the consumer sitting there, the web screen should have an icon to print a liability paper for the consumer to walk away with. Having to wait for a download that may take overnight is unacceptable in a point-of-sale situation.”

Westera adds most carriers he has consulted with intend on upgrading their legacy systems, or patching them to become compatible with online transactions. “The end-goal is a fully online and interactive industry,” Westera says.cu