Technological advances have changed the way the market does business but is it enough? Jason Potter tells of a new flavour gracing the insurance shelf
A trip to the local supermarket will reveal that as well as food, clothes, mobile phones and CDs, off-the-shelf insurance kits can be purchased.
This raises two issues: firstly, the potential threat to the traditional insurance model for the sale of smaller end business; and, secondly, how shops have adapted to their market, moving from a traditional model to a modern streamlined business, keeping customers at the heart of it.
Consider then how little, if at all, the insurance market has adapted its service. The area of small to medium-sized business insurance is particularly exposed, given the continued threat posed by banks, brand assurers and direct writers.
To be successful in this area, insurers must meet the challenge of how to improve service to SMEs while controlling costs. The industry must also rid itself of the notion that its current processes add value, and seek to drive efficiency into the handling of SMEs.
Technology can help
Getting this right should concern insurers and brokers alike. Datamonitor research shows that 99% of businesses in the UK fall into the SME category - a huge market where brokers dominate the sale of business and clients value the services of professional advisers.
Technology can help rid the market of its inefficiency and duplication, yet there is some hesitancy in embracing it. This may be due to a lack of appreciation of the benefits - though failure to find common standards for trading electronically or because of failures of past initiatives.
So what is the answer?
Many will be aware of I-market, the insurer-backed web portal. This technology platform offers benefits to intermediaries that can be translated into true value for customers while also combating the threat posed by direct writers.
Connecting software houses to I-market enables brokers to complete a single quotation request using the agreed standards but also to receive multiple responses from a range of insurers. In some cases, this will be instant and will allow brokers to provide clients with immediate quotations.
Through I-market, brokers are not confined to the working hours of insurers as services can be accessed 24 hours a day, seven days a week. Systems integration will remove the need for re-keying data - time-saving in itself - while reducing the propensity for errors.
By using an integrated software house, cover offered by insurers is visually represented on screen. Additionally, software houses will provide a comparison of the cover requested against the cover being returned by the insurer.
In a nutshell, I-market provides an electronic solution to save time and reduce duplication for the handling of SME business - but does this go far enough?
While SMEs acknowledge the importance of advice, relationships and service, price remains a high purchasing factor. Through lowering operational costs, the I-market model will enable insurers to recognise the cost of handling business, which in turn will be reflected in the rates.
Recently, some insurers committed to a 10% rate reduction for I-market-traded business. Traditionally, lower prices have been associated with reductions in cover or services but I-market is bucking this trend. Insurers are making a range of other services available, including point-of-sale documents, claims tracking, electronic cover notes, full-cycle transactions and online accounts reconciliation. All are added-value services that in many cases an SME would not receive from a non-intermediated channel.
The final part in this jigsaw is the people element - I-market does not seek to break down the relationships that insurers and brokers have built. Many insurers retain dedicated underwriters to handle referrals and cases where I-market may not be the solution.
The value chain is self-evident and offers a compelling value proposition for SME customers. Technology is allowing brokers to improve trade in the SME sector, which when combined with employing the right staff is an unbeatable proposition.
So is I-market the cost-effective future for SMEs? It is becoming clearer that I-market presents an identifiable opportunity to bring efficiency and cost savings to the SME market in the future - a move from traditional handling is within the industry's grasp. As Henry Ford once said: "We don't want tradition, we want to live in the present and the only history that is worth a tinker's damn is the history we make today".
- Jason Potter is commercial lines e-trading manager at Allianz Cornhill Insurance.
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