Power hour: Electric dreams
Tuesday, October 01, 2013 5:16 AM

The commercial market has traditionally lagged behind personal lines as far as e-trading is concerned, but our panel of experts agree it is catching up fast. Emmanuel Kenning reports

Has the volume growth in electronically traded SME products finished?

▶ Jeff: No. We are seeing growth month on month in terms of the penetration levels
with existing products. We’re also seeing a real appetite from insurers for developing new products and expanding the SME offering into new lines of business. They are also expanding the footprint of existing products.

▶ David G: The SME market is worth about £6.2bn, our research shows about £1.2bn is currently [electronically] traded, and there is an educated view that that could quite easily go to about £3bn over the next two years.

Have insurers gone beyond squeezing the square peg of historical wordings into the round hole of new technology?

▶ Andrew: Yes, we’re only probably two years into our work. It has been about adapting old-fashioned models into the new world. That’s been done, now it is all about what’s next, how can you make it customer focused?

▶ David G: We used the analogy of rather than dumbing down commercial lines products you’re actually pushing up the skill sets, the capabilities, the processes that have been in place in personal lines for many years. By bringing in additional factors as opposed to just the core questions and pushing that through the model it becomes much more simplistic and user friendly.

▶ Grant: I think there’s been a real polarisation post-Café de Lecq. It highlighted the fallacies within the process because it’s been paper-based wordings in an electronic environment. We’ve got more and more onerous regulation coming through. Over the last few years the algorithms and the question sets have been far too narrow, there’s not been enough flexibility within that data capture for brokers to work and effectively produce what’s required for their customer.

▶ Paul: Electronic trading and immediacy of cover has been prevalent in personal lines for decades. The customers don’t care that they’re complex SME, they just want cover.

▶ David K: There are a number of products that have been on the market for quite a few years now. I think the journey is about to speed up significantly. A number of insurers have decided their strategy over the last two or three years, and they’re now at their implementation stage.

▶ Robin: One of the biggest things I’d like to see for e-trading is the need to support the customer journey and the customer experience. As a broker, that’s probably one of the things that we come up against.

▶ Ray: The first phase of growth for e-trading was differentiating yourself just by being on the internet. The second phase has got to be about differentiating yourself from your competitors on the internet. We’ll be looking at more and more requirement for brokers to actually have an idea and get it out there very quickly before their competitors.

Do brokers want extranets or comparative offerings? Isn’t there a risk of everyone ending up with the same products?

▶ Mark: From a broker’s point of view, oftentimes in the SME market they’re looking for the more bespoke side of things, so while you would drive for the IT and the efficiency there is still a need to look at bespoke elements.

▶ Robin: Yes. My problem with products which are e-traded is that they’re all the same. The same question set, same product. Keelan Westall specialises in property owners, we actually want differentiation, and that’s where it becomes a difficult way of managing products going forward.

▶ David K: My gut feeling says brokers want [business] on the software house. If they’ve got their own scheme they probably won’t want a comparative quote, but for the efficiencies of technology if they can single key and get to the result that they want rather than having to go to the extranet then...

▶ Ray: I’ve got brokers that have uncovered markets where I didn’t know they existed. Sometimes we map to them, sometimes we host their rates. You’ve got to do everything as a software house. You’ve got to allow people to build their own rates, you’ve got to host them natively, you’ve got to let them go to other people’s hubs, and now more and more you’ve got to let them go to other people’s clouds. Our job is just to bring it all back at the point of sale and let the broker broke.

Are the limits for e-trading in fact based around complexity of risk rather than size of premium?

▶ Andrew: It’s about the communication between all the parties involved. You can get really complex risks e-traded as long as the insurer is getting the information, the broker can submit the information, and the end client can get their policy.

▶ David G: We did a survey of about 112 brokers in the summer of last year and asked them to rank where they were comfortable in terms of trading across each product line and across the pounds within. Most came back saying they’re very comfortable now trading up to about £5,000 in premium, and in the future they felt they would be very confident trading up to a sum of around £15,000, other than, say, small fleet where they would go higher. Do we actually see that on a regular basis day by day? No, we only see a certain amount of brokers using it to its full extent.

▶ Andrew: And was that assuming auto-rating or was that assuming electronic trading?

▶ David G: Electronic trading.

Is there a confusion – and maybe it’s our fault in the press – between electronic trading and automated trading?

▶ Grant: This is something that doesn’t get literally translated. Ideally we’d like to do more electronically, whether it’s auto-rated or not, but we don’t feel comfortable in some of the areas that insurers can accept it or deal with what we want. We’re seeing [submissions] going somewhere and then getting lost, so you’re having to resend it. That’s why we’re still doing a lot manually.

▶ David G: In the old model on a panel [a broker] presses refer, you get an automated email fired off to all eight carriers. You could be doing 20,000 or 30,000 referrals in a year and actually only a couple percentage of them are actually aimed for you. We’ve gone down the Viking route where the broker presses the button and it is one that they want QBE to look at. We can look in the broker’s environment, see the additional notes that you place into there, and it makes it a much more interactive process, much more efficient. The almost scattered and old approach was perhaps part of the issue for not getting responses.

▶ David K: I think the pace of change is getting quicker. A number of insurers are quite advanced in what they’re looking to deliver or have delivered. They play in different business lines as well. One insurer might already have delivered on the micro SME, the others might be focusing more on the sort of mid and larger corporate. It also depends where the insurer’s book is.

Is there a danger that technology just leads to price being the only focus?

▶ Mark: If price is the only thing you ever compete on you drive everybody out of business and out of the market. I agree entirely that it is natural to look at price. But there’s a difference between demographics. Some people take into account what they get for their money. Some just look at “I need to be insured” and they’re just looking at the price.

▶ Jeff: There are people that look at price and people that look at value, so they may go for the lower end of the price market but they make sure that they’re getting sufficient cover.

▶ David K: Rightly or wrongly, at the moment the aggregators don’t see the SME space as big enough. There are not enough people trading online so they integrate with one partner. I think over time they will move from that.

▶ Ray: We’re starting to see the invasion of successful personal lines brokers, especially the big niche specialist scheme brokers, into commercial lines. I think they’ll be game changers. There’s absolutely no reason why you can’t aggregate a niche. If you can define what you’re selling as rules and tables you can aggregate. Like it or lump it, consumers value price transparency.

Should brokers be scared of such competition?

▶ Grant: No. We pick and choose our battles. It’s about brokers understanding where their expertise lies and not only that but where their financial responsibilities are as well. Competition is healthy. Brokers have a huge opportunity and a huge responsibility… it’s back to differentiation.

▶ Mark: One other point is [around] claims. If you’re only differentiating on cost then what you can deliver is dictated by that cost, and then the service customers are getting destroys your reputation. If you’re looking into bespoke areas you’ve got to be careful.

▶ Robin: One thing to touch on about e-trading from my point of view, being niche, is contact with the underwriter. It is absolutely key for us, especially when we’re talking about the larger mid-market.

What does the term “cloud” actually mean and what will it lead to?

▶ David K: For me cloud-based computing is anything that resides on the internet, it’s as simple as that really.

▶ Paul: Yes, it’s been around for 10 years, hasn’t it? It’s much hyped at the moment and it will mature over the next few years. From an insurance perspective it offers opportunities for bringing things to market more quickly, more efficiency, more agility, all that kind of great stuff. On the downside, it can pose integration challenges but it’s all achievable and doable and an inevitable direction of travel.

▶ Ray: We’ve been sticking diagrams of clouds up on boards for 25 years. It was just an external place where some servers were originally. The cloud is a great place to process masses of data and produce an outcome. The primary use of clouds for us as a business is a combination of data enrichment, leveraging third party data that currently doesn’t get used, and then not storing it.

▶ Andrew: The idea as an insurer is the more you know about your end customer the better, the more accurately you can assess the risk. If there’s an easy way of bringing that information together without clients having to enter any data because the data’s already sitting out there, that’s good. You have your model and you know where to pick up the [information] points.

▶ Paul: It’s going to be fascinating to see this mature over the next few years. It is because of enrichment and telematics that we’re even familiar with the phrase big data. The challenge is that it’s perceived as a massive competitive advantage for everybody and everyone’s going to guard their innovation very, very closely.

What will be the benefit of data enrichment for brokers?

▶ David G: It’s there now, people can use it. You’ll be able to make decisions at point of sale as to whether you want to accept that customer or whether you want to charge a different price for them. It will help reduce the number of questions that you’ll ask at quotation stage, and it will also cut down on fraud. It will move into casualty, tradesman’s liability, and data will then start to come into property, primarily around postcode and social demographics within that area.

▶ Jeff: We’re seeing more and more data feeds becoming available for commercial lines and more desire from insurers to invoke those and use them.

▶ Grant: We’re certainly looking at data enhancement. Some of it we’ve done ourselves and some of it is done by third parties as well. There’s no question about it, it’s adding all of it into the mix. I think the software houses ought to leverage it as much as they can.

▶ Jeff: Well, I think the danger for the broker is that they go with the easy option… but actually you may find you get more effective data for your business from another supplier. The key is to make sure that we are unbiased across the piste on the data providers and make it easy to work with us.