Commercial electronic data interchange (EDI) was seen as a logical step for those companies already offering motor and household products this way. EDI offered a chance to cut costs in an area that had seen little innovation for years.
But while EDI has become the preferred way of doing business for motor and is gaining ground in household, in commercial its lack of momentum is threatening its very existence. Faced with low volumes of business and the lure of the internet, insurers are examining the investment they have made to see whether it really is the best way of reaching the customers they want.
Zurich Commercial decided to pull out of commercial EDI last December, saying the area was no longer viable. It now offers shop and office and small commercial vehicle policies via the internet. Andy Stephens, the company's electronic communications manager, says pointedly of the decision to pull out of commercial EDI: “We spent seven figures to get five figures.” He says Zurich supported EDI “feverously” for three years and that the failure of its EDI venture wasn't through lack of trying on the company's part.
He says there were two reasons why Zurich pulled out of the market: “There was simply not enough EDI traffic being generated to warrant the level of investment we were making and we developed our own internet capability for our brokers.”
Pulling the plug
Earlier this year, Royal & Sunalliance also decided to cut its losses and get out of commercial EDI. From May it began converting existing policies to Enterprise, its broker support offering on the internet, as they came up for renewal.
And even those insurers that do still offer commercial EDI products are having their doubts. Chris Hanks is an underwriting and marketing executive at Allianz Cornhill. He says: “I don't think we believe the future is in conventional EDI. The product sets are too disparate – you don't get the volume through.”
Hanks says the cost of developing products separately for all the software houses means insurance companies never recoup their investment. He says Allianz Cornhill has stopped investing in conventional EDI and the current product range will keep going for a year or two. “All of us are finding different routes to market without the costs and lack of flexibility of conventional EDI,” he says.
However, EDI does have supporters among insurers. Nigel Thorpe, EDI project manager at NIG, says the case for commercial EDI is obvious. Brokers are very keen, he says, and see it as a way forward. But he thinks commercial EDI is caught in a Catch 22 situation: “There are not enough brokers using the system, so insurers won't issue the products. It is difficult to get the momentum to carry it on to the next stage.”
NIG's research shows that a number of factors would lead to greater use of commercial EDI by brokers. The availability of more products was one of the top answers supporting Thorpe's argument. Other incentives included lower premiums, more commission, better training and more insurers.
Broker Stuart Hulbert, a director of Insurance Watch Services, agrees that insurers should offer brokers incentives to use commercial EDI. He says: “They should do it the way they did with private car. They just knew they had to reduce costs. At the beginning, you had insurers offering discounts and loads of commission.”
He sees the trend for insurers to quit EDI in favour of offering products via their own sites as a retrograde step. “You don't want to be having to visit different sites. It just pushes the fax onto the internet,” he says. “It may look fancy, but it still doesn't solve the brokers' problems.”
The way forward
Hulbert just wants to input his clients' details once and get the quotes back from insurers offering the cover he is looking for. “I don't care whether it's an internet portal,” he says.
And such portals could well sound the death knell for commercial EDI. Whereas personal lines had the scope to build up its customer and product base gradually, commercial EDI will not be able to proceed at the same pace and survive.
“Insurers are thinking ‘what are my best-value relationships and what technology do I need to support those relationships?'” says Tony Barker, director of general insurance marketing at software house CSC. He says the answer may not be EDI the way it was thought of five years ago. “It may be that the I2i-link potentially offers the way of doing that.”
Hanks agrees and says, with insurers looking at web-based systems as the future: “Conventional EDI is dying. It is probably dead already.”