The internet will transform our lives and our industry, which lends itself perfectly to e-commerce. IIB director-general Andrew Paddick warns that those who fail to adapt will fall by the wayside.
In just a few weeks' time we will enter the new millennium, during the first decade of which we are set to witness radical changes in the way insurance has been written, distributed and serviced for much of the preceding century. This will make the current UK regulation debate virtually a futile exercise, as trade barriers are poised to collapse and we all become part of an inter-linked global village.
The internet will without any doubt whatsoever transform our lives and businesses, intensifying competition as processing efficiencies replace thousands of "task workers", consumers become better informed about the products and services they seek, and price transparency becomes the order of the day.
Whether we like it or not, insurance lends itself perfectly to the internet, being largely a "numbers game" with no manufacturing process as such and no bulky goods to transport. New entrants to the market, trading from low-cost "virtual" sites, will challenge the traditional players, who are burdened by the costs of retaining or disposing of both physical and human "baggage".
The internet will make "friction-free capitalism" a reality. The term was introduced in The Road Ahead by Bill Gates to describe how the internet was helping to create a marketplace in which buyers and sellers can easily find one another without taking much time or spending much money.
The internet makes it easy for a buyer to get background information about a product (including how it is rated by consumer organisations and other independent reviews) and compare prices easily. Buyers can also tell sellers more about their requirements and sellers are able to target their wares to the people most interested and to cross-sell related products. Essentially, this is an enormous threat to middlemen, unless they provide additional value-added services and embrace internet technology themselves.
Customer self-service will provide flexibility and make the individual customisation of insurance products simple and cost-effective. "One size fits all" will no longer be a serious product to offer better-informed and more discriminating consumers. Customer "self-service" will also release current task workers, who will be almost entirely replaced by "thinking workers" as the mundane administrative procedures of today become the fully automated transactions of tomorrow. This will allow enterprising firms to be even more entrepreneurial and spend more time designing products and systems, executing marketing programmes, cementing and extending client relationships and so on.
Broker Direct is a prime example of a company operating in an extremely competitive market but using the best of currently available technology. During August this year, new business increased by 50% but hardly a leaf rustled at its Bolton HQ. Instead, the computer system printed out the good news as management information. In contrast, a "paper-based" insurer with task workers faced with such an increase (even if it was the result of "coming top of the screen" more often than anticipated) would have suddenly found itself weeks behind with policy issue and so on, besieged by complaints and loss of credibility.
Such a scenario does not mean that we lose the vitally important "human touch", however. It means we can concentrate personnel with good communication skills on doing the most important job of all – customer relations. In the case of Broker Direct, our customers (in fact, our "masters") are the shareholding brokers. As a result of minimising expenditure on tasks best left to machines, we can afford to maximise staffing and speed of response levels in the "broker support section" and look after the brokers' clients sympathetically when they need the human touch most of all – following an always distressing road traffic accident or the sudden shock of their motor car disappearing, for example. Members of the Broker Direct claims team regularly receive gifts from grateful claimants.
In an industry that has a generally poor public image, this must mean that at Broker Direct we are well on the way to turning policyholders into fans and advocates who will spread our message wider still at no increased financial cost.
Successful brokers have for many years recognised the importance of recommendations as they have grown their businesses, those with the best interpersonal skills having on many occasions completely beaten dull and boring but otherwise professionally competent academics for important new accounts.
The reason I am labouring this point is that in future the human touch is going to be the most
important element of the value-added services provided by brokers if they are to survive the forthcoming commercial revolution.
Brokers are well positioned to take full advantage of the internet. Their great strengths of local presence, dependability and expert market knowledge, coupled with the magic 24x7x52 (twenty four hours a day, seven days a week, fifty two weeks a year) customer self-service that interactive e-commerce will provide, surely equals a winning formula. Who in their right mind is going to give a credit card number to an unknown web site, which could be operating from an inner-city rented garage or mud hut on a Pacific island, when they can have the security and convenience of using an established and respected local name instead? All the signs coming from the USA, which is probably two years ahead of the UK, are that local community web sites are doing big business.
In my opinion there will be fierce competition in every city, town and area between brokers themselves to become the number one consumer choice.
There is a very profound business saying: "He who is first to market gains disproportionate benefit." That is why it is vital for firms that still intend to be in business in five years' time to start bringing in internet technology during 2000.
However, there is much more to the internet as a communication channel than just customer self-service. For brokers and insurers it will provide efficiencies and economies that paper-based administrative systems or current EDI operations are unable to match. It will permit the introduction of new products rapidly at relatively low cost. It will enable the utilisation of important and enormous databases from a central server, which will also be able to hold all business records for those who subscribe to the relevant service provider. The constant expense of upgrading and maintaining back-office systems will eventually become a thing of the past, as only terminals will be required.
The one thing all the new internet companies seek to control are the portals, taking a "toll" as communications/transactions pass through and create their own long-term agendas. That is why it is important for brokers to be in control as this new technology emerges and becomes vital to their very survival. It is also the reason why during the past year I have had an expert team quietly working on a major project – "insureright", the rationale of which is "mutual survival" and cost sharing, without compromising the dynamics of broker individualism and healthy competition within the sector.
Specifically, "insureright" will be designed, managed and developed exclusively for the broking community. The company will not sell its intellectual property to banks, building societies or other competing distribution channels, as is the case with many existing software houses.
For insurers dealing with brokers, "insureright" will provide an extremely viable means of transacting business, with extremely low operating costs. Just using motor insurance as an example, combined operating costs have been calculated to be below those of Direct Line Insurance – exactly what brokers and their insurers have been waiting so long for.
I am telling all brokers: "You had better be in Birmingham on March 29, 2000 – if you are not, your competitors surely will be." Booking forms to attend the meeting will be posted in the New Year.
