Liam Vaughan finds that broker opposition to technology puts them in conflict with FSA rules

Can technology offer brokers anything extra in their professional relationship with customers?

After all, computers can go wrong and are prone to attacks by viruses, spam and hackers. And if a broker has worked effectively for years without technology, why change now?

Mazars' annual broker survey published last month showed brokers are far from impressed with technology.

It revealed that 63% of respondents claimed IT was either not delivering business benefits, or was too difficult to implement.

And 13% said they were looking to reduce their current level of expenditure on IT over the next year.

But IT systems are now virtually unavoidable if brokers are to remain compliant with the FSA's insurance conduct of business (ICOB) rules, introduced in January 2005.

From 1 July 2005 brokers will also have to start submitting returns to the FSA using a secure web-based system. Mandatory electronic reporting will allow brokers to see when and what they need to report, eliminate duplicate requests for the same information and provide a standardised way of submitting data.

An FSA spokesman says: "Firms will want to retain important documentation to remain compliant and to avoid possible difficulties with customers at a later date. Software houses allow them to do so in a standardised, efficient and easy way."

The FSA says this way of reporting, will make life easier for the broker.

In an era when brokers often complain that regulatory compliance is overly complex and time-consuming, advances in technology can at least help to make the regulatory load manageable.

Full records

The rules state that brokers must keep full records of personal recommendations, policy summaries, policy documentation and claims information for a minimum of three years.

Brokers must also keep details of any claims settled for three years after the date of the settlement.

Systems from software firms such as Misys, Sirius and insurE-com provide for an audit trail, which can be stored on either an in-house computer or through the software firm's own server.

Brokers find it difficult to view advances in the use of technology as money well spent. As Robin Oakes, senior partner of Mazars Insurance, says: "In the main, brokers have been pulled from pillar to post by the processes of compliance and are yet to see any tangible benefits for themselves or their customers."

Financial benefits

But the concrete financial benefits of investment are not always immediately apparent. A study from IBM Business Consulting Services released this month suggested that financial institutions are unable to quantify the benefits of IT investment in 70% of cases. So how can brokers be convinced?

Misys has recently created a back-office system which allows brokers to arrange premium finance electronically, at the point of sale.

The company says that reconciliation of premiums is done on the spot, freeing up time and making the whole operation more efficient. And this translates to better profit margins.

And John Moore, chief executive of the Thomas Carroll Group has identified cost savings. "Processing data electronically has freed up two members of staff to concentrate on tasks that generate additional business. "The work is now being dealt with by a single part-time member of staff and has saved the business some £40,000."

Web trading could have a profound impact on the day-to-day lives and fortunes of brokers. At a basic level, software houses can provide brokers with a platform to offer customers online quotations.

This platform allows the broker to compete directly with some of the larger direct writers, and offers another distribution channel to traditional face-to-face selling.

Frustratingly slow

And imarket promises to make brokers lives easier still. But while e-commerce has promised to revolutionise the commercial lines insurance market for several years now, development of the multi-insurer portal has been frustratingly slow.

Considering how effectively the retail and banking sectors have embraced online trading, the general insurance sector looks positively backward.

The imarket portal aims to allow brokers to access multiple quotes using a single sign-on.

Products are currently available for nine types of commercial risk, and the system promises to come back with at least two insurers per product, with a guaranteed two-day turnaround.

AXA, Norwich Union and Royal & Sun Alliance are already distributing through the portal, and seven major software houses have committed to become compatible if they are not already.

Peter Knowles, imarket's strategy and marketing director, says: "The 'holy grail' of a single point of data entry for commercial risks will be virtually in place by the second half of 2005 and the benefits are huge. Brokers will be put at the forefront of their own service arrangements.

"The system will free-up hours of a broker's time, which can be put to better use attracting and attending to customers."

And James Gamble, Misys sales and marketing director, says: "Misys delivers technology to suit all brokers regardless of their size or the markets they trade in"

But brokers are concerned about the security and confidentiality implications of placing customer records with software houses and communicating electronically.

The security issue, though, is unfounded, according to Craig Whitney of Frontbridge Technologies. Frontbridge is one of a number of companies that uses encryption to eliminate the risk of sensitive information falling into the wrong hands.

Whitney says: "E-mail and e-commerce present many opportunities but they can also leave firms vulnerable to security risks.

"We use encryption to ensure documentation can only be accessed by a specific group of people, or even by just one individual."

There is also the issue of business continuity. The FSA recently issued guidelines to firms insisting they have appropriate arrangements in place to help them maintain the continuity of their businesses in the event of an interruption.

Untested plans

But, John Sharp of The Continutiy Forum, the group set-up to deal with business change and possible disasters, says: "Too many organisations are scraping by with inadequate and untested plans."

Technology provides a solution by ensuring any documentation is kept and stored safely away from the business itself.

So are the days of a heady working lunch for a Lloyd's broker returning to his bench satisfied with the afternoon's work with the liability on a £200m Russian oil tanker scrawled across a serviette from his favourite wine bar over?

We can only hope so. Lloyd's is currently starting to accept the principles of contract certainty and universal documentation.

It is inevitable that technology will play a bigger role for the broker - and that means all brokers. It is already here and it isn't going away.

Brokers need to shed their scepticism and embrace technology as an opportunity.