Keying in for home cover

A client comes to his broker and asks for a couple of straightforward quotes. His private car needs cover and so does his home.

Dealing with the motor quote is a simple task. The broker taps some details into his computer and in no time has quotes for the car. The client selects one and the broker prints out the policy documents. The whole process can be completed in a matter of minutes.

But insurance for the house is more difficult. A proposal form must be completed, then posted or faxed to the insurer. If the broker is lucky, a quote will be produced in a couple of days. If acceptable, the policy documents will take a few weeks to arrive.

Why the difference? The answer lies in the use of electronic data interchange (EDI) - a method of directly transmitting data in a standardised, electronic form. The majority of intermediated motor insurance is transacted using EDI - industry figures suggest in the region of 90%.

In the household market the story is very different, with only about 15% of policies traded using EDI.

But over the next couple of years brokers can look forward to a flurry of activity from insurers in the sphere of household EDI and the opportunity to wave goodbye to tiresome proposal forms and the long waits for quotes.

Full cycle
EDI is divided into two categories: full-cycle EDI and new business EDI. In the case of new business EDI, the electronic data transfer is restricted to new business quotes only; mid-term adjustments and renewals must be handled manually. Full cycle EDI, on the other hand, is able to accommodate adjustments and renewals as well as new business quotes.

Using EDI has a number of advantages. The principal benefit is that information needs to be keyed in only once. This improves accuracy as there is no need to re-key information at the other end. It also increases the speed of transmission, not only because there is no need to re-key the data, but because the information is sent electronically.

EDI technology is not new. It has been used in motor insurance since the late 1980s. And it has been available in the household market since the mid-1990s - but despite this long period of existence, it is far less established in this class.

An InStep EDI survey found that in the first half of 2002, EDI accounted for 86% of all broker motor new business. Furthermore the number of insurers writing in excess of 90% motor EDI had risen from eight to 11 - and three wrote 100%. In contrast, only 17% of household new business was written using EDI - and this had reduced by 2% from the first half of 2002. No new insurers adopted EDI during the study period.

Zurich head of business systems and e-commerce Steve Grieves says the slow development of household EDI has been driven by consumers and technology. Motor, he says, is a more volatile market. People shop around more than they do for home insurance and make more adjustments during the year.

Allianz Cornhill personal lines senior product developer Graham Knight says that the software houses have been a major influence on the growth of the EDI in motor. "Motor insurance is simpler than household and the software houses have been developing and supporting this area. Insurers have been waiting for the software houses to get up to speed in the household sector, but they have also had to develop their own EDI products ."

The continued lack of EDI capability in the household sector would be very dangerous for the broker market, says Grieves.

"Brokers would find it increasingly difficult to compete with other operators in the market place. In the past, brokers have responded to threats by embracing technology - the response to Direct Line was to move to full cycle EDI in motor. Household must go down the electronic route."

But Grieves says that the issue is not whether household will move to EDI. "The question is the time frame and whether the opportunity to develop new technology is taken. In two to three years we will see the volume increasing."

New business
There are already signs the situation is beginning to change. Grieves points to the fact that the Instep study shows a switch in household from new business EDI to full cycle EDI. In fact, all household policies written using SSP and Cheshire Datasystems are full cycle.

Allianz Cornhill is one of the insurers working on developing household EDI capabilities. Last month it launched a full cycle household product called Harmony. The product is runs on Misys systems and there are plans to assess other software houses.

Knight says that the product was launched after researching brokers' views. "There was a favourable response to the use of EDI. It puts brokers in control; they put in the data and are responsible for it - what they put in they get out. And it removes delays - there is no need to rely on the post. These service issues are still big differentiators for brokers.

"The future of household insurance is that full cycle EDI will cover the majority of risks. There will be a mass of activity over the coming year. A number of software houses are currently looking for insurers to develop EDI products."

He adds that the success of EDI depends on the quality of the products that insurers provide and software houses build.

But there will always be a need for manual products. "Some will not fit the box," says Knight. He is referring to products such as high net worth which are less standardised than basic household insurance. He estimates that that an average high-street broker with a mix of business could expect to be placing 90%-95% of business using EDI.

Grieves is not certain that EDI is necessarily the only way for the household market to develop. Technology has advanced beyond EDI and it may be more attractive to use new technologies such as Polaris imarket. Imarket, unlike EDI, has the capacity to transfer data in real time.

Whether the household market will move to EDI is "still up in the air," he says. "From Zurich's point of view we will be looking at both. We are at a step change in technology. It is far from certain all household will be EDI."

Any efforts to increase the use of EDI or other technologies in the household market will be warmly welcomed by brokers. Peter Making, private client manager of Halifax-based broker Wilby, is very keen for there to be increased use of EDI.

Making says that over the years the company has been gradually streamlining the business and that EDI has played an important role in this process.

The fact that EDI removes the need for the time consuming completion of proposal forms and other documents is a major selling point. "I can't be doing with issuing cover notes," he says.