Traditional players in the broker systems market are watching the web kids move on to their block. Who will survive? Neil Campbell reports
When i2i-link failed towards the end of last year, a dream died with it. Insurers were hoping brokers would have one port of call for all their servicing needs, ranging from product information and quotes to policy documentation delivery and claims tracking.
And although Polaris is developing a low-tech successor to i2i-link that will allow brokers to log on to insurers sites, broker software houses are back in the driving seat.
So who is set to take the market, now that i2i is dead? Will it be traditional broker software houses such as Sirius and Misys or will it be the new generation of web-hosted systems such as insurE-com and Acturis?
The simple answer, of course, is no one knows for sure. The traditional suppliers of regularly updated CD-roms have a stranglehold, but brokers have an eye to the future and are always looking to improve service and cut costs.
Brokers want straightforward, accessible systems. As Kevin Child, managing director, systems, with Sirius Financial Systems, says: "Brokers are looking for software that provides measurable value for money, that automates and enhances the productivity of their administrative processes, that makes use of the internet as a communication and distribution channel for customers and producers, that supports... increasing need for connectivity between insurer and intermediary." So who can provide this?
Former ICL insurance head Manjit Rana is unsure that new systems suppliers such as insur-E.com, 24 7 and Acturis can really compete effectively with the tried-and-tested traditional players. "The newer players simply don't have a compelling enough story to convince the typical high street broker to switch from his traditional supplier. Brokers, typically, do not like to take risks with the core technology running their businesses."
Unsurprisingly, traditionalists like Paul Matthews, business development director of New Millennium Technology (NMT) say the current new entrants are facing the problem of having been "hyped, over-promised and under-delivered".
Grant Ellis, managing director of the 110-strong Broker Network, agrees that the `green screen' legacy systems are still dominating. The typical broker, however, "wants to spend money on technology".
But, he adds, brokers find the proliferation of products and services "extremely confusing". In addition, Ellis reflects: "There's no real certainty who's going to be out there in ten years time."
So, it appears, it's better to stay with one of the devils you know.
Despite this uncertainty and sniping by more traditional players, new systems are being backed at the highest level. InsurE-com has 19 risk carriers on its motor panel and Acturis can count large independent brokers Layton Blackham, Smart & Cook and Bland Bankart among its backers.
The major independent brokers will have a significant role as the market consolidates over the coming few years. Tim Lennard, sales and marketing director with Misys Financial Systems, says: "M&A activity among brokers is creating a decision point where organisations reassess their business models and IT strategy." CSC UK Financial Services marketing director Tony Barker says many larger brokers are already fragmented in terms of their systems, a result of a consolidation heritage.
Rana says: "The impact of consolidation over the forthcoming five years will likely see a number of the smaller brokers either merging to form groups or being taken over by the bigger regional and national chains. As the brokers are likely to want to take advantage of the cost savings by having a single technology platform, the supplier to the acquired broker is likely to lose out. Larger players like Misys and Sirius are the most likely to gain from this."
ASP system suppliers know that preconceived ideas about web-based solutions have to be overcome. InsurE-com intermediary manager Paul Scanlon says ASPs are not yet fully accepted. For security reasons, brokers are not content to have their data sitting on a remote server. Also, to make ASPs viable it is essential to have high levels of connectivity and broadband is not reality at present.
And even when web-based services become accepted, traditional players will step in. Rana says players like Misys will move on the ASP market and probably introduce an ASP offering once "brokers genuinely want to see web-based solutions that can match the levels of functionality, reliability, security and performance currently offered by their existing systems ... and when broadband becomes more affordable and available.
Ellis worries that some of the new software house have yet to generate any revenue to date. The venture capitalists that have invested money in these companies are going to begin to want to see a return in the near future, putting pressure on the levels of revenue they need to generate.
Rana claims the new kids on the block do not have the critical mass to attract the support of the insurers. "Unless a system supplier has a couple of hundred high street brokers utilising its systems, the insurers are likely to lose interest in supporting it as they work towards streamlining the way they support the broker channel... the newer software houses just simply do not have the volume of transactions and users to be of much interest to the insurers."
Rana says in five years time "the traditional suppliers like Misys, CSC, Sirius, CDL and MCS are still likely to be around in one form or another". At least one of these is likely to have been taken over or merged with another company in this space, he says. "Unfortunately, I really doubt if any of the newer ASP providers will really make any serious dents in the market share of the existing players."
Rana also says that, should the newer players start to make serious inroads into this market, an existing traditional player will probably swallow them up.
There is, however, hope for the new players. Dave Platt, managing director of Action Data Systems, says: "In the past, brokers were making good money and margins, however now the insurers are tightening the screws and we're seeing margins fall. Brokers can't now afford to spend major monies on broking systems and need to improve efficiency in order to cut costs."
In order to reduce inefficiencies, brokers have to improve connectivity between themselves, the insurer and the customer.
Rarrigini and Rosso Group chief executive Julie Rodilosso believes the new players have the solution. She says: "If there wasn't an opportunity to pursue, the huge investment required by companies like ourselves would not have been made.
"The current market model has been around for over 15 years - the market has moved on and some, but certainly not all, of the technology has moved on with it... and the biggest USP has to be the reduction of frictional costs because the existing distribution model absorbs too much expense which is lost as a result of inefficiency.
"24 7 will facilitate the connectivity between insurer and broker, reducing the frictional cost of transactions and the well established repetition and duplication inefficiencies that stifle our industry."
What the traditional suppliers say
Sirius Financial Systems managing director Kevin Child (above) says suppliers' track records are becoming increasingly important in the brokers' decision-making process. The established companies represent a relatively risk-free option for brokers, he claims. "We are increasingly seeing brokers taking months to commit to the right software, undertaking due diligence and subjecting both supplier and software to intense scrutiny."
Tony Barker, director of marketing at CSC UK Financial Services, agrees the existing suppliers have proven worth - a significant advantage over the new players.
Child says the new players will not be able to survive in a shrinking market of ever more discerning brokers. "It is extremely hard for them to create a critical mass of users, to achieve the profitability to allow them to develop the required level of functionality to compete." Barker agrees: "The new players are burning cash, not having attained critical mass."
Child adds there is not enough capacity to support the plethora of broker systems suppliers. "We can see that the race is on for the new players, who want nothing more than to have fully-finished products to market today. But our experience shows that it's a long haul and almost impossible for an organisation without the scale and recurring revenue base to fund the level of expenditure that is needed today." Traditional players have fully operational, all-encompassing products that have benefited from years of enhancements and fine-tuning.
Tim Lennard, sales and marketing director at Misys, says the actual appetite for an ASP solution may be significantly less than the surrounding hype would suggest.
Child does recognise, however, that a number of smaller brokers are turning to ASP suppliers. "We can see those established software houses whose user base is largely composed of smaller brokers suffering some attrition as customers are drawn to what appears to be a cheaper ASP model."
James Sharp, managing director of MCS, believes new entrants targeting the `bottom end' of the broker market are going to have most chance of survival. Functionality requirements are less complex for this type of broker. In addition, there is most anger and disaffection among these brokers about the service they are receiving from traditional software providers.
Overall, however, Sharp believes with little exception that "honestly, I don't think they [new suppliers] have a chance."
What the web-based suppliers say
Julie Rodilosso (above), chief executive of Rarrigini and Rosso Group (incorporating 24 7), says the new web-based players have every chance of gaining market share at the expense of the traditional players. "If there wasn't an opportunity to pursue, the huge investment required by companies like ourselves would not have been made."
The current business model used by traditional players is out of date. InsurE-com intermediary manager Paul Scanlon says the established companies' business model relies on the number of broker users and number of (office) sites for revenue. InsurE-com's research indicates this market is shrinking significantly through consolidation.
The new players claim to revolutionise the interaction between insurer, broker and the market. This will mean significant improvements in operating efficiency and resultant cost savings.
Rodilosso says the "biggest USP [of 24 7] has to be the reduction of frictional costs, because the existing distribution model absorbs too much expense which is lost as a result of inefficiency".
Acturis marketing director Simon Ronaldson backs this opinion. He says: "We are set up to be more connected. Our USP is the structured risk capture process in commercial insurance, which in conjunction with our open IT architecture, allows us to develop a seamless link between a broker's back-office system and an insurer's back-office system."
Ronaldson highlights the inefficiency of current broking systems. "Currently the average commercial policy takes 164 days to process from date of cover. This length of time is created by horrendous error rates in the market... our system within the next six months will allow brokers to process policies onto the insurer back-office at a touch of a button."
New Millennium Technology (NMT) managing director Paul Matthews points to the significant advantages of ASP systems over traditional legacy systems. "With respect to updating rates, the time to market is significantly reduced utilising an ASP system. Changes are made centrally and can be updated on a minute-by-minute basis if necessary. An ASP system has the capacity to allow the broker to provide a separate quote on each of 1.8 million households UK-wide. With legacy systems, this is impossible."
Rodilosso says there is enough market capacity to support the new broker systems suppliers. "With a general insurance market worth over £29bn and over 7,500 intermediaries with an average of ten users per intermediary, this is not an insignificant market."