Traditional broker quotation systems or new net-based services - which to pick?
The choices for intermediaries can be mind-boggling, says Claire Veares.
Intermediaries are currently the centre of much attention. As well as being courted by traditional software houses, new suitors have appeared on the scene, hungry for business.
Established names such as Misys, Sirius (formerly Policy Master) and CSC are now fighting for attention with newcomers such as Insure-com, Quote and Buy and 24-7. But which one to pick? Should it be one of the established broker systems or perhaps one of the new internet-based services?
Looks alone just won't do, and cost is a big consideration, too. Some will want you to pay them a fixed fee for their services; others prefer their fees on a transactional basis. Some even seem to be offering it all for free.
"It is a minefield," says Mike Williams, chief executive of the British Insurance Brokers' Association (Biba). Because of this, Biba is in the process of setting up an advisory service for members. "We know there is a demand for this," he says.
The service is due to start in the summer, with an outside consultant appraising the 20 or so systems now on the market. There will be a tiered level of service ranging from basic advice at a minimal cost to a full consultancy service charged at consultancy rates.
Williams isn't wrong about the need for this service. A survey last year among smaller brokers by Anthony Hall for Specialperils found many brokers' experience of IT extended only as far as buying a PC for the home. With quotation systems, the attitude was that it was a necessary purchase and systems were seen as being pretty much the same. A good demonstration in the office would often sway the decision of which one to go for.
But is the ability to talk a good product enough to get established in the market? Ross Hall, of technology consultants Garol, thinks not. "Anyone entering this market has got a mountain to climb," he says, pointing out what he sees as one of the downfalls of online quotation systems. "If you do a quote on a Misys or Sirius type system, it's there straight away. The problem with the internet systems is that you are working through a web browser, which is slow."
He also highlights the need to factor in the cost of unlimited internet access into the equation.
Going forward, Hall believes Sirius and Misys will have the top two places sown up but he thinks slot number three is still up for grabs. Not surprisingly, both established and establishing software companies think they are ideal to fill this slot.
Tony Barker is marketing divisional director of traditional provider CSC. He says the company has around 40% of the broker market at the moment with its products Quotel, Electra, Grapevine, Ultra and Wintan.
Trust in tradition
Barker says brokers know where they are with traditional software houses. "With the established players, intermediaries know they are not going to disappear. The new suppliers don't have a history."
He says people are also concerned about where their data is stored and are not keen on it being stored off their premises on someone else's server. Intermediaries want to know what will happen if the company they choose goes belly up - what happens to their data then?
Barker says new companies are not doing anything revolutionary. "It is a combination of new technology coupled with decreases in the cost of connectivity which has made the model viable."
He concedes that some of the new entrants will make it, but warns: "There's a cultural issue of trying to get a very conservative industry to move. There is still an innate fear of cutting-edge technology."
However, Ian Carter, marketing manager of internet provider Insure-com, says the internet gives a lot of people in the supply chain the benefit of real-time technology.
This gives insurers the scope to react quickly to changing events. For example, he says: "When the floods hit the south of England, they could adjust their rates accordingly." With traditional systems, it would take six to eight weeks to alter things.
He also downplays the view that internet systems are unreliable. He says users only need to be online when they are getting new quotes, not all the time.
Carter admits the marketplace is crowded and says it will naturally shake itself out. He admits it is difficult to say for sure that Insure-com, as a new company, will be around for a long time, but adds: "We have a very clear road map of where we are going with all our systems."
But it may not just be a simple process of persuading some brokers using traditional systems to give the internet-based ones a try.
It may be part of a much bigger shake-up in the way insurance is distributed.
Changes to come
Andy Baldwin, vice-president at consultants Cap Gemini Ernst & Young, says the next three years or so will see fewer intermediaries to go round. He predicts that succession wrangles and the greater need for financial transparency under the General Insurance Standards Council will see a lot of the smaller high street firms merge or go out of business.
And this contraction, Baldwin says, will lead to a change in the insurance landscape. "The average size of brokers is going to increase," he says.
He predicts there will be 20 to 30 "super provincial" insurance brokers within the commercial market. Due to their size, these larger brokers will have better relationships with the insurance companies.
Baldwin says the intermediary market will become more concentrated among national brokers and what he calls the top two tiers of intermediaries. Tier one is made up of the top 200 provincial intermediaries while Tier two contains the next 400 or so major regional and provincial ones. Tier one is predicted to grow rapidly through acquisition.
These larger brokers will be encouraged by the insurance companies to offer a range of services, including products offered by third parties. If the intermediary cannot offer these through the new distribution channels, it is likely that the insurance companies will offer these through their own extranets.
And the insurers will have to consider the modern need for multi-channel distribution and customer relationship management in looking at their preferred means of distributing products. Baldwin says: "Some of the systems are going to struggle to cope with various interfaces."
Some of the products on offer may well end up as niche products, he reckons, gravitating to certain sectors of the market. He also points out the need for a system that caters for both personal lines and commercial business together. He says systems tend to launch personal lines with a vague promise that the commercial lines version will be along some time in the future.
Baldwin sees the often-strained relationship between the insurers and the traditional software houses as one of the main drivers propelling the new internet-based systems. "Insurers see new ventures as taking business away from the software houses," he says. He says it is a way of vesting control.
Joint portal plans
Some insurance companies have the I2i-link portal in the pipeline. Allianz Cornhill, Axa, Groupama, Norwich Union, Royal & Sunalliance and Zurich are participating in the venture, with the technology being provided by the insurance division of Misys. The venture is due to go live later this year.
Director of I2i-link Helen O'Dea says: "I2i-link will e-enable the general insurance intermediary channel. It will firmly position the intermediary in the e-business world and lay the foundations for future internet developments."
There has been criticism, however, of the venture for its less than inclusive nature and rumours that Misys may take less of a prominent role in I2i-link's development.
It is widely felt that more companies would be inclined to join if one software house is not identified with the venture. The insurers won't comment on this, with Norwich Union saying cryptically in a statement: "The founding insurers and Misys remain focused on our commitments and objective in building an internet-based gateway for intermediary and insurer transactions which will streamline and enhance distribution and service over the long term. While being focused, we are also flexible enough to incorporate the feedback we receive and adapt to changing market dynamic."
But it's not all bad news for the internet itself, which gets a vote of confidence from insurance companies.
Simon Cooter, small business manager for Royal & Sunalliance, says: "The bottom line is that where the business model is strong, the internet will be an increasingly important tool which will enable brokers and insurers to work together effectively and deliver real value to our customers. Within the commercial insurance marketplace, there is little doubt that the internet will have a significant impact."
But perhaps those promoting recent technological advances are missing the point. Added functionality may look attractive in marketing literature but, as a Tyne and Wear broker plaintively puts it: "We're not looking for anything super duper. We just want the thing to work when we switch it on in the morning."
Quotation system providers - the old vs the new
Most of the market for traditional systems is supplied by products from CSC, Misys and Sirius. Sirius recently changed its name from Policy Master, after its broker system launched last year.
Other players in this market include New Millennium Technologies, Brokersoft, Cheshire Datasystems and MCS.
Software companies usually charge a fixed amount to use their systems.
Misys Financial Systems
New Millennium Technologies
Rather than rely on a fixed charge, newcomers to the market use a variety of ways to charge for their services. Some degree of transactional charge is often involved.
New providers include Quote and Buy, Rarrigini & Rosso's 24-7, Insure-com and Cox's Brokersure.
Quote and Buy
Rarrigini & Rosso
Application Service Providers
WITH an ASP, such as 24/7, all the main functions brokers need are not held in their own offices but accessed via the internet. The broker just has a basic PC in the office and all other functions are accessed over a high-speed network. As with any system, it has its advantages and disadvantages.
Among the advantages is that IT is left to technology specialists, allowing the broker to concentrate on its core business and its clients. Software can be easily upgraded by the ASP and brokers can plug into new services quickly. And, as the ASP will have a number of customers, individual brokers should benefit from economies of scale.
The main concern voiced by brokers thinking of using ASPs is the ownership and use of data, particularly in the worst case scenario of the ASP going out of business.
Other concerns centre on the speed of the system. It is no good transferring to a remotely hosted system if it is slower than one hosted locally. Services which offer brokers a full range of systems may be hampered by the bandwidth currently available.
Care also needs to be paid to the service level agreement between the broker and the ASP.