Martin McLachlan says there are many systems that allow brokers to trade SME risks
Once upon a time, the insurance of every private car was lovingly handled by brokers and insurers. The client completed a proposal form, the broker looked up underwriting guides for terms and conditions, an insurer was chosen and the signed proposal form was despatched. After a reasonable delay – after all, no one wanted the client to think the back room processes were simple – a policy with an impressive copperplate signature emerged. Cash changed hands.
Today, many insurers receive more than 90% of their personal motor business via full cycle EDI. Quotes from dozens of companies are provided to the proposer rapidly, documentation is prepared and accounting transactions set up as soon as the client says “yes”. The software systems suppliers have worked with their clients to redefine the way this business class is handled.
In the commercial lines market, including the SME segment, most of the business roughly follows the historical personal motor insurance model. However, what is clear is that within a few years, at most, the rapid service and quick turn round of the current EDI model will be the norm and this transition has already started.
At Polaris, we identified no fewer than nine different ways in which insurers and brokers currently process SME business. These include insurer extranets; quotation functionality provided from a rating engine on a network, such as iPrism; direct sales such as Xbridge; traditional paper-based handling; aggregators; and imarket.
To be spoilt for choice is not in itself a bad thing, but brokers wishing to trade in the SME market must place a bet on the option most likely to be around for a number of years. Place your bets, as they say in casinos, but where?
The first step, as in all IT-based choices, is to ignore the IT and focus on the business. Brokers know the profile of their clients, the likely level of trading and the type and quality of service required. Undertaking a simple review of these variables will probably eliminate a few of the options on the market.
“Brokers wishing to trade in the SME market must place a bet on the option most likely to be around for a number of years. Place your bets, as they say in casinos
Increasing productivity currently seems to be on every broking firms’ agenda. But which processing method will give the highest returns? For many brokers the scales seem to tip in favour of a solution which integrates into their existing back-office system. The logic here is very simple – the commission on many SME risks does not justify rekeying data or undertaking any unnecessary manual processing. Similarly, handling mid-term adjustments and renewals from the current broking system can help contain costs.
Choice of markets will be important for many, but not all, brokers. A panel large enough to ensure at least a few quotes on each SME risk will increase the chances of building a healthy electronically-based portfolio.
A very useful facility on integrated trading solutions provided by some software houses is the provision of a side-by-side statement of insurer offerings. Generally, this looks like a spreadsheet and the comparison includes not only premiums, but also items such as limits of indemnity on liability covers and the sum insured on the various forms of money cover.
Sustainability of the solution may also be important. Currently, there are many platforms vying for brokers’ attention – and money. History indicates that such turmoil generally settles down and only a few survive. Building technology to support full-cycle trading, and then maintaining it, is very expensive. Very few investors are patient enough to wait until the market consolidates. Recent tightening of credit will only add to their angst.
The days of manually handling SME risks are drawing to a close. Some brokers abandoned this section of the market a few years ago. However, the range of technologies now available is making it cost-effective for such companies to rejoin the fray with the intention of trading in volume. It seems very likely competition in the SME segment, fuelled by new technology options, will lead to a further shake-out of the broking market.