Personal insurance customers have been buying online for years, but the business market has so far kept its distance. Insurance Times reports on steps towards e-trading that brokers cannot ignore

E-trading has become the dominant way to connect with customers in the personal insurance market, but its move into the commercial market has been slower. While the technology enabling e-trade has been around for a few years, it’s still not clear if the business world is likely to follow in consumers’ footsteps and fully embrace it.

The personal insurance market has changed drastically in the past decade. Price comparison sites or large insurance companies’ sites are now the main way for individuals to buy insurance. Products in personal lines are easily bundled into simple packages, risks tend to be straightforward to calculate and consumers want the whole process to be quick and painless.

The business market is very different. There is much more money at stake and companies often want specialised advice. The complexity of the products involved has led to scepticism over whether web technology can change the way businesses buy insurance.

Fortis UK commercial underwriting development manager Gail Smith says the commercial market doesn’t have the homogenous volume of products often necessary for e-commerce. And most businesses usually want to buy more than one product.

Brokerbility managing director Ian Stutz agrees. “However small a business is, it’s never going to get away from the fact that it needs some kind of advice. You’re not going to get a business going to a comparison website because they’re more complex,” he says.

Many business owners would prefer not to have to worry about insurance, argues LV= Broker commercial underwriter Kevin Hawkins. “Business owners have enough to do to understand complex issues such as establishing the insurance protection their business requires,” he says. “They’re unlikely to know whether they need gross profit or gross revenue, for example. This is where brokers add so much value.”

It’s unlikely that the situation will always be this simple. As the technology evolves and becomes capable of calculating more complicated risks, it may be possible to automate simpler commercial insurance packages. Van insurance for small businesses is one example of a product that lends itself well to e-commerce.

In step with the web-savvy

Stutz adds that as the workforce grows more technology-savvy, demand for web-based business insurance will grow. "There’s a generation of people leaving university and going into business who are very used to using the internet,” he says. “Once this generation finds its way into businesses and starts to make decisions, we have to have an offering that meets the way they do things.”

This will be especially relevant for small and medium companies whose requirements are simpler and more open to automation, he says. All 34 of Brokerbility’s brokers are working on providing some kind of e-trade offering.

One possibility is to provide the services of a broker through a website, giving advice over email or via a secure portal. Instant messaging or video conferencing are other possible ways of talking to clients. But these changes will start with smaller companies, and it’s not yet clear if they will filter into bigger organisations.

“Changes in technology will start at the bottom with smaller companies. The larger, more sophisticated buyers will be very much reliant on a bespoke programme and need a good deal of face-to-face interaction,” Stutz says. “Technology can facilitate the process and make it more streamlined, but it will always be advice-driven. If you run a business, you’ve got to be certain you’ve covered every eventuality. The ramifications if you don’t are potentially disastrous.”

Acturis co-chief executive Theo Duchen says that while e-trade will continue to creep into the business market, the sector will not be entirely open to it.

“A year or two down the road, you’ll find 50% of commercial lines will be e-tradable,” he says. “But for many products, it just won’t be possible. E-commerce in commercial insurance will only be as successful as the products built.”

IT advances should help cut cost and inefficiency, making the process more instantaneous and information more accessible, but it won’t prompt a sea change. Duchen predicts that the broker share of the market will not change drastically from its current 84%, nor that the substantial shift to e-trade in the personal market will happen in the commercial sector. “Business customers are often more nervous,” Smith says. “There’s more appetite for advice.”

The commercial market is also lacking the catalysts that drove personal lines to e-trade. Sites and businesses such as Direct Line focused brokers on trading in a different way, forcing the change through and making it impossible to ignore. The commercial lines market hasn’t followed the same pattern.

According to Smith, e-trade products have been more successful in some countries than others. “In some parts of Europe, [e-trade] is still non-existent,” she says. “Places such as Australia have become a bit more involved with these products – we’ve had people come over here from Australia to try to help us adapt to new products. But each market needs to move at its own pace.

“We certainly see growth. At the moment, it’s at the micro end, but it’s increasing. There are some brokers who are increasingly focused on the electronic market.”

While e-commerce might not take over the commercial market in the same way as it has the personal, it’s not something brokers can afford to ignore. It will continue to have an impact in the less complex, smaller end of the market, and might change the way business is done at the more sophisticated end, through emerging communication technology and faster information sharing.

Experts are optimistic that, handled correctly, e-trade products present an opportunity rather than a threat for brokers.

According to Hawkins, the market is too complicated for brokers to lose their relevance. “Commercial brokers are already using technology to enhance their offering, and there are various platforms on the market they can use to get quotes from. They can then discuss which policy is best for that customer.”

Best use of tools

The variety of products on the market means that brokers can advise the client with the help of the technology. There are also platforms that allow them to trade electronically.

“Commercial insurance is not a one-size-fits-all product, so brokers add a huge amount of value,” Hawkins adds. “The problem for business owners is that if they buy direct, they may misunderstand the cover or terminology and may end up getting their fingers burnt if they need to make a claim.”

Aviva intermediary marketing manager Vince Cox agrees that the best way forward for brokers is to focus on the advice they can give. “The real win here is for the broker to have the relationship with the client and understand their needs, but to also take advantage of any e-trading opportunities with their insurers, making them slick and efficient behind the scenes.”

Apathy is not a good option. Brokers must at least be aware of the internet and the opportunities it provides – not least because the web has a habit of taking industries by surprise. As Open GI marketing director Simon Hughes warns: “There are still brokers who, by their own admission, are ‘doing ok without the internet’. This may well be the case now, but for how long?

“E-commerce transforms the masses into masters of their own fate. The services that are currently reserved for personal consumers will open up to the micro end of the SME sector. How quickly brokers react, and their ability to embrace the internet, will make the difference between survival and success.” IT

How to build an e-trade offering for smaller businesses

Simon Hughes, sales and marketing director at Open GI, advises:

• Ensure your site is easy to use. Avoid jargon, simplify the navigation and use a quote engine that can handle large volumes.

• Focus on a niche. It improves search engine optimisation, which dictates how you are prioritised on Google and will drive potential clients to the site.

• Cross-sell additional products once consumers are on the site.

• Give customers as much advice as possible. Most SMEs will be buying online insurance for the first time and will need an easy way to get in touch.

• Accepting online payment is crucial, but talk to IT professionals or software suppliers about security.

• Make sure promises can be fulfilled – an advertised phone number must have someone to answer it, for example.

• Consider using a ‘refer a friend’ function to encourage small businesses that have bought online for the first time to recommend your site.

Case study: How Australia is staying one step ahead

The Dual Group, which has offices across Europe, the USA, Australia and the Far East, is migrating several of these territories onto a single underwriting platform, writes managing director Damien Coates. In our experience, each territory has a different appetite for technology and how to approach commercial insurance online.

These differences are in part influenced by cultural mores, but on the whole are driven by simple economics. Those countries that have embraced technology and handle the most commercial business online tend to be the countries where volumes are high, premiums are low, competition is fierce and profitability tight. In markets like these, it simply is no longer efficient to underwrite using traditional methods alone.

In Australia, the commercial lines market is already moving more to an aggregator model for SME business. Major brokers are developing IT-based platforms to improve their margins by eliminating duplicate data entry and improving their buying power with insurers, while continuing to provide a competitive offering to the client. Some international brokers are even requesting large insurers contribute financially to the upfront costs of building systems in return for supply.

The next level of growth in Australia is with online brokers building platforms for commercial insurance to be purchased over the web. Increasingly, someone setting up a business is more likely to go to Google than pick up the Yellow Pages to call an insurance broker. Online commercial aggregators such as Bizcover are more than likely to hire another Google metrics analyst rather than another account broker.

The Australian professional indemnity sector is a A$1.6bn (£927m) market, with 220,000 active policyholders. It grew by 13% last year. Given that Bizcover receives 75,000 enquiries a year, it is clear that online broking will be a growth area.

This development represents an interesting paradox for the UK, where personal lines aggregators have had phenomenal success, but there has been limited penetration into the commercial lines market. It is believed that in commercial lines, brokers will increasingly segment their business into ‘advice based’ and ‘service based’, where the main objective of the service-based segment is to provide the client with an automated online solution.

For insurers and managing general agents, a global platform must be able to answer different broker and client needs in each territory and not attempt to shoehorn them into a system that tells them rather than asks them what they need. Clearly, the needs in Australia are very different to those in the UK, for example.

The key is in finding a platform that will be flexible enough to cater for high-volume, low-premium business, but that also allows room for direct underwriter involvement for a more tailored service where required.

While online platforms for commercial business will increase in countries like Australia, whose markets demand greater efficiency to remain profitable, for insurers and MGAs it is not the golden chalice. Success still depends on good old-fashioned experience, specialist knowledge, sound underwriting techniques and a focus on service … supported, of course, by leading edge technology.