IAN DANBY'S VIEW
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Experian has taken a bold step in entering a market containing a number of entrenched competitors that hold a great deal more knowledge on the technical management of EDI and its integration to administration systems.
The Experian press release professed a "win-win" situation for all parties by providing a faster, easier method of updating rates and handling EDI whilst providing value added services that are equal to those used by the larger direct insurers. However, is the content of the press release too good to be true?
The attraction to intermediaries is the ability to obtain rates overnight and the capture of vehicle, address and demographic information at point of sale.
The central point of access for rates and EDI may well expand the range of admin systems available for intermediaries as smaller companies introduce new packages.
In this respect, intermediaries of the future may be in a position to select a system that can be fine tuned to their needs rather than the "one size fits all" approach that exists at the moment.
The attraction to IT suppliers is that they can relieve themselves of the high costs associated with maintaining an underwriting/programming department that not only translates the various rates but invariably "de-bugs" the rating criteria forwarded by the insurer.
The opportunity therefore, for suppliers to pass the responsibility of rating errors directly to Experian or the insurers will be a welcome one. Redeployment of resource will in turn allow faster development of administration systems and inevitably increased costs per user as the suppliers seek to redress any loss in income from transaction fees.
The insurers themselves appear to lay the blame for any costs at the door of intermediaries and IT suppliers alike. A cynic may suggest that they see both channels as an unwanted cost despite the high levels of income generated through EDI. It is clear that the Central Site will benefit the insurers by minimising costs whilst the intermediary will face increased expenses through the requirement to store paperwork, install communication links, purchase new hardware/software and cover the fees associated with using the value added services provided by Experian.
The success of the Central Site will be subject to the rate of deployment amongst the intermediary channel and the volume of transactions passing across its site. Let us not forget that Experian has developed this site (in my opinion) because it can see a way to reduce the insurers' (stated) expenses of £440 million whilst retaining some of the savings for themselves through the on-going use of transaction fees. Not only this, but the ability to capture postcode, vehicle and demographic information will almost certainly be on a pay per hit basis that can quickly increase the revenue to Experian and the costs payable by each intermediary.
This is where the positioning of CSC, Misys, Cheshire Data and Policy Master will become pivotal.
Will they continue to act as suppliers of insurance administration systems or will they evolve into insurance system integrators?
This latter scenario would not only include Experian but also document image processing, e-commerce solutions, secure e-mail applications and the wide range of professional services attached with these. In the event of providing integration to the Central Site each supplier will certainly aim to charge Experian a transaction fee for each of their customers using the site.
Overall, the insurers will remain the winners in this development as they secure increasing levels of business whilst reducing the costs associated with premiums. Far from losing out, IT suppliers will find fresh markets in which they can develop solutions and services. Within the intermediary market, the winners will be the top ten per cent which are in a position to negotiate preferred terms with insurers and IT suppliers alike and carry the financial resource to quickly implement new systems.
The potential losers will be the remaining 90% of intermediaries which will find the costs of maintaining technology within their business too high.
The saviours in this respect may well be in the form of their marketing groups (Countrywide, Keychoice and so on) which may provide their own central site for quotations, EDI and administration for all members.
ROSS HALL'S VIEW
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I believe Experian's Central Site is a positive step forward for the industry. While I can accept and to a degree sympathise with those who have expressed doubts, I do think there is a lot for the industry to gain as a whole.
For the insurance company I see potential not only to chip away at their operating costs a little more, but also to become more competitive and responsive to changing market needs. Being able to update their products suite once and from a central location should, in theory, enable underwriting and market positioning decisions to be made on a Friday afternoon based on the week's performance, to be reflected in rates available on Monday morning.
Clearly this responsiveness is going to benefit the intermediary who will have up-to-the-minute rates available rather than "best guesses" based on decisions made weeks or even months previously. After all, this is what the direct marketeers are able to do today.
Other factors are also going to help reduce the costs to the intermediary while increasing the quality of the service that they can offer. Simply asking for a postcode and house number could provide the intermediary with the information required for a buildings quotation without the need to ask about property age, size, construction and various other factors which the client has no idea about. This is going to reduce the irritation factor that clients can experience, not only when it comes to obtaining a new policy, but also when the client comes to claim and finds the particulars of their declaration under the spotlight.
From an e-commerce viewpoint the Central Site should also make it much easier for intermediaries to provide interactive quotation systems rather than the "fill in the form and we'll e-mail you" variety which seem to be in abundance on the internet at present. Full e-commerce capability may come into the reach of the "average" intermediary rather than remaining the preserve of those with deep pockets!
Clearly there are going to be some questions to raise about transaction costs. If Experian can cut the time it takes to provide a prospective client with a quotation in half then a transaction cost of £1 would still result in a significant productivity and operating cost saving, perhaps as much as £3 or £5 per quotation.
The software houses are the ones which probably believe they have the most to lose. However, I believe they can add a lot of value to their clients by integrating the services that Experian are offering. For example, it would be to my advantage if my Back Office System could populate the records of my most profitable clients with demographic data – I could then target my marketing much more effectively. It would also be to my advantage if when a prospect came in through the front door I could see he had ten claims in the past two months rather than the one over the past year he told me about!
I don't believe that Experian is going to add costs to the intermediary. We are fast approaching the point where a permanent connection to the internet is going to be a "de facto" business requirement, and the cost of providing that link is likely to fall over the next couple of years. Paper records for EDI transactions are already required – and as intermediaries should be retaining them this will result in no new costs. Any increase in the costs of managing IT will occur anyway as business become more dependent on technology and the system houses move away from "green screens" and on to Windows over the next few years.
The insurers are going to remove some of their costs, while at the same time improving their responsiveness, while systems houses will be able to deliver truly powerful customer service solutions rather than insurance product sales systems as they currently do.
There is some way to go, but I believe that for the most part that is a matter of education. Many of the people in the industry I have spoken to believe that this is a positive step forward and I suggest that it is appropriate for us all to get behind Experian and make it work to the benefit of the client, the intermediary, the insurer AND the software houses.
