Davey's blog: Let's get digital

Wake up and smell the coffee! How long do you think low-value premiums will be traded manually in the commercial lines market? By low value, I mean less than, say, £2,000 and I ask because it seems that some brokers are already losing money on this business.

When all’s said and done, brokers are likely to get somewhere between £300 and £500 on a £2,000 premium.

By the time they’ve seen the customer, filled out the risk presentation, sent it to various insurers, chased insurers, negotiated the cover and eventually put it on risk, that doesn’t leave much meat on the bone.

There’s also going to be the likelihood of re-keying the risk data into their back-office system once it’s been accepted, and then there are mid-term adjustments to consider. These might carry a fee or earn a modicum of commission, but will that really cover the cost of doing the work? And what about return premiums?

With similar amounts of work often done for premiums of £1,000 or even £500, the figures quickly become unsustainable.

The guys for the job

In contrast to this approach, the majority of software houses offer the technology to quote and bind commercial business online for free.

Brokers get access to a broad panel of insurers offering all of the mainstream products as well as a number of niche products designed specifically with brokers and their clients in mind.

Documentation is produced electronically, quotes are returned automatically without the need to chase, where necessary they can be referred directly to an underwriter and, as the quote and bind system integrates with the back-office system, there is no rekeying to do.

This seems to offer brokers a convenient marriage of man and machine that lets them get the best out of their IT, without having to trail around individual insurers or jump between different systems.

It also speeds up the process, allowing brokers to quote quickly from a wide range of markets and to put clients on cover swiftly once a decision has been made.

When there is so little commission income to work with on small premium business, driving cost out of the market must be the way forward for brokers and insurers.

Going at it all wrong

I know some brokers use online systems to find the lowest rates possible, before trying to place the business manually with local markets.

This strikes me as using technology for all the wrong reasons and ultimately they are coercing insurers to write business at levels they are not comfortable with.

This will simply result in hefty hikes for their clients in the years to come and it fails to create efficiencies or deliver sustainable incomes for either the insurers or the brokers themselves. Anyone believing this strategy is sustainable should wake up and smell the coffee.

If commercial lines brokers do not develop a strategy for dealing with low premium business, then they will find the personal lines brokers who have already moved to e-trading models will eat their lunch.

Some commercial lines brokers are already set up for e-trading, offering a faster, more accurate and more efficient service for clients, and keeping their costs low enough to actually make money on the business.

Therefore, instead of asking how long low-value premiums will be traded manually in the commercial lines market, I’m going to ask a more direct question:

Can you afford to continue trading low-value commercial premiums manually?

Jonathan Davey is managing director of Keychoice.

Twitter: @Daveyj6607