Spotlight: Commercial e-trading - What the future holds

For the last 10 years, the industry’s e-trading capabilities have been dominated by personal lines business. However, growth in using integrated e-trading systems for commercial lines is set to explode, according to research by Polaris.

The research, made available exclusively to Insurance Times, demonstrates that brokers are reaping the benefits of having access to real-time quotes, from a range of insurers, at their fingertips.

But those firms that are not up to date are likely to be losing business already, even if they are not yet aware of it.

Hansen Young Consulting managing director Andrew Linnell, who pioneered the research on behalf of Polaris, says: “There are absolutely crystal clear benefits for brokers here. The number of products you can e-trade is growing all the time and the premium level at which you can e-trade is increasing. It’s giving brokers access to the market in a far more efficient manner than has previously been possible.”

Using the research, and consulting a wide spread of industry figures, Insurance Times examines integrated e-trading to find out what it is and how it works; what the benefits are for brokers and what the challenges may be in getting brokers to take up this trading model. And, finally, we ask: What are the future implications for commercial insurance trading?

What is integrated e-trading?
In essence, a broker using integrated e-trading systems simply enters client data into their computer once, using software from providers such as Acturis, Open GI or SSP, and receives real-time quotations online from insurers. Furthermore, all the documentation online can be integrated quickly into the back office systems.

Aside from integrated e-trading, there are two other methods for brokers placing commercial lines. Some brokers rely on email, fax or letter to obtain quotations for renewals or new business; others use non-integrated e-trading systems, where brokers use extranet sites or independent aggregator sites and are required to enter client data multiple times for both new business and renewals.

Both of these older systems are arguably less time-efficient for brokers. SSP divisional director for distribution Richard Crocker points out that many brokers are still using extranet systems to their cost. He says: “The downside for a broker is that if they want to get prices from three different insurers, they’re keying the data into three different extranets. There’s a much greater cost in doing business that way than if they’re using an integrated system.”

What is Polaris’s role?
There is no doubt that many brokers seem confused about the role Polaris plays in e-trading, but it’s actually very straightforward.

Firstly, Polaris is the company that sets a common standard for online trading, agreed with insurers and software houses.
Polaris managing director

Martin McLachlan says: “In the SME market we’re talking about relatively high volume trading and that needs standards, otherwise you have to have bespoke arrangements between brokers’ systems and insurers’ systems which are generally high cost.”

Secondly, Polaris achieves a common standard through the provision of imarket, the electronic trading infrastructure that sits between software houses and insurers. Imarket ensures that all business transacted between the two is of a common standard.

“It’s purely a technical facility that carries messages backwards and forwards between brokers and insurers; hopefully invisibly,” McLachlan adds.

What are the benefits?
The most obvious benefit to brokers is simply the amount of time it can save in generating multiple quotations for clients, either at renewal, or for new business.

Instead of emailing clients’ requirements to several insurers and waiting for a quote, or even using extranet systems that require brokers to input the same data into each insurer’s system, fully integrated e-trading requires just one software platform that retrieves almost instant quotes from several insurers at once.

Groupama commercial lines director Malcolm Smith says: “It has advantages all round. Brokers can get access to almost instantaneous quotations with a number of insurers through inputting one set of data into their system; but more importantly, when they get a quote they can get the documentation straight away.

“They can then get policy documents straight to their clients when they’ve done business, and once these policies are live, the broker can make changes mid-term online. The whole way of working is just a lot more efficient and transparent.”

Once the systems are in place it is up to brokers how best to make use of the time savings they will gain, as Linnell says.

“It’s important to remember that an integrated e-trading platform is only a tool. It’s not a magic wand where you can wave your hand and transform your business. You can only do that if you make sure you use all of the functionality that the integrated system has in order to help you boost internal efficiency.”

Can brokers risk missing out?
Competition in the commercial marketplace is fierce and as the effects of the recession linger, small businesses are increasingly likely to research the market at renewals to find competitive rates.
Brokers choosing to ignore the full benefits of integrated e-trading risk losing customers as they could be restricted in finding clients the best value cover available in a time-effective way.

AXA head of e-commerce Jason Bridgeman highlights why it’s essential for brokers to consider using e-trading options: “I really do think that brokers not using these systems are already losing business. Over the next couple of years we’re going to see a real explosion of commercial trading. Those that aren’t on board are really going to struggle unless they have highly specific niche areas.

“For a small brokerage especially, the time savings are so great that if they are not using this they’re going to get left behind.”

SME business is becoming more commoditised, so trading electronically is a logical step towards speedier quotations and higher levels of efficiency. As the technology progresses, more and more mid-market business is being e-traded, and insurers are bringing out specific products for brokers looking to make use of integrated e-trading systems.

Swinton head of communication systems Paul Cassidy says: “In the SME space, at least 80% of business is eminently do-able over integrated e-trading. If brokers want to grow their business, drive costs down and have access to the most competitive rates to meet customers’ demands and expectations, then they have to be on board with this really.”

What are the challenges in getting brokers to take it up?
Despite the manifest advantages integrated e-trading offers brokers, there remains a number of hurdles in the way for some businesses.

Entrenched business practices can be hard to alter for a business that may have seen a steady stream of income for decades. Many brokers have seen previous attempts at introducing online trading to commercial lines fail to revolutionise ways of doing business, and they are often understandably sceptical about the latest technology that becomes available.

Crocker says: “If you look at commercial e-trading over the years, you’ll see that there have been a few false starts for brokers. I think everybody thought that commercial lines business would follow exactly the same path as personal lines, whereas in reality a lot of brokers and insurers have found it to be a different animal.

“At the lower end of the commercial market, there is some commoditisation, and it does lend itself to e-trading. There’s a plethora of systems out there, so there’s a lot of confusion for brokers because there are different product offerings. I think some brokers may see it as taking away their skill set, but where you can automate things, the technology shouldn’t be a barrier, but rather an enabler.”

Open GI distribution director David Kelly adds: “Often there’s a divide between the brokers writing personal lines business, and those dealing with the SME side of things, so it’s important to get them engaging with one another to stimulate the uptake of the technology.

“Often the proprietors of a business and forward-thinking brokers can see the benefits, but there are still a number of laggards that need to be brought into the twenty-first century.”

What concerns do brokers have?
A worry that brokers have highlighted has been the effect that e-trading could have on relationships with insurers. After all, these relationships have traditionally had a significant effect on the way brokers place business.

However, Cassidy says: “It hasn’t changed our relationship with insurers. They’ve all invested heavily in IT systems over the past 10 years in commercial lines and helped break the Catch 22 of ‘There’s no volume so let’s not build a system, but there’s no system, so there’s not going to be any volume’. The relationships with insurers have been good, because we’ve been able to show them the benefits of what they’ve invested in.”

Historically, brokers haven’t had the most straightforward relationship with technology, so mobilising an entire industry to embrace new working practices can only be done through an organic process of gradual change. Unless commercial lines brokers adapt, those personal lines brokers with greater experience of e-trading will be looking to find ways of adjusting their systems to bring in SME business.

Another fear is that some brokers believe adopting this new technology could lead to cuts and job losses, but as Kelly says: “For smaller companies, the biggest obstacle is usually just getting them to use the technology.”

Bridgeman says: “Brokers think they’re going to see people getting laid off, when actually it doesn’t lead to that. It means that it frees up brokers’ time to concentrate on the pure underwriting and not the administrative aspects of it.

“Technology is making life a lot easier and there’s a lot of good streamlining. We’ve seen brokers who have restructured their businesses internally because of the time savings that they’re making and it’s enabling them to actually focus on getting a lot of new business in and spending less time on administration and trying to get quotations.”

Overall though, the benefits of integrated e-trading for brokers are inescapable, and if firms are not at the top of their game consumers will ultimately go elsewhere to find better deals.