The electronic key to success

It is incredible that here we are well into 2008 and the UK commercial insurance market has still failed to embrace electronic trading. Initiatives have come and gone and millions have been spent with little to show for the investment.

When full-cycle EDI solutions for small commercial were launched in the late 1990s, the technology worked, the standards were in place, but it still bombed. Why? Because insurers collectively over-engineered the solution, putting industrial-sized question sets for small business package quotes. Inevitably, nobody used them.

The launch of imarket signalled a clear intention to make commercial electronic trading work. It is impossible to argue with the logic that a single set of data standards makes sense, or that a single sign-on allowing brokers to access multiple insurer websites was a good thing. Indeed the overall vision of creating a single secure on-line environment enabling brokers and insurers to trade effectively remains a sound one. Yet several years on we are still far from making this vision a reality.

There are a number of possible reasons.

First, insurers again over-engineered the solutions, completely failing to learn the lessons from EDI. Perhaps that’s because too many people got involved in designing the solution.

Second, it is probably fair to say that some of the insurers backing imarket hedged their bets, developing one-to-one bespoke solutions where they saw opportunities. Why wait for a share of a market solution if you can steal a competitive march, they probably thought.

Third, the major software houses have been very slow out of the blocks, with Acturis being a notable exception. Whatever the reasons for this, the result is that new competitors can move into the space.

I am not concluding that imarket has failed and that e-trading will never happen. Far from it. Although Polaris has not yet achieved everything it set out to, it has succeeded in developing a number of the components needed to make e-trading a market-wide reality.

We are rapidly reaching the tipping point for trading small commercial electronically. This is down to one main thing – distribution. A new breed of distribution-led solutions is emerging, using the technology, but focused on making it easy and cost effective for brokers to trade with insurers. These will help to revolutionise the market in the coming years.

E-trading is the only sensible way forward for small business insurance. The successful companies of the future will be the ones that have developed solutions designed for the digital world. This means simple online solutions, backed up by a strong service delivery, where underwriter input is required. This should bring the Holy Grail of improved efficiency and better service for customers. Surely this is the way for brokers and broker-supporting insurers to see off the direct competition?

After similar false starts, it is the more complex London market that is seeing very real progress in electronic placement, with 150 companies participating in the January round of renewals benefiting from the removal of frictional costs. Far from removing face-to-face negotiation, it helps to free up underwriter and broker time to do the things they do best.

It would be a real irony if the smaller end of the commercial market was left behind by the London market. The market as a whole has to embrace e-trading. The benefits and the potential damage of ignoring it are obvious.

In all of this, the challenge for imarket is to be clear on the value it brings. If it focuses on providing the most cost effective platform that enables brokers, their software providers and insurers to trade, it will be a winner. If not, the market will be forced to find other solutions. IT

Simon Cooter is UK distribution director at Brit Insurance