Wheely fast

Before the computer, insurers produced paper-based rate updates on an ad hoc basis. The introduction of the computer led to an accepted monthly cycle.

A rate change is a serious consideration and there is a range of tools available to insurers before they implement one. For instance, software from companies such as SAS permits database management for information queries, allowing claims matching to policy segments to see what has performed best.

Insurers also take a what-if approach, combined with rate-assessor models to look at open market rates and test products against those of their competitors to predict potential business volumes and profits in light of any given price changes.

Clearly a lot of technology is involved. But the turn around between changes in rates from insurers and brokers being able to quote via open market software can take as long as eight weeks.

Jon Byford, head of PLI Motor at Axa, believes that changes are afoot to allow brokers more of a role in the process. He said: "Broker-based sellers have been at a disadvantage compared to direct sellers. It is an area that will continue to develop and become more flexible."

Individual approaches

Richard Crocker, distribution director at SSP, explained that while the company has the technology to update rates regularly, insurers - for all their testing - wait for months to see the impact of any change. He said: "The frequency at which they want to change rates varies from insurer to insurer. Even on a monthly cycle, we don't change every rate for every insurer every month."

Technology and the full electronic data interchange cycle are responsible for vast quantities of information being available for analysing by everyone involved in the pricing process: this could be seen as a double whammy for brokers.

Not only can direct sellers and those on aggregators change their pricing to meet their own internal calculations, they can also recalibrate after reviewing their competitors. Effectively, when insurers offer market-leading rates, they are unlikely to stay that way for long.

Real time updates

This does not have to be the case - Insurecom's service has already done away with a monthly update. Chris Moseley, strategic relations director at Insurecom, explained that the benefits of modern technology flow in two directions. On its web-based portal, the software house enables insurers to change their rates in real time. He said: "Insurers recognise that brokers have an important role to play and are looking to increase the volume they trade. The ability to change rates quickly will help."

Ray Vincent, managing director at Transactor, believes that the market will split in two: big brokers that are able to deal ordinary products on tight margins in such numbers that doing so remains profitable, and those that specialise in niche areas.

He said: "Businesses succeed by differentiating themselves, so we have been obsessed by the tools behind the system that link everything together."

While there will be no immediate change to the monthly rate change cycle, technological advancement means that insurers can expect faster responses from a variety of approaches. Vincent concluded: "Real success is where the broker is a subject expert that develops relationships with insurers so they extend the pen to the broker to let them develop products."