Beat the threat from direct

Direct Line demonstrated how easily a direct player can make a dramatic and industry-changing entry into a commoditised market. Most industry commentators see no difference between a motor policy and the small commercial package contracts, such as Shop or Office, so are there lessons to be learnt?

A direct player, especially with an established brand capable of extension into selling commercial insurance to small to medium-sized businesses, could cut the cost of distributing the product by 25% to 30%. Some of this saving would be passed on to the end-customer, thus making the broker channel look uncompetitive. This direct player may be an existing insurer carrying the risk itself, or another high-profile brand with a white-labelled insurer behind it.

More than 90% of the UK commercial market is controlled by the broker channel but this was also once true of the private motor market. With commercial business now representing 70% to 90% of most brokers' books of business in terms of income and typically an even higher percentage in terms of profit, brokers cannot sit back and do nothing.

Many larger brokers have recognised this and are seeking single-supplier or reduced-panel arrangements for small SME business that sits outside of its definition of core business. However, what if SME business is within your definition of core business?

Brokers face a threat with several direct SME offerings predicted to go live in early 2007.

SME efficiences

The imarket portal provides a solution to brokers that want to become more efficient in the SME market. It has invested heavily to provide brokers with comparative quotes and other related services online and this must be applauded.

However, there is one limitation to the current model. Brokers have to input data on to the imarket portal to get quotes from a panel of insurers but they then have to re-key the information manually on to their own back-office systems. This does not reduce the cost of serving the end-customer - it merely moves the burden of the work from the insurer to the broker. It will not stop the direct players in their tracks.

Integration is the key

The only way to cut the cost of serving an SME customer is to remove re-keying between broker and insurer, not simply move the burden of processing from one party to another. This is now possible with the integrated imarket products available to brokers using the Acturis system.

In this model, a broker already holds risk information within its back-office system in a structured fashion. Risks can then be transmitted to the imarket portal without the broker having to re-key. The data is then sent on to the individual insurer systems for rating and instant population of the insurer back-office systems. Quotes come back to the broker within 30 to 90 seconds and the broker system is populated without re-keying. Brokers have an integrated, comparative quote engine within their system with little or no extra effort on their part.

If the client wishes to proceed with the order, the hold-covered instruction is also transmitted from the broker system to the insurer, again via imarket. The point-of-sale documents, depending on the insurer, are made instantly available from the broker system or are generated by the insurer system, which has had a policy record added automatically.

In this integrated model cost is removed from the process but to stave off the threat from direct, insurers and brokers must be prepared to pass some of this cost reduction on to the end- customer in the form of lower premiums.

The full-cycle utopia

So the integrated commercial market is now a reality. The process outlined above now works well but only for new business to an insurer. For the integrated market to genuinely bear fruit, mid-term adjustments and renewals must be capable of being processed in an integrated way. This is something Acturis has been pushing for within the imarket community and work is progressing well to this end.

With a high percentage of a broker's transaction count comprising MTAs and placing renewals with an existing market, this full-cycle functionality is a requirement of any long-term solution.

Securing the future

Brokers have a big advantage over emerging direct SME players - ready access to a bank of customers without the need for expensive and extensive advertising. If cost can be removed from the broker-SME process and some of this saving is passed on to the end-customer, the future of the broker-SME market can be secured.

However, this also requires brokers to change their behaviour. The investment that insurers and software houses have made in the integrated imarket will only pay off if brokers review their current processes.

A broker cannot afford to broke a £500 case manually if it only earns it £87.50 a year. This is not sustainable. Only through embracing the full potential of technology can brokers, insurers and software houses work together to make the integrated dream a reality and create the future bedrock of the broker SME market.