Buckle up and enjoy the ride

Looking into a crystal ball, what could the future hold for imarket and, more importantly, the brokers, insurers and software houses that come together through this gateway.

Forget about the broken promises and failed expectations that were created around imarket a few years ago. imarket brings insurers and brokers the capability to transact business electronically and in a joined-up way but it is new and, with technological projects, new things occasionally suffer setbacks.

However, integrated trading is becoming a reality and we should look to the future.

Integrated trading

There are many myths around what imarket enables brokers to do and much of the negative press is around non-integrated trading from the imarket website. While this has value, the future involves brokers being able to transmit and receive messages directly from their back-office systems.

Integrated trading is already a reality for quote and new business transactions for a number of products and we will see product and functionality increases over the next few years that will mean brokers can transact a wide range of products from their back-office systems directly with insurers.

Whether or not all quotes are automated will depend on insurers. Some may take this as an opportunity to cut out underwriters from their operation, while others may simply see this as an opportunity to receive submissions from brokers in a consistent method and format. Integrated trading will not mean homogenised offerings to all of the market. We would expect certain brokers to look for bespoke arrangements with insurers or to operate schemes through imarket.

A place for underwriters

If insurers plan to automate all their business submissions from brokers, their ability to quote for a wide range of risks is likely to be curtailed. With the wide range of unusual and individual businesses in the UK there is always likely to be a place for the underwriters to individually consider the insurance risk that businesses represent.

Typically, an insurance price is made up of the pure underwriting price the insurer wants, with an adjustment to reflect the market realities that the terms are given under. An automated system can be programmed to discount business at different points in the insurance cycle and a widespread adoption of technology may mean insurance cycles are flattened, as rogue quotes disappear, or exaggerated, as the speed at which underwriting philosophy is changed is cut to minutes and hours.

Ultimately, insurers and brokers that embrace electronic trading fully will reap the benefits by removing duplicate costs. The cost of distributing insurance products is about 40% of the eventual price to the customer so anything that can cut this to a more sustainable level must be welcomed.

imarket sits right at the centre of this activity as the vehicle that brings collaboration between insurer and software house.

So far insurers have mainly focused on quote and new business but they had to start somewhere. Typically, brokers have said they will not embrace electronic trading until they are able to carry out full policy management seamlessly. What would have once seemed a pipe-dream is likely to become a reality in 2007. Some insurers and software houses may be slower off the mark than others but next year brokers will be managing quotes, new business, mid-term adjustments and renewals through their software houses on a range of products.

Standard setters

So will brokers be throwing away their fax machines soon? Probably not but some will only transact certain classes of business through integrated trading from their back-office system.

How has imarket featured in this? It has developed the standards - with the insurers and software houses - and has acted as the forum for people to share views about what will and will not work. It also provides the secure pipeline to make all of this work.

Will all brokers embrace technology? We all know of brokers - some of you may be reading this - for whom the paper file is king. Heaven knows how they do their Financial Services Authority returns but this is how they choose to do business. The paper file is not dead yet but the time will come, maybe in 2008 or 2009, when you will not be able to trade with certain insurers unless you do so electronically. imarket has a part to play in this - keeping the brokers informed and giving them the information and training to enable them to make the transition to this brave new world.

We will not see Luddites burning their computers to prevent the progress to e-enablement but we can expect a few grumbles in the letters pages of the insurance press along the way. Is there any choice? If we maintain the current ways of doing business with a 40% expense margin, surely brokers and insurers will be making themselves vulnerable to other businesses doing insurance more efficiently?

Electronic documentation

Brokers will also be able to obtain electronic documents for their customers. Will all customers want a printed copy of their policy? Probably not but there are advantages in having a portable document file copy of their policy. How many customers, or brokers, want to wade through a policy to find mention of a certain word or clause? With a PDF a customer or broker can search the document for phrases and words and go straight to that section.

The risk-conscious business could easily store a copy of its insurance policy on a memory stick - available should a disaster strike - or have electronic copies of its policy stored on its home and work computers. Typically, brokers have to wait several weeks to receive policy documentation and, with information typically typed more than five times by brokers and insurers into different systems, it is no wonder that in many instances the documents are wrong when they are received.

With integrated trading risk information will usually be keyed only once and, if that is right, then all the documentation should be right. Imagine how much time would be saved without having to deal with documentation errors.

If a broker is able to quote, go on cover, get its electronic policy documents and send to the customer in 10 minutes that will save them time and money on the current system and mean the customer gets a great service. Customers who have experienced this level of service will be puzzled if they approach a broker that does not trade in this way and will wonder why their fulfilment is so slow.

Competing markets

Electronic cover notes are being tested with a number of insurers and brokers. This facility will allow brokers to log on to the imarket site and fill in a cover note for their customer, print it out for them and enable the insurer to understand immediately any changes to the cover. This helps insurers and brokers with their motor insurance database issues and also frees up space in the broker's office as the secure-cover-note cabinet becomes a thing of the past.

Much of the imarket activity so far has centred around commercial insurances - probably at the smaller end of the market - and will probably continue to do so for some time. However, if the imarket practices can add value into the commercial market brokers and insurers may also see value in adopting similar principles for personal insurances.

The benefits are harder to see around personal insurances as brokers usually transact their business using full-cycle electronic data interchange. The problem facing brokers and insurers is that the data sits with the software houses, so this can constrain the amount of times that an insurer can change their rates in a given period. That puts the broker market at a disadvantage to the direct market.

In the direct market prices can change hourly or daily to cope with changing dynamics. If an insurer has got its rates too high, or too low, it has to work with the software houses to make changes. In extreme instances this can impact an insurers' market share and profitability quite significantly before a change can be made.

Quicker rates change

There may be other solutions to this but if insurers could maintain their rating information in their back offices, this would enable rates to be changed quicker and without a reduction in servicing capability. The rating could take account of other customer information it holds, potentially allowing multi-policy discounts for business held across different brokers or even channels.

A lot of the focus has been on the service model for processing and managing policies. However, potentially there are even greater wins to be had from the claims model and this certainly exists on imarket's radar.

Enabling brokers to access and input data around claims will mean they can service their customers better and if, as sometimes happens, a claim is not progressing as quickly as a broker and customer would like, they will see the cause quickly. If a claims team does not have to respond to broker and customer queries it is possible that the speed and quality of claims settlement could also increase.

The same could be said for accounts handling. Brokers tend to spend a lot of time reconciling their insurer statements with their records, then insurers do the same at their end. Auto-reconciliation could save them time and money.

With an increase in automation for policy transactions and the need for contract certainty it seems sensible to assume that brokers will tend to have fewer accounts entries that require discussion and an automation of this facility will strip out a joint cost in an area where a customer will perceive little value.

Here to stay

While there is so much change possible in the industry, for the good of all concerned, imarket has a strong agenda for change. As insurers, brokers and software houses work together imarket is perfectly positioned to drive this change through.

Experience has taught us that if we imagine what changes there will be in two to three years the pace of change is never as much as we expect, or hope it to be. However, if we try to imagine what change will take place over 10 years it is always more than we expect.

So in 10 years' time we will not believe what has been achieved. In a market that tends to be slow to make changes it is time to buckle up and enjoy the ride. Insurance may be a people business but in future it will be a technologically-enabled people business.