Market Watch: SME online: Broker balancing act

There has been an abundance of interest in providing small and medium enterprise cover online from insurers as they recognise that times are changing and brokers are becoming more technology savvy.

Although brokers prefer to offer advice face to face or by telephone, they are recognising the advantages of trading online and how this can free precious resources. Some brokers, such as Blythe Valley, smeonline.com and Simply Business, offer quotes directly to small businesses, while more traditional brokers such as Caunce O'Hara in Manchester have offered this capability for professional indemnity insurance for over a decade.

Others, like Heath Lambert, have become the middlemen in deals such as tying up with Fortis and the Post Office to offer small business insurance, with the broker doing all the policy documentation and administration and providing quotes online direct. (Heath Lambert admits that much of its consumer-facing transactions end up being done on the phone anyway.)

Commenting on this business-to-consumer model, Mike Owen, Heath Lambert's group marketing director, says: "Anything that can start and finish online has the advantage of low handling costs. The reality is that, at the moment, only the very small, simple risks are being transacted that way. Even then, the vast majority might start their journeys online but finish up on the phone. Commercial insurance is not personal lines: complexity and the need for advice kick in across a wide range of business sectors and business types."

There is an appetite from the business community for fast access to quotes and easy-to-understand documentation and the software houses are taking this extremely seriously. Brokers are doing the same.

Simon Ronaldson, head of marketing at Acturis, told PB in January about the company's priorities for 2010: "E-trading commercial business has to be firmly on top of the pile. In 2009, we transacted over £100m of SME business and this is set to grow this year."

Imarket standards
It is a complicated area, with brokers, insurers and software houses all scrambling to gain access to the best available quotation systems on as many lines as possible. Although imarket helped set the standards in terms of wording and functionality, it has been overshadowed by individual offerings from insurers. From Brit's Britbord to Aviva's Fast Trade, insurers are encouraging brokers to tap risk profiles into keyboards and read quotes from a computer screen rather than picking up the phone or sending a fax. Furthermore, insurers are sending policy documentation by PDF to remove as much cost and effort from the process as possible.

Tens of millions of pounds have been invested by the industry on online channels and it appears that insurers are determined to see ever more broking transactions occurring with as much straight-through processing as possible. Questions therefore abound over the continuing role of SME underwriters as the computers collect more and more information.

E-trading has not always been straightforward. Initially, insurers were adamant that imarket, launched in 2003, would be a magic bullet that all brokers would work with. What has actually happened is that the standards established by imarket appear to have been used as a springboard for insurers to launch their own rival offerings while imarket itself struggled to capture the brokers' imaginations.

Grant Ellis, chairman at Broker Network, feels there will be a tipping point for SME online, as there was in the personal lines market. He says: "Activity is exponentially increasing. Small SME is easy to automate and it is all about the risk rather than the level of premium."

Evolution
Brokers can use only what is available so, as insurers invest more, they will have more choice; the market is witnessing monthly announcements by software houses and insurers about their SME online capabilities. RSA, for instance, is positioning itself using an extranet, through Acturis and SME aggregator PowerPlace; it has made significant inroads with products such as van insurance, which is now 95% traded online by its brokers.

David Greaves, SME trading director at RSA, says: "Brokers are receptive to e-trading and we are seeing risks in commercial combined and mini-fleet of up to £5,000 in premium being placed on a regular basis. Our online mini-fleet product, for between two and 20 vehicles, allows MTAs, documentation and links to the Motor Insurance Bureau." If there is a problem online, Greaves says that RSA's underwriters will assist within 30 minutes, mangling the English language in traditional industry fashion by calling the pledge an 'e-promise'.

Greaves believes that the evolution of technology is leading to "pricing sophistication" but that staff need training in this new methodology. He says that a tariff-rating engine adjusts prices fortnightly as it scans the competition, though he is quick to insist that "each risk is different". He also thinks that increasing numbers of brokers will move their schemes online.

David Martin, head of SME, broker and affinity markets at Allianz, is also beginning to communicate in a new dialect of English: he talks about "data granularity", being "integrated to the back office" and "e-trade competition". His company's QuoteSME, built in-house with a leading software company, is giving him more access to information than the company's extranet, which closed in November 2009. Martin says that 50% of trades are starting out online, with 25% of these completing without raising a receiver to an ear.

Concern
Martin believes that, rather than causing job losses, this new way of trading could create growth. He agrees with Greaves about the need for different skill sets concerning IT; brokers, though, should perhaps be a little concerned when Martin says: "The ability to move rates is paramount and we could begin to do this within 24 hours." This could pose some problems for brokers, with clients potentially being bemused if their quotes change daily when terms were not sewn up to begin with.

The advance of technology has helped insurers source sufficient data to underwrite business purely through computers, as well as help them adjust quotes as volumes change.

Mike Crane, head of commercial at LV, is somebody else benefitting from brokers placing business electronically. He says: "Month on month, we need to bring in more people to service the business." LV has developed a wide range of offerings on its Broker Gateway for diverse classes such as tradesmen, pubs, property owners, shops and offices: the insurer is consequently gaining greater traction with brokers and is continuing to roll out products.

Comfort zone
Brokers are pragmatic about the changes. Roger Christmas, finance director at Bennett Christmas, a merger of two local brokers in Burgess Hill, says: "We are comfortable using e-trading; if we don't use it then somebody else will." He adds: "Some insurers are better at reacting than others when wordings don't fit the system and we need to remember that no one business is the same."

Markel, despite being a more specialist insurer, was an early adopter of SME online, developing an extranet for professional risks back in 2000. Steve Carroll, Markel's UK managing director, says: "As much as 80% of business is done online and 70% of these transactions are online only. In the early days, we had to cajole brokers, though now there is more acceptance. There is a comfort zone of up to £2,500 worth of premium but we see plenty of quotes of up to £5,000. There will be a gradual evolution to more complex risks."

Single input
Imarket and Powerplace are designed to shoot quotations to multiple insurers simultaneously. Ellis is a big fan of PowerPlace, perhaps unsurprisingly given that it is owned by Towergate, the company that bought Broker Network. He says: "PowerPlace saves re-keying and gives you access to multiple products with multiple insurers." One of the problems with PowerPlace is that it is still yet to attract all the mainstream insurers, notably Aviva; it is also only just beginning to move away from the users of its sister software house, Open GI, also owned by Towergate, so expect the platform to grow.

In addition to online quotes, much more information is now stored online, allowing brokers and, potentially, customers to update details throughout the terms of the contract. Risk information, key documents, claims data and accounts information can all be held online and there is a judgement call to be made about how much of this a broker and insurer would want the client to see.

There is a march on towards SME online broker-to-insurer trading: brokers that are not up to speed are missing an important part of the future broking landscape. The insurance community should remember, though, that commoditisation is not always a good thing. As Mike Owen at Heath Lambert warns: "The commoditisation of products could actually remove the fundamental reason to use a traditional broker." This will be something that will be at the back of all brokers' minds. Yes, computers are great, though let us not allow them to take over our lives or the market: clients deserve better.