Have we reached a turning point in carrier/agent technology? Deb Smallwood, founder of Strategy Meets Action (SMA) believes commercial lines is the new frontier for connectivity.
“For the past several years the focus—especially for the large carriers—was to automate personal lines,” she says. “It was straight-through processing and adding predictive analytics in the pricing. Progressive really raised the bar and the industry had to follow suit. Those that weren’t using predictive analytics with a scorecard were not pricing policies correctly.”
Large carriers began to split up their commercial markets, explains Smallwood. They took the concept of the technology from personal lines and tried to become market leaders for commercial lines.
While there are several market leaders for personal lines—State Farm, Allstate, Progressive, Geico among others—there is no single insurance carrier who can match that sort of dominance on the commercial lines, points out Smallwood.
“If [commercial lines carriers] could get automation they felt they could go after market share,” said Smallwood. “Some were able to leverage a lot of the platforms they had developed for personal lines.”
Jeff Yates can point to many examples of personal lines insurers using real time and agency download, but far fewer are taking advantage of the technology in commercial lines. Yates, executive director of the Agents Council on Technology, believes commercial lines carriers are moving in that direction, thanks in part to a push from agents and industry associations such as ACT.
“Agents want to send submissions to commercial lines carriers using real-time functionality, which includes attachments,” says Yates. “There’s been a lot of activity in small commercial lines, and some carriers that have put an emphasis on the real-time functionality are seeing upticks in the number of quotes and the fact they are being considered for quotes [for prospects] where they were never considered before.”
Yates sees automation advances coming to middle-market commercial lines on the horizon.
“Those submissions are different because there is an underwriter involved; there is some back and forth, and it’s not just one transaction,” he says. “We hope agents will be able to send submissions from their agency management systems along with attachments and then through use of activity notifications the carrier can ask for additional information so that we can automate that area of the business and take it out of an email-only system. Mid-commercial is mainly done through email, and that’s outside of the agency system, so the agent has to wrestle with how to get that business into their system.”
Agents feel small commercial should be able to quote multiple carriers and use real-time, according to Yates. Many already use the inquiry functionality for claims status and policy status.
“We want to see more submission activity using real time,” says Yates. “In mid-commercial it’s mainly an email process today so we are trying to move it to real time.”
PRICING STILL KING
Independent insurance agents want what every consumer wants these days—one- stop shopping. When agents have issues, they don’t want to call 10 different people in the carrier’s organization to get the issue resolved, explains Mike Fitzgerald, senior analyst in the insurance practice for Celent.
“Carriers need to make sure the people in their organization answer questions quickly, effectively, and efficiently,” he says. “A lot of carriers are still working in the dark ages on the producer-management side.”
Such ease of doing business is important for agents, but Fitzgerald has no doubt that pricing remains the No. 1 issue for agents when shopping for their customers.
“Pricing sophistication continues to be a differentiator,” he says. “[Carriers] have to get that part right, there’s no doubt. A lot of carriers have worked hard on that and are seeing some payoffs for their efforts. Then it comes down to ease of doing business. It’s still a solid number two, but given that the number one issue has received so much attention, it’s like 1B versus number two.”
Fitzgerald points out there are multiple factors involved in the ease-of-business discussion. “There’s ease of doing business in terms of can you get a policy out the door quickly,” he says. “There’s a fair amount of agreement around what that looks like and who’s good at it, but there’s more to the relationship than just the policy and billing transactions. It’s also built around commissions, licensing, and compliance. There are still some big differences between carriers and agents in regards to how all that works.”
Grange Insurance has been in full development of its agency-automation program for almost two decades, according to Sherri Rarey, assistant vice president, agency interface for the carrier.
“We encouraged agents back then to purchase a management system and we dedicated ourselves to providing the functionality that would make that investment worthwhile for them,” she says. “That was building the foundation. Today we support over 41 different agency-management systems, all the comparative raters our agents use, and we provide real-time transaction servicing. We’ve kept our promise as far as continuing to develop the technology that makes it easy for agents to work with us.”
If a carrier is not priced competitively, ease of doing business is not going to make a difference, explains Michael Fergang, CIO for Grange Insurance.
“[The agents’] interest is the policyholder,” he says. “The policyholder wants to be assured they have the right coverage at the right price. You can’t be out of line in the market—the market won’t support it.”
Those carriers that price their policies competitively find that ease of doing business is a differentiator, according to Fergang.
“It’s in the way claims are handled, the way you respond to calls as well as the technology,” he says.
Grange accommodates its agents by directing them to the carrier’s portal, where the agent has the capability to get a status of all their claims or any other communication between the carrier and the policyholder.
“Every status an agent wants to know they can get in real time,” says Fergang. “We have subscriptions for up to 26 alerts that anyone in the [agent’s] office can choose. You can choose one or all 26. On a real-time basis you are alerted on things that are transactional—claims, pending cancellations, anything. You can get that in real time.”
Whoever subscribes to the alerts receives an email with an imbedded link, which allows the subscriber to get into Grange’s portal to gain more information.
“They can get as much detail as they want,” says Fergang.
LINE OF BUSINESS
When discussing how well a carrier connects with independent agents, Smallwood explains you have to differentiate based on the line of business. And even those lines get broken down as well.
While the middle market for commercial lines will be able to automate their processes on some level, Smallwood doubts that middle-market underwriting will ever reach straight-through processing because the underwriter remains involved in the final process.
“There are ways to automate workflow, present external data to the underwriter, and run some models on the side and that’s where [carriers] are headed,” she says.
Smallwood believes every insurer that has both personal and commercial lines has to set up an environment where they get paper, electronic faxes, PDF forms via email, or they have a portal or real- time access.
“You have to create that multichannel distribution, bring it into your back-end system, and be able to navigate depending on the line of business,” she says.
Smallwood also believes the carrier’s business process has to be able to handle all of the various connectivity methods.
“There are still many insurers with policy-administration systems that are legacy, so trying to connect data from all those sources into a legacy system is a problem,” says Smallwood. “I’m still hearing stories [from carriers] about being unable to do straight-through processing or real-time access, or they can’t hook up to a comparative rater until they fix their legacy systems. The investments for policy admin are just huge. Fifty-five percent [of insurers surveyed by SMA] say they still have to invest in a modern policy-admin system in order to do underwriting automation.”
Resources and dollars have helped the larger insurers tackle these issues, but Smallwood believes it is more difficult for the midtiers and smaller carriers.
“When you go down to the midtier, there are some companies that have made progress,” she says. “The regional carriers that are single state or single line of business have made progress, but I think those regional carriers that have both personal and commercial lines are struggling because there’s just so much to do.”
“If you talk to one of the top 10 carriers, the agents for personal lines and small commercial lines are entering data into systems with the ability to do real time,” says Smallwood. “But with other lines, even if they have modern agency-management systems, they aren’t set up to capture all the data. When you start to peal the onion it becomes very complex.”
Smallwood estimates that only half of independent agencies have modern agency-management systems that can connect them to carriers with real-time access. A higher percentage—80 to 90 percent—have agency-management systems that are either older or outdated.
SMA research also uncovered that for the market leaders, the majority of their business—80 to 90 percent for personal auto and small commercial—is coming through either an agency-management system with real-time upload, a portal, or a comparative rater.
“Those market leaders are probably pushing anywhere from 60 to 80 percent straight-through processing,” says Smallwood.
But SMA also asked these insurers if they had mastered automated straight-through processing, and only 15 percent of personal-lines carriers believe they have reached that level. Another 20 percent indicate they are almost there.
“That leaves the rest in progress, just getting started, or struggling,” says Smallwood.
For small commercial, just seven percent have said they have mastered the technology and 14 percent report they are almost there.
Reasons cited for these failures include workflow or the technology the agents have in place. On the back end, though, the ones that report they have mastered the approach or are almost there have built both real-time access and a portal.
“It’s not one or the other,” says Smallwood. “Depending on their book of business, some carriers have more business coming through the portal and some have more coming through real-time access, but there is still a lot of room for improvement.”
As the risks get more complex, the slower the process becomes, points out Smallwood. Her research shows that for middle-market commercial lines, about 80 percent of a carrier’s business is being submitted via email with a PDF attachment.
“It’s not coming through the agency-management system because the agents either don’t have a system that can upload or they are not keying in all that extra data that is needed for the more complex risks,” says Smallwood. “They have more than the application; there are a lot of attachments.
Portals are not a good option for the agents because they don’t want to key that information into several different portals.
What they have found is it’s easier to create an ACORD app using PDF and send all the attachments by email to all the carriers,” says Smallwood.
Not surprisingly, SMA’s survey found just one percent of insurers claim they have mastered connectivity and 12 percent said they are almost there. Fifty-eight percent of carriers report the primary method for receiving applications for middle market is email, and 16 percent report the data is still coming to them on paper or through fax.
Of the remaining 26 percent, 20 percent is coming in through a portal and six percent through real-time access.
“To me, the middle market has stalled because it’s so much work for the agents to key in data,” says Smallwood. They don’t have the systems to accommodate that.”
Frank Petersmark, CIO advocate for X by 2, a software architecture consultancy, believes there is a natural friction between agents and carriers when it comes to keying in data. From his days as a CIO at Amerisure, Petersmark recalls dealing with agents that wanted the carrier to take care of as much of the processing as possible and unburden [the agents] of the responsibility so they could just sell.
The reverse was also true, remembers Petersmark, as the carriers wanted agents to perform those tasks.
“Process and administration usually relates to expense,” says Petersmark. “Carriers tried to push that process down the food chain if they could to agencies. There has been a tug-of-war for the past few years, particularly as the recession hit. You had sort of a mad scramble of carriers and agencies to find ways to reduce expenses so they could stay profitable. I don’t think that world has come together just yet.”
Many carriers tout themselves as being easy to do business with, but Petersmark isn’t ready to concede that ease of business is somehow more important than having the best price.
“Particularly among the midsize carriers, there was a recognition at least five years ago that part of the way they retained business and built new business was by making themselves easier to do business with,” he says. “We used to market ourselves that way when we went up against national carriers. Part of our pitch was we were easier to do business with. That didn’t just have to be technology or automation, but personalized claims service, easier to get a hold of, and more responsiveness.”
Petersmark feels some large carriers—but certainly not all—have reacted to that strategy by working toward that same goal.
“I think [large carriers] have definitely moved in that direction, but not as quickly,” he says. “There are a couple carriers that are arrogant enough to believe they don’t have to worry about it because [premium decisions] are all about price to them. If they return a good dividend every quarter it’s all hunky dory.”
Smaller carriers and midsize carriers have learned to become more nimble in comparison to the larger carriers, which Petersmark describes as the difference between trying to turn an aircraft carrier and a destroyer.
“It’s a little easier to turn the destroyer, but a lot of midsize companies have larger-company attitudes, cultures, and personalities,” he says. “They can’t just snap their fingers, but they still are able to get things moving quicker and that goes right to price. If they can drive down expenses internally and pass some of the process onto agencies, then they can afford to be more competitive on price.”
Insurance carriers realize the independent agents are going to place business with carriers that are easy to deal with.
“Time is at a premium now,” says Yates. “It’s a tough market for agents. They are trying to be as productive as possible. Those agents that can eliminate duplication and have fewer errors are going to do well. Carriers are generally receptive to that.”
Yates agrees the carrier has to be in the ballpark in terms of pricing and product, but assuming they are in the ballpark the agent is going to be very concerned about ease of doing business.
“Agents aren’t going to be interested in doing business with the carrier that doesn’t have personal-lines download,” says Yates. “Real time also is going more that way. Agents are using real-time rating tools in personal lines.”
“Some agents have introduced mobile apps, but so far we haven’t seen a great amount of usage,” says Yates. “The fact [the mobile apps] don’t have a lot of functionality may be a part of that.”
Yates believes agents recognize they are going to need mobile apps and need to increase the amount of functionality.
“We look at this issue in two ways—apps for the client and tablet devices, which are a great tool for agents in the field,” he says. “Traditionally, agency principals and producers haven’t used the agency technology so much—it’s more of a back-room thing—but that’s going to change with tablets. It’s already changed with smartphones to some extent, but the opportunity for agency principals to be able to access the information they need to do their business from the management systems and from the carriers to their tablet is enormous.”
SMA’s research shows between 15 and 20 percent of insurers have some type of mobile project taking place in 2011.
“Most are pushing it more on the personal lines for the consumer and not necessarily for agents or brokers,” says Smallwood, pointing to areas such as self service, paying a premium, or first notice of loss. “Larger companies in the more complex lines are looking at how they can leverage mobile for the brokers, but they haven’t figured that one out yet.”
Many carriers are trying to determine what to do with mobile technology and, not to Petersmark’s surprise, carriers are being forced to do that by their customers and their employees. “If you think of the next generation of insurance customers,” he says. “They have almost an expectation that mobile apps will happen. The technology exists to do that, it’s just more processes within carriers and agencies in figuring out how to apply that stuff.”
Fitzgerald believes mobile technology is making in-roads, particularly in areas such as inquiry and notification.
“Carriers that have invested in more modern systems for other reasons are now able to easily make the transition to mobile computing,” says Fitzgerald. “Even with the iPad, it is still questionable as to how much a general agent out there really wants to do with automation and mobile.”
Social networking has come a long way in a short time, but Yates believes some agencies are using it more effectively than others.
“What we are finding is that agencies that are good at marketing have been successful integrating this as an additional tool in their marketing portfolio,” he says. “It’s an additional way to establish relationships. It does take the place of some traditional marketing, but not totally. Those agents that are really marketing oriented have really seized on this. There are a lot of positives about Facebook advertising because you can target it finitely and measure it.”
Over the years, Grange has built and hosts almost 650 agent Websites at no cost to the agents, explains Fergang. Each site is customized for the individual agency. Grange also has built a digital-media guide that offers agencies the dos and don’ts on how to be successful with social-media sites.
“It’s not unusual for agencies to call us for guidance,” says Fergang. “Even though we have a guide for them we will always take their calls.”
Grange is a supporter of ACT, which offers Webinars about social media.
“We promote that to our agents so they know there is free information out there,” says Rarey.
Grange has been working on mobile technology since 2009 and formed a group to do research and development.
“We feel strongly about our relationships with our agents,” says Rarey. “We wanted to see what we could do for our agents. Everyone else seems to want to focus on the consumer. We took a different approach and piloted a mobile view of our agency portal. We’re not looking at apps; it’s much easier for us to give them a mobile view of our Website.”
Grange has put together a strategy for the next two years and the company expects to roll out something for its agents no later than the third quarter of this year.
“This was actually our call,” says Rarey. “In IT we understand the business, but we’re always thinking about the agent.”
Any ideas Grange comes up with are introduced first to a group of agents.
“We believe strongly that without their input our great idea may not be successful,” says Rarey. “Our efforts are validated. The functionality we provide is not forced upon the agents, but we’ve made it so easy that they voluntarily use it. Agents submit about 98 percent of all our new business and policy changes. They don’t have to, but we’ve made it easy for them to do so.”
Fergang points out that virtually all ideas are vetted by Grange and, if it is something that has some appeal for both sides, the carrier pilots a program before rolling it out.
“We have sessions with CSRs and our own people and banter about the best way to design something so agencies will use it,” he says. “We exhaust all different input levels.”
Fergang believes Grange is attuned to what its competitors in the marketplace are doing.
“If you are price competitive and your moniker is ease of doing business, you hopefully have built something that the agents are excited about and will take advantage of,” he says. “We have a high percentage of adoption. Some agencies are sophisticated, and others would rather pick up a phone or fax something. Those that are not adopting technology or new ways of doing business are the ones being gobbled up by their peers.”
“It’s amazing the pace of change, isn’t it?” asks Yates. “Even people who are not technology leaders, a lot of them are using tablets and getting good functionality from them. You know that’s going to continue to evolve.”