Security, web portals, and a paperless office are the top IT priorities in the E&S market according to a recent survey by the National Association of Professional Surplus Lines Offices, Ltd. (NAPSLO). Among other things, the survey found that surplus lines brokers were moving toward a paperless system and looking to upgrade their existing IT capabilities. Additionally, surplus lines brokers were also focused on using laptops, cell phones, and other equipment so that individuals working in the field or at home can stay in communication with their home office.

Founded in 1975, NAPSLO is a national trade association representing the surplus lines industry and the wholesale insurance marketing system. The 2007 Technology Survey was conducted in February by the NAPSLO Communications & Technology Committee and may be found at www.napslo.org. NAPSLO has approximately 800 members, primarily wholesale brokers and managing general agents. Some 200 associates and just under 100 carriers round out the membership roster. According to NAPSLO Director of Communication and Technology Mike Ardis, the survey drew a 20 percent return rate: brokers, 42 percent; MGAs, 50 percent; carriers, nine percent. “We didn't include associate members in our survey because they can be so many different things, such as attorneys or vendors,” Ardis says.

“We modeled the new survey after a 2003 NAPSLO study so people could watch the changes and benchmark it,” Ardis said. “It's difficult to do, because with technology changing so quickly, questions that were relevant at one point fall away later. For instance, in 2003 we were asking people how many of them used dial-up for Internet access.” In contrast, the 2007 survey asked about T1 lines, web sites, and a host of techie acronyms such as XML, CPY, GIF, and XLS.

Focus on Security

Not surprisingly, given the amount of sensitive data they deal with, security was named a “Top IT Focus for the Year” by everyone, with 47 percent of total respondents citing its importance. Going paperless was second at 45 percent, and developing a web portal was third at 43 percent.

However, despite the interest in and dependence on technology, approximately 40 percent of brokers and MGAs reported that they had no in-house IT staff, choosing instead to outsource those functions. “Brokers and MGAs are increasingly using third party agency management systems as opposed to in-house or custom programs,” says Ardis. “In the past, there were simply fewer outside programs and services for people to buy. But with the growth of the E&S market – seven percent in 2000, 13 percent recently – vendors are more interested in developing programs for us.” Carriers, on the other hand, tend to keep IT in-house. “They want to keep the control,” Ardis says. Carriers also often want to customize their products, something usually easier to achieve with an in-house staff.

IT budgets for brokers and MGAs ranged from zero to three percent of net revenue, compared to budgets of three to ten percent of net revenue for the majority of the carriers. (Ardis cautioned about interpretation of carriers' responses, noting that the small number of carrier respondents may not be truly indicative of the carrier pool at large.) Recognizing the sparse dollars allocated to IT by brokers and MGAs, Ardis says, “Carriers have more responsibilities at that end. That's why they have a larger percent earmarked for that.”

Everyone Is Connected

Most firms connect to the internet via a T1 line for its speed and volume capabilities. To handle transactions, approximately one third said they rely on ACORD standards, one quarter reported developing in-house standards, and the remainder used both types of standards. Companies and MGAs reported a larger use of XML for data transactions than did brokers.

With additional employees working remotely, most firms allow remote access to e-mail, corporate processing systems, and working from home. They also provide traveling employees laptops, cell phones and PDAs.

One surprising aspect of the survey revealed that web sites are not as user-friendly as one might expect. While almost everyone has one, many are not interactive. When asked if their sites were informational and interactive, affirmative responses ranged from a low of 52 percent by brokers to a high of 70 percent by MGAs. Carriers came in at 60 percent.

“We need to follow-up on that question and perhaps define it more in the process,” Ardis says. “Do we all mean the same thing when we say 'interactive'? Retail agents want to be able to enter information onto web sites. Currently, brokers and MGAs are set up so that you type in the information at their web sites, as opposed to using what are called 'fillable forms'. However, we saw a lot of interest on the fillable forms from ACORD at a recent insurance function. Many people think they have great potential.”

Out With the Old

“In 2003, most carriers were satisfied with the status quo of their IT systems,” Ardis says. “Nearly 90 percent of them said they were reasonably satisfied with their current software. Today, only 10 percent of the carriers say they will keep their current software. Forty percent are looking to upgrade, and 50 percent are looking to make a change. This is a big shift and reflective of the rapid changes in the technology and the increased amount of data processing carriers have to do today.

Showing that technology may not yet be king, half of the respondents said they get policy information via regular mail, although virtually everyone also receives data via e-mail and fax. On e-mail, the most common formats supported were DOC, PDF, and TIF. Most firms also reported inbound and outbound faxes were processed electronically, another nod to the paperless office. Ardis says NAPSLO intends to conduct follow-up technology surveys. “Probably yearly or every other year, given the rapid developments in tech,” he notes.

Costs Equal Time

All of the time and dollars that insurance companies and agents put into IT can pay huge dividends. A multi-country “Enterprise IT Capability Study” from Keystone Strategy, Inc., highlights the benefits realized by companies that invest in IT. Significant findings of the study, sponsored by Microsoft and conducted by a Harvard Business School professor, include:

Companies in the top 25 percent of IT capability grew revenue 6.8 percent faster per year than their peers in the bottom 25 percent of IT capability. The top performing companies grew on average 3.5 percent (compounded annually for 2002-2005) faster than the average for all peers in their industry. The companies in the bottom quartile on average grew 3.3 percent slower than their peers.

Firms with better information technology have more productive employees. The firms in the top 25 percent of IT capability enjoy 23 percent higher revenues per employee than their peers in the bottom 25 percent of IT capability. The analysis showed that the primary driver of this difference was superior IT infrastructure in the form of an optimized combination of access, security, maintenance, backup/recovery, and messaging systems.

Information technology makes managers more effective. For example, firms with better financial and operations systems, such as systems that support order management, asset and inventory control, forecasting and reporting, reported significantly better insight into customer and product profitability, as well as having better control over product pricing and more influence over their business partners.

Unlike the NAPSLO study, this research was conducted with manufacturing firms. However, previous Keystone studies of mid-sized companies in service industries showed a similar positive impact of IT on revenue growth. View the full study report and its findings at www.microsoft.com/business/peopleready.

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