Tech Cuts Costs, But Its No Panacea

Significant frictional costs have been taken out of the system. These efficiencies have benefited policyholders in the form of lower premiums, driven by lower underwriting expenses.

Online rating, applications and policy issuance are exciting developments in small-commercial business. This process eliminates out-of-date rating software concerns, sometimes bypassing the underwriter's personal involvement, and almost immediately processes and mails the policy.

Contrast this with the old process where a producer laboriously wrote out the application. It would have to be copied and mailed to the underwriter.

Once in the underwriter's hands, he would manually rate it, issue a quote and calculate revisions before sending the file to others for policy issuance.

Elimination of all this processing translates into tremendous cost savings, which helps to drive down premiums.

Likewise, independent agents have streamlined their operations by creating small-commercial units designed to simplify and speed up the handling of these accounts.

Dedicated small-commercial staffs have become experts at the underwriting appetites, coverage features and rating rules of their key small-commercial carriers.

In addition, many agencies have taken their producers away from the servicing of small accounts, further streamlining the processes.

However, problems have developed. As insurers have invested heavily in their proprietary Web-based systems, they have taken their focus away from needed developments in SEMCI (single-entry, multi-company interface).

When systems require independent agents to duplicate data entry for each and every quote the producer seeks for their client, all other technical advancements are negated.

Many state associations, such as the Independent Insurance Agents and Brokers of New York, in partnership with the Independent Insurance Agents & Brokers of America, are pursuing an aggressive approach with their carriers to adopt the XML standards espoused by the Agents Council for Technology.

Until and unless independent agents are able to truly interface with multiple carriers through their agency management system, the insurance industry cannot achieve true efficiency.

"Transformation Station" and "Transact Now"–two technologies that allow a producer's agency management system to communicate with a company's system, are making progress, but not enough and not soon enough.

For the most part, these advancements, while significant in their own right, are limited to a few lines of business and still experience some data conversion and data population problems.

Other data conversion systems offer promise for the future but fall short of the ideal. When it comes to SEMCI, the industry is years behind what had been promised and hoped for.

Another advancement in the efficiency of the business is in small-commercial service centers. Many agents originally seemed offended that a carrier promised to do a better job of handling customers than the agent.

Gradually, however, the concept caught on, and in recent years there has been a measurable exodus to service centers.

Service centers truly are more efficient, because the computer systems are tied together and there is only one set of underwriting and pricing guidelines to follow.

These efficiencies should develop into lowering insurer's expenses on the accounts to the benefit of the client.

The downside, however, is less competition on the account. Once the small-commercial account is put into a service center, agents may not subject it to other carriers' quotes as often.

The best benefit for the client is plain old competition, and in this regard, technology improvements have had their impact.

The early pioneers of technology, automated rating, automated policy issuance, Web-based applications and expense ratio reductions provided a call to arms.

Other carriers that prized their small-commercial book of business switched to survival mode. They rapidly caught up, using industry technology experts to transfer their knowledge.

As a result, we now have a hyper-competitive environment for small-commercial accounts, which clearly helps to reduce prices for the clients' benefit.

In the end, however, small-commercial accounts have benefited measurably by the product enhancements, competitive environment, lower underwriting expenses and handling efficiencies that technology improvements have created.

Mark J. Hagan is president of Perry & Carroll Inc., an independent agency in Elmira, N.Y., as well as chairman of the Independent Insurance Agents and Brokers of New York.

"When systems require independent agents to duplicate data entry for each and every quote the producer seeks for their client, all other technical advancements are negated."

Mark J. Hagan

Flag: Rap Sheet

What's The Problem?

An unforeseen problem in this evolution is the evaporating flexibility in handling the occasional unique account that needs creative solutions.

o Too often the unique small account doesn't get the attention it requires.

o This often has to do with the inability of the underwriter to approach the problem with a traditional underwriting attitude.

o Instead, since training has more to do with systems than with underwriting, the underwriter simply has to kick the account out.

o Carriers and agents alike need to build into their systems an appropriate mechanism to understand and solve the needs of clients who don't fit easily into the automated products.