Never before has the linkage between insurers and their distribution partners (channels) been so critical to profit and growth. Strategy Meets Action (SMA) conducted a major survey to explore IT investment priorities, business drivers, and barriers in distribution management. The study investigated the current state and direction of IT investments in agent/broker connectivity, portals, data exchange, and information sharing between insurance companies and their distribution channels. Initial findings of the survey were presented in December at the 2012 Tech Decisions/PropertyCasualty 360 webinar. We followed up with Deb Smallwood, founder of SMA, to discuss the insights and opportunities for insurers and agents looking to capitalize on the value of improved linkage and connectivity in the insurance distribution system.
Talking with Deb helped bring real clarity to what is happening in the world of insurer/agency connectivity. Deb is highly respected throughout the insurance industry - widely recognized for the ability to tackle tough issues with the right blend of strategic thinking and pragmatic action, and she is considered an expert in distribution management. With extensive leadership experience in insurance and technology, Deb now spearheads SMA, a leading strategic advisory firm that is providing business and technology insights, research, and actionable advice to the insurance industry.
The SMA survey included 129 insurers of which 25% were global, 29% national, and 46% regional, representing all sizes; and 343 agents and brokers of which 85% were agencies and 15% brokerages, representing a range from very small firms to large brokerages with insights from both producers and agency management ownership.
Annie George (AG): As we move into 2013, what plans do insurers have in terms of IT spending?
Deb Smallwood (DS): "In our discussions with insurers about IT spending, they are clear about their goals. They will continue to invest in areas that will help them grow in new markets, new geographies, and new lines of business. They are also looking to IT to help contain costs and optimize business processes. Top priorities for insurers include addressing the needs of distribution and sales management, and that encompasses agent/broker portals, real-time uploads, and more investment in rate/quote/ bind/issuance technology. In fact, 54% of insurers said they are going to increase their IT spending on distribution and sales management in 2013."
AG: When it comes to agent-insurer connectivity, what are the priorities of each party in the distribution channel?
DS: "Our survey shows that both insurers and agencies want the same things when it comes to connectivity: ease of doing business, efficiency, and effectiveness along with data visibility, information, insights, and collaboration. However, their priorities are somewhat conflicting. Insurers want profitable growth and underwriting profitability and they care about their combined ratio. They're looking to make sure their combined ratio is competitive against the industry. We have begun to see prices firming in certain lines of business and tighter underwriting. In 2011-2012, as an industry, the combined ratio began to drop and show more profitability than in previous years. As we enter 2013, insurers with aggressive growth strategies will continue doing what they're doing to achieve a better combined ratio. That means focusing on top-line growth and bottom-line profit, which is underscored by their priorities in IT spending. Agents and brokers are more interested in top-line growth and retention/renewals, and they view a profitable book of business as a lower priority."
AG: What methods are agents and insurers using to connect with another to pass data and information between one another?
DS: "Data is passed between agents and insurers in different ways. Depending on the line of business, agents use comparative raters, real-time uploads, emails with pdf attachments, agency portals, and direct access through an insurer's quote and/or policy system. When it comes to the more complex world of program business, agents are also using the phone, paper, faxes, and some mobile capability. Agents want to streamline all these different processes for further ease of doing business. But, achieving this depends not only on what the insurer is providing in terms of technology, but also the agent's capability. Insurers need to support all types of submission for all lines of business. For example, some agencies with old policy management systems are not able to do a real-time upload. They are dependent on the insurer providing a portal. What's more, insurers have to be prepared for whatever advances come down the road."
AG: What does your most recent research show regarding agency portals and where they are heading?
DS: "About 75% of the insurers surveyed report that they have agent/broker portals in place. Initially, insurers quickly set up these portals to do some data capture, real-time upload, and provide an inquiry capability. But now, it's time for the next generation of portals. Insurers are looking to invest resources over the next three years to enhance real-time communication functions; offer electronic handling of First Notice of Loss (FNOL), renewals, and endorsements; and provide access to commission and marketing information, among other functional capabilities. Overall, agents and brokers have synergistic views with insurers when it comes to these portals even though their priorities are ranked a bit differently. For example, agents and brokers place social media as a higher-ranking priority."
AG: What challenges does the industry face in achieving some of their goals, such as ease of doing business, etc.?
DS: "Over 40% of agents and insurers that responded to the survey cite the need to rekey into multiple systems as the biggest impediment for easy, efficient, and effective linkage. Following this, the second-highest ranked challenge cited is the conflicting priorities between agents and insurers. Insurers also cite complex, multi-channel distribution models and too many technology components as challenges. Agents rank manual and paper processes as a challenge.
"To overcome these challenges, insurers need to continue to invest, employing a detailed roadmap of planned priorities that will facilitate doing business with their distribution partners. Agencies and brokerages need to ensure that their agency management systems can provide support for any type of data exchange. When it comes to agency portals, whether developing or expanding an existing one, it would be wise for insurers to start their efforts from the agent's viewpoint, as these portals should deliver real value to the agent. The portal should do more than handle data capture and quoting. It should facilitate an environment for real collaboration, with processes that enable a seamless flow of information that capitalizes on the insight and knowledge of all involved."