When the Market Provides No Answer,Insurers Offer Online E&S

While the initial furor created by the advent of dot-coms cools down, many insurance professionals are re-evaluating their business relationships with the Web. At a time when agents and brokers may question the benefit of paying money to list themselves on insurance mall sites, a growing number of companies are exploring the possibilities the Internet provides for handling the particular needs and challenges of the specialty, excess and surplus market.

“Anybody can do the easy stuff…you try and do the difficult stuff, and you end up wasting your time because you’re sent through this maze,” said Rick Lindsey, a broker at Utah-based Evolution Insurance Brokers Specialty (EIBS). “The Internet links the resources of the expert underwriter with the buyer directly.”

The definition of specialty lines and E&S lines is constantly changing.

“Nursing homes a couple of years ago was all admitted paper, and now nursing homes are either specialty and/or E&S lines,” Lindsey said. “Down the road, if some admitted markets come back into the nursing home field, it’ll become specialty and it won’t be excess.…There’s always the problem area—the challenging area.”

Max Carter, CEO of iwix.net, which was started about 18 months ago with operations based out of Chicago, described the service provided as a specialty insurance exchange. Specifically, he called it a business-to-business exchange, designed to enable agents and brokers to communicate online with multiple carriers.

Carter said iwix.net currently has more than 1,000 agents and 30 carriers. “All of the agents are in the [U.S.],” he said. “There are some Lloyd’s insurers, but the majority are actually MGAs and carriers in the U.S.”

The products on the iwix.net site include a large variety of professional liability, traditional management liability, banking risks, construction-related risks, specialty general liability and property risks, kidnap and ransom, aviation and marine—in essence, anything that isn’t widely available in the standard form.

“The major advantages for the brokers include the ability to find a number of carriers that are offering…competitive quotes for specialty insurance, which is traditionally harder to place,” Carter said. “We expect agents—looking for anything from a professional liability policy to kidnap and ransom to specialty work comp—would be able to use our site to be able to get to carriers.”

Carter noted that one of the real advantages for smaller agents is that iwix.net helps level the competitive playing field. “They have an opportunity to access markets that may be known to their larger competitors, but because the smaller guys aren’t dealing with the volume of business, are unknown to them,” he said.

An additional advantage is that iwix.net allows agents to create underwriting submissions and distribute them electronically to multiple carriers, which significantly reduces the costs of quoting, according to Carter. “Brokers go through a simple registration process, but there’s no charge to the brokers to use or to register with the system. The carriers pay a fee for the quotes they deliver.”

Lindsey described the model used by EIBS, whose website, nsureib.com, is accessible free of charge to agents and/or the buyer and/or other brokers. “It’s not a self-rating site,” he said. “It basically puts the person seeking the coverage in direct contact with an underwriter who’ll be able to place it.”

“All the agents out there can’t do business with surplus lines companies,” he continued. “[They’re] forced to a middleman. EIBS becomes that middleman on a national basis, and with the Internet facilitates the proper placement of business. For surplus lines or specialty lines to be placed, an agent in most cases must do a diligent search. If he gets declined, he has to go to a broker who can then properly place the business in the surplus lines market. That’s why you need a local broker in all 50 states.”

At the website, brokers and agents can submit applications, contact underwriters and sign up as “power brokers.” In addition, independent buyers can buy coverages direct.

Yet another model was described by Keith Savino, president and CEO of InsureHelp.com, based in New York, which he said operates as a type of “electronic MGA.”

InsureHelp labels itself a provider of unique, interesting and unusual insurance products—as opposed to mainstream business—like its personal wine collection insurance, event cancellation or hole-in-one. Each product carries its own commission rate.

“Auto or home is not unique or unusual, but there are specialty lines…wholesalers who may sell home or auto because of the difficult-to-place nature of it,” Savino said. “We offer a dental program, which some people might say is traditional, but in a p/c agency, it’s unique. They don’t really have time or money to spend marketing dental programs—there’s just not enough premium in it. That’s our world, the fun stuff.”

A major point of emphasis is that InsureHelp is geared primarily towards the independent agency. Savino added that a large percentage of the company’s ownership is split between a number of agencies. “This was not the outgrowth of one agency that decided to write things online,” he said.

When an agent or broker registers with InsureHelp, he/she is provided with a link which can be added to that person’s website. “Their prospects or clients, when visiting their website, their brand, inquire about certain lines of insurance,” Savino explained. “They could complete an application through that agent’s website for the unique insurance product that’s offered through InsureHelp. We are transparent to the consumer in that we’re really empowering the agent with this engine.” Moreover, there is no fee or other cost to the agent for using the service.

“One of the things InsureHelp works right into very nicely is this whole private labeling concept where agencies are really taking the products that we’ve aggregated and marketing them as their own,” Savino said.

InsureHelp went live in 1999 with its pre-registration process and has been testing its products in a number of states through various agents for about eight months. Savino added that InsureHelp has written some policies online and that there are currently a couple of thousand agents “in queue.”

In the future, InsureHelp also plans to market products online through co-brand partners and other private labeling partners.

Internet revolution?

EIB’s Lindsey gave the opinion that perhaps 90 percent of all insurance is still transacted the old-fashioned way, underscoring the fact that the arrival of the Internet has not resulted in an overnight elimination of all other production sources.

“It’s something that over the years is going to evolve and become a bigger portion of what we do, but right now it doesn’t survive on its own,” Lindsey said. “Most people we deal with, over half of them, still don’t have access to the Internet…Probably the fax is the biggest mode that insurance people use.”

Carter provided a similar view, stating that while the iwix.net system facilitates the communication and distribution of underwriting information, it certainly doesn’t preclude offline communication.

“We don’t think everything will suddenly go online all in one go,” Carter said. “Brokers will continue to have a very significant role in the placement of specialty risks. The large majority of insureds are going to continue to want expert professional advice on buying insurance within this area.”

Savino also referred to the “ignorance” inherent in the belief that by excluding the agent from the channel, a product can somehow be offered at a vastly reduced premium, so much that customers, seeking the cheapest price, will ignore the fact that they have no local representation.

“‘Disintermediation’ has been a word that people not only tossed around but embraced in the technology industry,” Savino added. “Anyone who really knows insurance knows how important an agent is in the process…It’s important for us as electronic wholesalers or specialty and unique insurance providers to make sure that we have a relationship with that agency.”

Technologically speaking, one eagerly anticipated development is the coming of XML standards for the specialty industry.

According to Carter, for effective automation of quoting specialty risks, standards are absolutely required. “Those standards in the case of iwix.net will almost certainly be based on XML,” he said. “Our aim is to make sure that brokers get a 48-hour or better turnaround time. Because the underwriting is essentially done manually by most carriers at the moment, and until the XML standards are in place, it’ll be difficult for us to automate this process.”

Carter also noted that ACORD, which has already delivered a number of sets of standards for the p/c industry in general, has made great strides in working through the first full set of definitions for the specialty industry.

“If you’re dealing with a jewelry exhibitor program, what is that really? Property? Liability?” Savino said. “It’s not a downloadable, standard ACORD AL3 thing. XML gives us the ability to say, ‘Here’s the XML tags for the line of business.’ If we modify these slightly, we can call these our own, but we can stay within the ACORD standards.”

Surviving the ‘dot-com shakeout’

While all the companies professed to be experiencing success with their endeavors, there was an overall disinclination to share specific numbers regarding transactions made thus far.

Carter, saying that it was a bit early to draw conclusions, indicated only that the number of submissions received by iwix.net this last month had doubled from the previous month, a trend he expected to carry on for some time as the adoption of the mechanism increases.

InsureHelp’s Savino said that while the company definitely projects being in all 50 states, its business plan calls for very controlled growth. “It’s not about, ‘let’s become dot-com millionaires tomorrow,'” he said. “Those delusions of grandeur by some people who entered this business I think are over.”

EIBS’s Lindsey did divulge that the site, which has been up for about a year, currently receives about 4,000 hits a month. “A good, stable marketing plan will continue our success,” Lindsey said. “And over the years, we’ll develop more of a refined Internet process. Right now, most of the programs you use don’t work the way they say they’re going to. It’s all still a pretty imperfect system.”

A recent Forrester study described an oncoming “dot-com shakeout” that will roll out over the next several years in three waves. Specifically, it predicts that during the first wave in 2000-2001, a huge number of dot-coms will be purged from the marketplace as funds are depleted.

With that in mind, Carter gave the following conclusion:

“The companies that survive will certainly be the companies that are able to generate revenue quickly,” he said. “It’s an expensive business setting up and developing market awareness and developing market share. If you don’t get any revenue, you’ll run out of money before you make it. I see the most difficult area to compete in to be where companies are trying to disintermediate brokers in more complicated commercial businesses. I see that as a real long-term challenge for those companies.”