Wausau Insurance developed eWausau.com as a cost-effective approach to sell workers' compensation, BOP and other policies directly to small-business owners.It's difficult to imagine that carriers are ignoring a market that potentially generates billions of dollars in annual premiums. But Wausau Insurance Co. executives believe that it has developed a cost-effective approach to selling policies to the underserved small-business market.

By offering workers' compensation, business owner policies and commercial auto insurance directly to small businesses though eWausau.com, the Wausau, Wis.-based insurer is eliminating some of the overhead costs that makes such coverage prohibitively expensive for carriers to offer.

"Using the Internet as an enabler allows us to contain costs to the point where it is a very lucrative market to be in," says Raymond Hall, eWausau.com's managing executive for distribution.

"We looked at the business opportunities out there. In essence, for companies with 24 employees or less, there is $35 billion in premium estimated out there. For companies with 50 employees or less, there is an estimated $50 billion in premium. And really there is no carrier out there controlling that market."

Targeting the small commercial lines market for direct sales made sense for other reasons as well. Under a corporate realignment last August, Wausau now handles the small commercial market direct to consumer division within the parent company, Boston-based Liberty Mutual Group. And, because Wausau Insurance did not write much business in the small commercial market, "we don't have problems in terms of channel conflicts that some carriers would have," Hall says.

"Our intent is to direct as much small commercial contact as possible through eWausau.com by providing comprehensive functionality on the eWausau.com site. We will, however, continue to accommodate the customer by providing channel availability based on customer preference," says Hall.

One of the objectives of eWausau.com, which is licensed to do business in all 50 states, is to bring in the lion's share of the small commercial market business written by the company, says Hall.

Small-business commercial insurance previously constituted a minor portion of Wausau's book of business, mostly in program affinity business and in the residual market. Lines of business included workers' compensation, business owners liability and property coverage, commercial multiperil and commercial auto.

Directing Web traffic

To help direct traffic to its www.ewausau.com Web site, the company is developing strategic partnerships and affiliations with financial institutions and other companies that specialize in providing payroll, human resources and other services to small businesses. The company currently has nine such agreements in the works-four strategic partnerships and five affiliations.

For example, Powerpay.com, an Internet-based payroll, human resources and benefits administration company, is linked to eWausau.com's Web site. Customers visiting either Web site are able to learn about the other company's services and click on a link to visit the partner site.

Wausau's strategy of targeting small businesses makes sense, some industry experts say, because their insurance can be easily served in an online format.

"I don't foresee big ticket, complex products being sold this way because I believe the broker or agent adds real value in configuring those types of products," says Michael F. LaPorta, global insurance industry leader for Deloitte Consulting, Stamford, Conn.

Furthermore, "larger accounts are serviced pretty well by the agent and broker community. It's the small and middle market accounts that they tend to ignore," says Todd Eyler, senior analyst at Cambridge, Mass.-based Forrester Research Inc.

Beginning in May, small businesses have been able to log on to the site and apply for and purchase workers' compensation, BOP and commerical automobile coverages.

Webify traditional processes

In general, e-Wausau's online policy processing system relies on artificial intelligence and automated workflow applications that have been transferred to the Internet.

"Web technology, because of its architecture, enabled us to build a front-end and leverage our back-end legacy systems, connecting them all with middleware," explains Pat Mooney, manager of information technology for emerging markets at eWausau.

When designing the system, Wausau also relied to a great extent on the internal expertise of its underwriting staff. "The pieces we decided to develop ourselves-our underwriting and rules processes-are core competencies we feel differentiate us from our competitors," says Ed Hanlon, managing executive, underwriting and operations, e-Wausau.

"Our rating systems are primarily off the shelf and customized," Hanlon says, but Wausau executives felt it would be wiser to use the carrier's proprietary automated underwriting and policy rating tools, rather than tap into something on the market its competitors could use.

The steps that all online applications must go through are fairly rigorous, but because they are automated they take much less time than traditional underwriting and policy processing.

"The application runs through a set of artificial intelligence rules and it goes through a level of fraud detection to make sure the person is who they say they are," explains Ray Hall, eWausau's managing executive for distribution, emerging markets.

The online system includes a series of data points that enable the carrier to classify the risk according to industry codes and other underwriting factors.

A second level of edits verifies information provided, such as loss history, motor vehicle information and the like, by electronically tapping into a series of external databases. The system then applies Wausau's rules-based underwriting criteria. If the application makes it through all of these checkpoints, it proceeds to eWausau's quoting engine for pricing. The system does have the capability to "flag" some applications for human intervention, in cases where information is incomplete.

The carrier designed the system so it processes only the types of policies eWausau wants to underwrite. "We ask very critical questions upfront," Hall says, "because we don't want to have someone spend time going through the process and then be denied."

By assessing online applications based on industry codes, for example, the carrier is able to weed out business it doesn't want or that is not suited to electronic processing. "For certain industries, such as explosives manufacturing, we would deny an online quote," he explains.

Attracting customers

Although eWausau.com and other all-Internet insurers are able to lower their cost of doing business, some industry observers believe that companies like eWausau.com need to partner with insurance portals to grow their businesses sufficiently.

"I think it's great that eWausau.com has developed the technology, but I don't think from a distribution standpoint they will get much traffic," says Forrester's Eyler.

However, other experts say eWausau.com could attract a different type of customer than those Web sites that provide the opportunity to comparison shop, but can't immediately bind policies.

"In the big picture, to do business online you need to offer a compelling reason," says Richard Roby, director of insurance research for the TowerGroup in Needham, Mass.

"Wausau is not competing on price; it's offering one place, with a very reputable company, where you can do business front to back. There's real value in that."

Among the many features supported by the company's Web site is technology that enables visitors to "chat" online with licensed insurance professionals between 7 a.m. and 6 p.m. Central time on weekdays. To send a question to a customer service representative, visitors click on the chat icon. A separate screen powered by LivePerson.com pops up, and prompts visitors to type in a user name. After the connection is made with a customer service representative, the user can type in a question, click on the "send" and receive a response.

Integration challenges

The company also had to tackleintegration challenges. "A major challenge and accomplishment was adapting existing systems to accept Web-based input," Hall says.

Security measures that were implemented include firewalls and SSL site encryption, and all site data is behind a firewall, says Dale Brom, IS project manager for eWausau.com.

The Wausau-built underwriting system electronically validates each application; detects fraud; performs risk selection using underwriting criteria and then runs the data through pricing algorithms. The system also electronically flags applications that meet certain criteria. From this group, a random number are pulled for manual quality control.

"This internally built work flow engine comprises 39 separate steps in processing a workers' compensation application, all unattended," Brom says.

Industry observers believe that the market may be ripe for such ventures to succeed. "I expect to see considerable growth in insurance e-commerce sites," says Deloitte Consulting's LaPorta says. "As consumers come to expect to be able to purchase most goods and services over the Web, insurers will find they need to offer this channel as well as their traditional channels to capture share among Web shoppers."

"This is cutting edge stuff," agrees TowerGroup's Roby. "Most of the big insurers are offering insurance online to varying extents. But 90% of what they do is information service. What Wausau is doing is fairly advanced. Relatively few insurers can offer that kind of functionality." n

Sara Hardy is a freelance writer based in Grayslake, Ill. Christine Woolsey, an online editor based in Chicago, contributed to this article.

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