Despite reports of success, few commercial P/C companies are implementing online underwriting.In 1997, when Atlantic Mutual Cos. co-developed what is believed to be the first online application to quote and bind commercial lines insurance policies over the Internet, industry players quickly aligned into two camps.
The first camp welcomed the skeptics-brokers, underwriters and high-ranking insurance executives-who say the commercial property/casualty business is too complex to lend itself to direct sales and online underwriting, quoting and payment.
The second camp beckoned the visionaries-a small but confident group of insurance professionals, information technology experts and Internet entrepreneurs-who believe the Web will revolutionize the way commercial insurance is bought and sold and, more importantly, modernize outdated and inefficient business practices.
Unfortunately, despite the success Atlantic Mutual and other mavericks have had generating new business, improving customer service and reducing costs, the visionaries remain in the minority.
Technology clearly is not the problem. It is distribution channel conflicts, conservative business practices and a general reluctance to change that continue to keep the commercial property/casualty market mired in convention. And, some consultants say, the status quo likely will continue for the foreseeable future.
"I don't see a great deal of volume going in the online direction," says Michael LaPorta, global leader for insurance, Deloitte Consulting, Stamford, Conn.
Low volumes
Additional commercial insurance companies will probably develop online policy processing, but it won't be a large number, he says. "Many are cautious and will wait to see how successful others are and what the loss experience is like."
Although some analysts are predicting the amount of personal lines premium volume that will be generated online during the next few years-Forrester Research Inc. predicts that by 2004, online sales of personal-lines property/casualty insurance will total $13.1 billion-few have made similar projections for the commercial lines market. Most observers, though, don't anticipate a flood of business.
"In the near term, over the next few years, I would expect the amount of commercial lines premium written through automated, online quoting systems to be less than 10%," predicts Roger Lumpp, a partner with Arthur Andersen's financial services practice in Chicago.
That perplexes Jeffrey Behm, e-commerce manager, for New York-based Atlantic Mutual. InsurePoint.com, the online application the carrier built with Bolton & Co., has been quoting, binding and accepting payment for commercial insurance policies since its debut in June 1997. The company has written in excess of $1 million in small business and professional liability policies, primarily for high-tech companies, and online premium volume in increasing each month, according to Behm.
"Carriers and agents who do not work to develop full-service, end-to-end electronic capabilities for both personal and commercial lines may risk becoming irrelevant," he says. "Business and household customers will continue to demand an ever-increasing array of financial services provided by the most efficient means possible-and that means online."
Indeed, the Internet technology marketplace is booming with automated solutions designed to ease the buying process. As confidence in business-to-consumer applications cools, at least on Wall Street, B-to-B applications are being viewed as the next Industrial Revolution-in markets outside insurance, that is.
What is holding insurers back? "The biggest problem our industry faces, regarding this e-business revolution, is that insurance is and has always been a very conservative industry," Behm says. "It does not generally reward innovation and creativity. We are reluctant to make big changes in the way we do things, in the same way the U.S. auto industry was reluctant to make big changes in its way of building cars back in the 1970s."
Few competitors
Some may think the commercial property/casualty market's general reluctance to embrace e-commerce is a wish come true for companies that have obtained "first-mover" status in the online arena. Not so, says Mark Benson, executive vice president, CyberComp, a Lawrenceville, N.J.-based subsidiary of Reliance Group Holdings that enables agents to underwrite and bind workers' compensation policies using the Internet.
"I'm disappointed so few insurers are on the Web," Benson says. "It's almost embarrassing when people ask who are our competitors and I can't name them. It sounds cocky. I want to be able to say, `It's Wausau and we're neck and neck, but we've built a better mousetrap.' I'd like to say those things because it reflects better on the industry."
The more insurers that step up to the e-commerce table, the better the next generation of online services will be, Benson says. "I think the next five or six competitors will help us a lot because eventually someone will come up with a model that will be reasonably consistent in the industry. Right now, it's experimental."
Those experiments, however, appear to be paying off for the few commercial property/casualty carriers that have developed online policy application, underwriting and processing systems. And the small, but confident group of underwriters and IT professionals from Atlantic Mutual, CyberComp and, most recently, Wausau Insurance Co., say they will continue to push the industry.
Pursuing new markets
When executives at Wausau Insurance got together last year to discuss the company's growth strategy, they agreed the carrier had to find new customers in order to generate more business.
Wausau historically catered to midsized and large employers, so the company commissioned a study to determine whether small commercial lines business represented a growth opportunity.
The results of the study prompted the carrier to establish eWausau, a strategic business unit that is solely dedicated to generating small commercial lines business over the Internet (see article on page 22).
"We decided to enter the small commercial lines market with an application for the Internet," explains Jim Schulte, executive in charge of emerging markets at e-Wausau, "because no carrier was dominating the marketplace and we felt it represented an opportunity to do business using a different model."
The Wausau, Wis.-based carrier developed a Web-based policy processing system, primarily using internal resources, that enables small business owners to receive a premium quote and bind a commercial lines policy within 24 hours of completing an online application. Schulte declined to reveal the development cost, other than to indicate the new system was a "multi-million dollar" investment.
Right now, the company is offering workers' compensation, BOP and commercial auto policies, but may expand its online product offerings beyond Main Street to include some personal liability coverage, such as errors & omissions policies for the services industry. The policy applications are available to buyers directly on the Internet; they are not sold through agents.
When the eWausau online policy processing system "accepts" an application-meaning it has run the application through automated underwriting and quoting engines-the company e-mails an abbreviated message back to the applicant, outlining premium and policy details. Buyers can request more information about the quote by clicking on an icon within that e-mail message. If the buyer accepts the price, he must fill out an online acceptance form to bind the policy.
Small business owners can pay for the policy with cash, through an ACH transfer or they can set up a payment arrangement through Powerpay.com, a unit of Ceridian Employer Services that handles electronic payroll deductions. Once the payment is agreed upon, eWausau will send a hard copy of the policy to the buyer.
Executives at eWausau are particularly proud of their system's workflow design. "Once the application is submitted online and transferred to our back-end system, it goes down a highway and things that need to be done are tracked electronically," says Ed Hanlon, managing executive, underwriting and operations, eWausau.
The system functions like a traffic cop-performing edits, extracting data from external databases and verifying data before the application can continue. "All of this is electronically managed so any time anyone calls our call center, they can see where the application is in the process," Hanlon notes.
Once the application goes through the artificial intelligence piece, if it's denied, the electronic workflow creates a denial letter and e-mails the letter to the applicant. In some cases, denials are routed to underwriters, who will give the applications a second look. "Very few should do that; it's just in cases where the information isn't accurate or it's incomplete," Hanlon says.
What say the naysayers?
Most of the companies that have attempted online underwriting for commercial lines believe the technology can be applied to larger risks-eventually.
But critics of online policy processing systems say that's impossible because large commercial risks are too complex and, therefore, require personal inspections and face-to-face negotiations.
This camp also claims insurers that ignore traditional processes will end up compromising the financial health of their commercial book of business because Web-based underwriting systems are not as reliable as human underwriting. The policies generated online won't be priced properly, they say, or the applicants will provide false information that, because it wasn't verified by a human, will lead to skyrocketing claims.
"There is no good methodology for commercial insurance-other than very small commercial lines-to do full underwriting online with no intervention from anyone in the company," says Jeffrey Glazer, president, Programming Resources Co., a Hartford, Conn.-based subsidiary of ChoicePoint Inc.
PRC is developing its own version of a Web-based commercial lines underwriting tool, but the system is not completely automated and includes human intervention at certain points along the way. That intervention is necessary, Glazer says, because "the underwriting decision is judgmental."
Online policy processing systems can help insurers rule out the risks they don't want to underwrite, particularly for policies under $25,000 in premium, he says. "But for a $300,000 or $500,000 workers' comp risk, the only thing you can do without the underwriter getting involved is get information that shows some basic data until someone gets around to verifying it."
In addition, Glazer points out, many large commercial property risks need to be inspected in person in order to verify descriptions and validate data supplied by the applicant. Automated systems certainly cannot do that.
Andersen's Lumpp agrees it's possible online systems could compromise the quality of an insurance company's book of business-especially if good underwriting controls and loss analyses are not in place.
Management also should pay attention to how much online business an insurer maintains. "The cost for the carrier to maintain an insurance relationship has traditionally been lower than the cost to initiate a new one," he explains. "If business written through a quoting system does not stay with the carrier and lead to broader lines of coverage at later dates, the potential lower cost of acquisition on the front end may be adversely affected by poor performance thereafter."
Christine Woolsey is an online editor based in Chicago.
