British Insurance Broker Association

Can Technology Change the Insurance Broking World?

Focus Technology Award 2002 First Prize

B I B A The short answer is 'Yes'. Technology has already changed the broking world. Without technology and digital transmission systems, store and forward email, plus interactive web sites, thriving broker companies such as Medibroker Online would not exist. All our enquiries come via the World Wide Web (or by phone to us). We have never cold called and never used direct mailing shots in the four years since the launch of Medibroker Online. Yet we receive over 2000 online completed new enquiries every month, employing some seventeen staff and sub contractors at our Whitley Bay Virtual Offices. (www.medibroker.co.uk)

The key to the use of technology is first to understand conventional marketing, product distribution, and sales techniques. We need to understand Broker/Insurance company relationships and how effective and efficient these presently are. What is the image of insurance and financial institutions in the Public mind? The vast majority of the Public strongly distrust financial service companies and insurance companies in particular. Products and plans are 'push sold' by sometimes aggressive techniques, driven by high front-end commissions and direct marketing techniques. Client service and broker service seems to have worsened in recent years with some insurers having great difficulty servicing their existing books of business, with ever demanding clients wanting both transparency, speed of service, choice and low premiums. Conventional insurance marketing and distribution is inefficient and in the main, companies have been buying their business for years, or poaching from each other.

Broker/Insurer relationships are built usually by three methods:

on long term personal relationships
on either 'antagonistic mistrust'
on a long term tied agency basis.

Insurers do not like independent brokers who will not accept their (the Insurer's) sales targets. Insurers frequently chase the business of brokers in the consumer retail market. Yet they have broker agency contracts drawn up in a one-sided way, which weaken or destroy broker rights in dispute to their ongoing client ownership, or ongoing renewal commissions if insurers unilaterally decide to terminate an agency contract. All in all, the independent broker is an irritant, friend and sometimes foe, of the insurance companies dependent upon 'who control who'. Brokers are treated with disdain, suspicion, lack of respect, hostility, wariness and just occasionally as relevant to an insurer's vital interests. After all, at the end of the day, we are the consultants to our clients, not the salesmen of the insurer. We do not accept their (insurers') pitch without first completing our own 'due diligence' on their products, performance, comparability in the market and claims records, coupled to customer service standards, shown over time. Insurers often do not appreciate being checked out by an independent broker, although a few now welcome such an approach. Technology can bring improved honesty, transparency, speed, efficiency and better client relations, to the business of brokering. Voice communication and face-to-face meetings, then become less important than emails and quality service. No one can dispute a clear email, whereas sales staff meetings with clients can be misinterpreted later as being 'misunderstandings'.

Genuine broker/insurer partnership and transparency is frequently stated but seldom demonstrated. Insurers want the business, want to control the client base and want to control the sales outlets, provided by the broker community. Relationships are seldom if at all equal or based on partnership. Insurers seem to express little interest in listening to brokers views on what their joint customers are saying, when designing new products or pricing strategies. Brokers have insufficient access to key decision makers in large insurance companies, until they are very large producers of new business. Technology is breaking down these barriers, control mechanisms of major insurers, by methods of brutal transparency. As a fairly small niche new entrant Virtual Brokerage that has only existed for three years, Medibroker is now being listened to, meeting key decision makers in these institutions, something that would not have happened just a few years ago. Insurers now realise they need to white label insurance plans and offer discounts to key brokers, who can discount this back to their clients. 'Brand Push' philosophies, with big insurance names stating that 'we are the biggest and therefore the best', no longer hold any water with the public, who clearly are cynical of the insurers intentions, distrusting these huge companies. Small brokers running 'boutique' specialist areas of an insurance market have a unique opportunity to become a first mover across the World Wide Web, as we have done (1,150,000 hits last month alone). Each of our Advisors deals with the client enquiries DAILY.

We have some very close partnerships with key insurers, based on technology interfaces. We can accept PDF files for quotes directly from their computers, sometimes accessing the insurers machines for our quotes and progress of a client's plan. We can develop joint methods of progressing claims and also quotes. For example we have the corporate paper of one of our insurer partners so that we may jointly decide, very quickly when to go to 'paper based quotes' for specific group deal clients. XML platform technology also allows a major marketing change on the web. We can effectively have insurer web sites as part of ours, in real time, showing a viewing client real quotes and updated information from insurer partners. This cyberspace marketing integration can bring the broker/insurer relationship much closer together as the dealing is open, transparent, quick and efficient. Technology removes much of the Chinese walls and secrecy which has been the culture of the insurance industry in the UK for too long. Fully encrypted PMI and Travel deals/credit card payments, in real time online is next, in the UK.

If we ask the Questions:

What is the contractual relationship between the insurer and the broker?
Is that broker really fully independent?
What do our clients need and what information do they require or demand?
How important is insurer choice and comparisons of both benefits and prices?
How important is efficient client service by insurers plus speedy settlement of claims?
How important now is 'Brand Name'? (from the perspective of the insurance company and from the Client).
If the Virtual Community of clients/customers different from the conventional?
Will they buy online?
Will Virtual Clients deal and trust a broker they never meet or see only speak to by phone and email?
Who exactly is in control of the sales process when we use Internet technology?

Customers already bank online, buy books online from Amazon, buy airline tickets, theatre tickets, holiday and now travel insurance online. Mortgage advice is now online, life insurance advice and private medical insurance advice or permanent health insurance advice. Clients will buy online or send faxes or mail applications. It does not really matter, but whatever aspect of technology they are most comfortable with, we use all our effective 'Multi Media tools'.

The contractual relationship between fully independent intermediaries or brokers and the insurance companies

We believe this issue is vital to any development of the distribution of insurance plans and products in the UK. Historically, insurers have controlled their sales forces or independents via targets and making one sided contractual terms for tied agents. Huge marketing expenses and more quality sales books, have shown insurers that they are better at running and designing plans, assisting customers with claims and support, rather than trying to sell their own products, directly to the consumer. The insurer relationship to intermediaries and brokers has always been ambivalent, not based on mutual trust and partnership but slow, long-term personal relationships. Brokers are best when dealing with clients, particularly Independent Brokers.

In a modern economy of high speed information passed easily via email, the old rules of 'telephone dealing' and 'secret understandings' goes out of the window. Email means everything is actually in writing and companies may be sued for what they write and commit. Agent contracts have been notoriously one-sided, biased to the insurer interests. Now new intermediaries demand fairness and transparency of contracting particularly when issues of client book, dispute and arbitration, ongoing renewal commissions and client ownership are concerned. Insurers can no longer simply cancel a broker agency for no stated cause, with impunity. Technology has allowed the public to develop much quicker, deeper, yet physically locational non-specific relationships with their 'Independent Honest Broker'. Brokers offering real choices and comparisons to clients are winning over new business across the Web, whereas the old 'Plan Push' Brokers are finding it more and more difficult. Very high commissions are needed to push an insurance plan today, if it is not easily seen, by comparison, to be 'Best Value'.

The new buying community on the worldwide web

This rapidly growing community now some 400 million strong globally with over 12 million users in the UK are intelligent, demanding, in control and wanting best value coupled to the best service from an Insurer. They make their own buying decisions and cannot be sold too easily, with over 55% being women. Most Internet clients are discerning planners of their own finances and insurance policies. They are 'buyers'. They will not be 'sold to'.

Consequently, the major insurers are now out of phase with this new group of technology using clients who do not want anything to do with 'Push Selling' of plans and products. The TV adverts, direct mail shots and cold calling sales people leave this new group quite cold. They simply do not make purchase decisions in this way any more. Large company marketing budgets are still geared to 'advertising our brand', yet there is little evidence that this brings you new clients or purchasers.

Looking to the USA Broker Internet and web based model, we can see that financial brokers such as Charles Schwab have grown client bases of more than 5 million clients online, in less than ten years, an extraordinary achievement. Insurance and health insurance has moved in the same direction in the USA with major players online such as www.ehealthinsurance.com and www.quotesonly.com, Medibroker are dwarfed by comparison but we are probably the largest online independent healthcare insurance adviser in the UK if not in Europe (1^st on hit box under Insurance Category).

Apples to Apples comparisons of Price and Benefits

This is the most powerful tool of the genuine independent advisor or broker on the Web. Technology allows automatic comparisons of several plans from different brand names, next to each other in matrix form. This is something insurance companies never enjoy.

After decades of implication selling, that we are the best because you know our brand name, the marketing technology game has moved to best value and best service being seen and demonstrated. We believe that all insurers should guarantee their service standards particularly time taken on legitimate claims, by backing them up with cash. In other words if an insurer states any claim will be settles in 14 days, on the 15^th day they should pay our clients a penalty of £10 each day until settlement is cleared.

By clearly showing benefits listed against four to six competitors of any insurer with a second matrix indicating premium comparison, the virtual public can draw their own conclusions at the outset. Any insurer who does not show well with such apples to apples comparisons has a lot of justification to make as to so called 'superior service points' before securing a new sale.

Technology allows too for immediate demonstrated check ability. If a broker states by phone he/she is a member of BIBA and/or is regulated by the FSA (Financial Services Authority), the client can check in seconds via those web sites. www.netcheck.com is a global website allowing for customer online checks of any company selling services or products across the Internet, a valuable consumer tool. Thus, clients want transparency, choice, clarity and service plus claims support from insurers and brokers. 'Best value' issues are now paramount and more important than large brand name alone. Trust flows from clients to professional independent Broker Consultants, not necessarily to large brand name Insurers.

Conventional Distribution and Virtual/Technology assisted Distribution

Will clients buy online?
Will they trust the Virtual Broker, one they never physically meet?

It has been clearly proved in the USA over the past five years that clients will buy products and services online and run their banking online, in large numbers. If encrypted sites are used, proper safeguards in place coupled to adequate complaints systems, then online or multi media dealing could well prove a better model in the long term than 'face to face' selling, which has a particular bad flavour in the UK. Double-glazing type insurance sales personnel will be a thing of the past, as 'Product Pushing' will simply prove ineffective and more importantly inefficient.

The Virtual Broker model focuses on issues such as client speed of service, value added services, cost, choice, comparability and a clear response to customer needs and budget. Capture costs per deal in the health insurance industry have historically been 85% to as much as 145% of first years premium. Our costs of capture are at least 500% less expensive including all online marketing and overhead costs. By paying staff advisors salary not commissions which unfairly give high commissions products more chance to be pushed or sold, the online broker can genuinely respond to customer client enquiries coming through. Remuneration to my staff is generally to performance related pay, numbers of deals closed, not the highest commission paid.

The objective is to have such a range of product that every serious purchaser should be sold a plan, not however the biggest brand name or the one bearing the largest broker commissions. By advisors spending time on the phone and email dealing direct with customers and not being on the road or blown out of tentative client meetings set up by telesales staff, the online broker can deal with far more enquires per week and close far more business as a result (25 enquiries each, per day).

Clients WILL deal with people they never see or meet. Medibroker Online is a perfect example as we have written well in excess of 2000 contracts of business since launch, covered some 6000 lives by a big range of healthcare plans, across the UK and fifty other countries around the world. By organic expansion alone, we now deal with in excess of 2000 client new enquiries every month. None of these are solicited calls or direct marketing emails or enquiries. They are telephone enquiries, referrals or requests made at our web sites, where full client details have been filled on simple lead forms.

The institutions cannot yet accept that they are no longer in control of the sales process. All Insurance sales staff are taught 'control, control, control' from the first client meeting. Yet our clients are really in control from the first. At a click of a mouse they can go away. They can surf our competition or compare all major insurers online even before contacting us. What is important is that we listen, learn their needs, their budget and their intentions to proceed. We should never start by saying 'this plan is the best'.

Web based customers are sophisticated users and make good clients. They are mainly very honest and do not defraud insurers. They plan their affairs in advance and start and remain in control of any sales process. This enables the net broker to become their champion in their (the clients) perceived distrust of major institutions offering financial or insurance products. All our clients know that we will vigorously help them in any legitimate legal dispute with any insurer, no matter how big, if we recommended that insurer in the first place.

Overview

The relationships therefore of the insurer and intermediary have changed and are continuing to change as the clients use more and more technology. Plan providers cannot state 'Best Value' but Medibroker can, by showing comparisons clearly. Plan providers are known to push only their own brands, clients want advice on all choices, not just from one company. The future broker will thus be much bigger than before, with the institutions taking a lower profile concentrating on best value products and good quality speed of customer service. Those stating that they are 'Broker Friendly' will have to demonstrate that friendliness, on the record. They could start by not competing directly with independent brokers across the Internet by pushing their brands once again. Such an approach has proved not to be cost effective in the past and will prove so again. Properly trained, experienced 'niche brokers' will command the retail consumer stage in years to come, supported by more sophisticated IT tools and technology. Once video conferencing and broadband become mass use vehicles and cost effective, the insurers should be able to concentrate on simply building good plans, running them well and allow the broker to supply the right product at the right price to their client consumers online.

The dilemma of product churn quickly dissipates if insurers really concentrate their efforts on competitive premiums, quality benefits, good client service and claims support, together with a demonstrated broker friendly approach. We never churn business at our volition, but offer the client a yearly appraisal. If our clients are satisfied with their existing insurance plan, we have no need to churn just because other insurer are offering high levels of initial commissions. We already have more than enough new leads coming to us to deal with every week and month. Thus, if our insurer partners concentrate on holding a quality book of business which we have introduced to them in the first place, it is then our job to find new clients. Technology has allowed the cyberspace marketing broker to be born. We shall not go away, but will grow in stature over time, proliferating many specialist niche broker players, who really know their particular market and products in that market. The Internet client is now empowered. Insurers simply have to get used to the fact that they are not in control of such markets, they can only respond to them. The Net audiences are 'buyers' who will not be ' Push Sold'. They are discerning and demanding so ignore them at our peril. Capturing and keeping 'such location non specific' clients, is vital to the future of the broker. Such brokers can only achieve such capture and hold by embracing and using and understanding technology and available systems of technology. Efficiencies are huge once the right technology is properly utilised. Everyone then benefits from a win, win, win situation (Client/Broker/Insurers).

However, people and people skills remain paramount, supported by such technology tools. In an age of information overload, technology must harness data and information, channel it, without overloading clients with masses of information. The client wants to understand the products they are buying, not be forced to 'trust an advisor' or insurer who uses jargon. Clients want to know that we have knowledge, skills and access to a wide market of choice and are not simply 'disguised salesmen', yet again pushing a product from a big insurance company, for the highest commission we can get.

By J Leslie Smith
Founder
Medibroker Limited