Copyright © 2003 Business Insurance

"Large Risks Still Paper-Based" December 1, 2003

by:  MARK A. HOFMANN

The use of the Internet to place large commercial insurance policies remains more a dream than a reality, and it looks likely to stay that way for some time.

The complexity of the transaction, the limitations of the technology, the unwillingness of some underwriters to part with paper and the need to devote scarce resources to other tasks have all slowed the process as it relates to quoting, rating and binding large risks.

Certain smaller risks, though, can be handled online, but they still require the participation of an agent or broker, observers point out.

"The industry is moving (toward online placements). It's probably not moving as fast as some people would like, but it is moving," said John Goldwater, executive vp of GE CyberComp in Manassas, Va. CyberComp, a unit of Overland Park, Kan.-based GE Commercial Insurance, is a workers compensation program handled online for small accounts with 20 to 25 employees and average annual premiums of $10,000, he said.

"The pluses far outnumber the minuses. We give our customers a very, very efficient way to transact business with us," said Mr. Goldwater.

"Larger accounts-those with risk managers-are probably still bound in the paper world," said Lisa Krist, Innovator product manager at Chubb Corp.'s commercial insurance business unit in Whitehouse Station, N.J. "There's enough complexity in those types of risk, they probably require at least a moderate, if not significant, amount of both underwriting and coverages."

Innovator is also an online program aimed at small companies, targeting technology companies, hardware and software companies and biotech companies with annual revenues of less than $10 million, said Ms. Krist. The hardware and software companies, in particular, "kind of grew up in the Internet age-they expect a fast turnaround. I don't think the paper world suits them," she said.

But the paperless world doesn't necessarily suit larger accounts or their underwriters, noted Deborah Gaffney, casualty risk manager at the Southern Cos. in Atlanta and president of the Atlanta chapter of the Risk & Insurance Management Society Inc.

The subject of online binding of coverage has been discussed at Atlanta RIMS chapter meetings, said Ms. Gaffney. But as risk managers cope with the hard market, they've had to focus their resources on risk management needs rather than working on something "new and different," she said.

In addition, many of the large accounts believe that underwriters, particularly those in London, prefer paper anyway, said Ms. Gaffney. And there remain concerns about the security of Internet transactions, she said.

"With a large account, you just can't answer a question in a standard way; normally, it needs more explanation. You run into applications that are sort of one-size-fits-all that don't seem to be able to be tailored to individual accounts," she said.

The big question for risk managers is, "How can you get it to fit the needs of diverse large accounts?" said Ms. Gaffney.

"In a perfect world, it sounds great, but for the user who actually has to use it, it ends up creating more work," she said.

"There was a lot of interest in doing business online, and people were very hot on doing exchanges" in the late 1990s, said Andrew Berry, director of Strategic Risk Solutions, an independent captive management and alternative risk transfer company in Waltham, Mass. In 1999, Mr. Berry founded Global Risk Exchange, or GRX, which focused on large commercial risks.

But the online exchange concept didn't work out as envisioned, and GRX retrenched into being a technology company until it ceased operations earlier this year.

"A large commercial risk policy involves a lot of data, and it's being used to underwrite a lot of different insurance policies. You can have a lot of different insurance contracts on the same risk," said Mr. Berry, who also serves on RIMS' technology advisory council.

Data should be supplied once electronically to support the underwriting of all those contracts, Mr. Berry said. "That's potentially where the most benefit is for doing business online," he said.

Despite the potential efficiency gains associated with online transactions, the techniques for doing so were not implemented as quickly as expected, he said.

"What happened was the bursting of the Internet bubble, so the investment dollars that were going to support the technology development just disappeared," Mr. Berry said. "Then we had 9/11, so the insurance industry was focused on securing capacity."

Improving efficiency hasn't been the top priority in the past couple of years, Mr. Berry said. "I'm sure the insurance industry will come back and focus on the efficiency issue," he said.

The question of data security is another main concern for risk managers.

"Risk managers have said that the security of their data is their No. 1 concern," said George Larson, director of Aon Market Exchange in Denver.

Mr. Larson said that the Aon Market Exchange provides that security. "All stakeholders benefit-brokers in multiple locations can work together on the client's submission. Underwriters benefit from enhanced internal workflows and communications. And, through a link on AonLine, Aon's clients can view the submission material, enabling the client to participate and monitor the submission process," he said.

Mr. Larson said that brokers would "absolutely" remain part of the process despite Internet advances.

Underwriters shared that assessment. "We don't want to cut the broker out, so we don't deal directly with customers," said Chubb's Ms. Krist. "I think it's important to keep brokers in the loop-they add a lot to the transaction."

The head of a company that supplies information technology to property/casualty insurers predicted that the process of using the Internet to bind coverage for all size risks will continue to evolve.

"There are only pluses; I don't see any minuses to being able to bind the coverage online. The Internet has to penetrate more into the habits of commercial companies that are looking for insurance," said Beryl Goldman, president and founder of Property & Casualty Management Systems Inc. of Richardson, Texas.

Insurers that offer coverage online haven't reached risk managers yet, he said. They need the ability to accept the coverage from the Internet, and "that is still in a stage of infancy," he said.

"Eventually, they will eliminate the broker," Mr. Goldman predicted. "They will eliminate lots of unnecessary paperwork. Especially, where the company has a risk manager, there will be no necessity for a broker."

One insurer tech expert, though, couldn't agree less.

"Speaking strictly from our business model, commercial insurance doesn't strike me as the type of business that lends itself to that retail model, either from the underwriters' point of view or the customers' point of view," said Barbara Mahoney, manager-operations and system integration for business markets at Liberty Mutual Insurance Co. in Boston.

Complexity "is certainly a part of it. There's certainly no way to do the level of due diligence" online, said Ms. Mahoney. "It's best done face to face. I think the whole model of the Internet dilutes the value of our risk management philosophy. Also, the benefits of direct service don't come into play."

"We're in the service business, and our people are working directly with their people day in and day out," Ms. Mahoney said. "It's hard to imagine the customer choosing to purchase a service product without meeting the people."

© Copyright Business Insurance 2003