The State of Insurance Brokerage Technology
In the beginning there was service, and it was good. It had to be. Customer service was and arguably still is the main reason for insurance agencies to exist. The current distribution model of agents and brokers grew from a logical progression of customer service needs. To compete on a national scale, carriers needed a local presence that understood the needs of regional businesses.
A distribution network of agents and brokers put boots on the ground in the backyards of customers and set the stage for the global insurance industry as it exists today.
These days agents and brokers have expanded services far beyond coverage procurement, and with good reason. Competition has increased. Tough economic times and soft pricing have forced us to become cleverer with our value propositions. Consolidation into brokerages with a national footprint has changed the economics of the industry. Sustained profit growth for large organizations requires diverse revenue streams.
A regional agency in 1939 might have been the only game in town for specialized expertise and locally flavored customer service, but today companies rarely think twice about hiring a broker headquartered on the other side of the country. Technology and communication have matured in a way that alleviates many concerns. Coverage experts are now competing with not just a handful of similarly qualified experts, but an army of them.
The evolution of agency technology is rooted solidly in these growing pains. It’s a widely held notion that technology in the insurance brokerage industry is behind the times. We hear this at industry functions, from our servicing teams and sometimes from our customers. But what does this really mean? How do we advance to the next level? Before we move forward, it’s critical to understand where we are and how we got here.
Prior to World War II, the path to success for an insurance agent was pretty clear-cut: Establish relationships with insurance companies, build a network within your local business community, demonstrate your expertise, and smother them with service. If you followed this model, you stood a reasonable chance of being successful.
“When I think back to my early days in the industry, every agency was a family business,” says Stan Loar, the vice chairman of Woodruff-Sawyer & Company. “Nobody was truly corporately owned or managed until the 1960s. This is when a need for automation really became clear.”
From a technology perspective, this growth trend created a problem of efficiency. Until the 1970s, managing paper contracts and processing accounting relied on technical advances in filing systems and secretarial and filing pools. Hardly high-tech stuff. As insurance agencies merged, the manual processing of business hindered growth.
“The foundations of running a successful agency are really the same today as they were 40 years ago,” Loar says. “The number of accounts per employee has risen to the point where we need the technology today to provide the same levels of service to a much larger customer base.”
As computing matured, our industry experienced a technological disruption. In the early days, computerized systems focused solely on accounting. Although most interaction between brokers and carriers was paper-based, it became apparent that noting even basic policy information in the computer system had a huge impact on customer service. Fewer people could accomplish the same volume of work (or the same people could serve more customers). The growth problem was solved. The agency management system was born.
“I knew in 1978 that, if I was going to grow our business, using computers would be a key part of the strategy,” says John “Shorty” Sneed, president of Bancorpsouth Insurance Services. “I remember flying to Pittsburgh to meet with a software vendor only to find the meeting was in the basement of the family home, which doubled as the agent’s office. During one of the breaks, I’m pretty sure someone swapped out the laundry.”
In the end, Sneed bought the software.
Through the 1980s, as computing capabilities matured, agency systems became more complex. What started as a few lines of free-form policy information became entire databases. Acord developed standard forms that could be used to design better agency systems.
“I designed Sagitta to take advantage of the standardization that was happening in the industry,” says Frank Sentner, the software’s original architect. “Sagitta was built to capture data to conform to the AL3 standard, which allowed for the mapping and transmission of data.”
While the systems became more complex, their focus was mostly unchanged: They were built to make the CSR more efficient. This digital disruption paved the way for further consolidation of firms serving hundreds of thousands of customers while retaining the ability to generate profit.
The 1990s changed everything once again. Terminals connected to minicomputers gave way to PCs on desktops talking with servers in the back room. Companies started connecting their PCs into local area networks, then wide area networks, then the Internet. The widespread adoption of the Internet created a world of interconnectivity between companies that converged data, communication and collaboration.
This fundamental shift in technology forced the agency system vendors to keep pace. Agency system interfaces transitioned from terminals to DOS to Windows with some eventually adopting browser-based models.
Despite this fundamental shift in underlying technology, agency systems didn’t change much. While some system vendors created a rudimentary customer portal interface, adoption was lackluster at best. Why? The core model of the systems remained firmly focused on the internal needs of the agency. Connecting your customers to your internally focused system doesn’t usually provide greater communication, better ease of use or higher levels of service than calling your servicing team.
Recently, mobile devices and smartphones have become ubiquitous. Social networks have turned our fear of privacy invasion into a desire to share everything. Agency system vendors are currently working to integrate these new technologies into their systems. But as history has shown, without a strategic shift in their core design these technologies will never be more than an add-on.
As agency-management systems matured and gained widespread adoption, the market gravitated toward two primary system providers, Applied Systems and AMS (now Vertafore). The systems added features and functionality while adjusting to a constant shift in underlying architecture. They added attachment and document management functionality. With the rise of the Internet, agency systems began to integrate email and Web connectivity.
Along the way, brokers have relied on the agency system vendors to add features and functionality to our industry. In ceding the definition of agency automation to the technology vendors, we have guaranteed the technology available for us to buy is focused on their customers, namely us. This means our technology is focused on our agencies when it really needs to be focused on our clients.
Ten years ago the banking industry was in a similar state. Technology was focused on creating efficient transactions. Branch models with tellers were made more efficient with faster transactional systems. Customers were given telephone access to handle simple transactions and ATMs to handle cash needs.
Fast-forward to today. With the advent of smartphone apps, all banking needs can actually be completed via your iPhone. These features were developed to directly benefit the customer. The end result actually created more internal efficiency almost as an afterthought.
Retail shopping is on the verge of a similar revolution. iTunes has made the old way of buying music obsolete. Amazon makes a great case for buying even seemingly trivial items online. Retailers such as Argos in England are merely pickup stops. They contain no showrooms or displays. You shop online or at a kiosk and drop in to pick up your items. Stateside retailers are planning concept stores that reverse this model, serving only as a showroom and shipping products overnight when a customer makes a purchase.
While the ultimate acceptance of these changes is yet to be determined, one thing is clear: When you focus your technology on your customers, you can change entire models of doing business.
As brokers, we are the distribution channel and the direct link to the insured. We fill the role of trusted advisor and serve as the first link in the chain when a loss occurs. Our customers bank online, buy music online and track their kids with their smartphones. They deserve a similar experience when dealing with their risk-management programs.
When it comes to options for automating our agencies, our industry is faced with surprisingly few choices. The early innovators have risen to the top, basing their businesses and our industry’s automation choices on the “make the CSR efficient” model set forth decades ago. Most agencies operate systems from both Applied Systems or Vertafore. Unfortunately, as with most industries, we are slow to recognize and adopt innovation. Decades of legacy systems do not create an environment ripe for innovation. This story has already played out in another industry.
By the mid-1990s, Microsoft had won the PC desktop wars. The Windows operating system was firmly rooted as the way of interfacing with your computer, especially for business. Apple Computer was relegated to a niche market. The only real choice left for businesses was to decide which brand of computers to buy, mainly HP, IBM or Dell.
Then something interesting happened. Apple released a cellular phone. And not just a cellular phone. The iPhone was nothing like any cellular phone on the market. It had more processing power than a desktop had just a few years earlier. Its touch-screen device required an entirely new way of thinking about interfacing with a computer. Without abandoning its flagship operating system, Apple cleverly developed an entirely new one. Microsoft viewed cellular phone operating systems as a tangential market and banked on its desktop dominance. It made only half-hearted entries into the space. The rest is history.
Then Apple made its smartphone bigger and released it as the iPad, which immediately began eroding laptop sales. Google followed with Android. Amazon jumped in with its own version. Finally, this year, Microsoft is releasing its own tablet computer along with Windows 8, a complete software redesign following a touch-interface design.
After decades of dominance, the market leader was last to the party. Today, Microsoft is scrambling to define its place in a market that is completely defined by Apple. By providing more choice, Apple fundamentally changed the way all communicate and collaborate.
How does this relate to our industry? Choice doesn’t mean more vendors but, rather, a choice in innovation. Apple didn’t just provide a Windows alternative; it provided an entirely new way to connect. We need more vision, a more thorough understanding of our needs and a better way to address them in our industry.
Can our existing vendors address our need to innovate? We know they can execute on development. The real test is adjusting the vision. Even the boutique firms tend to follow the automation course we’ve been riding for decades.
Innovation is a tricky proposition. Agency system vendors clearly have a grasp on our business needs, but they must follow the industry’s lead. Are they responsible for creating new ways for brokers to serve customers? Are they even qualified?
What’s the role of the agency principal? In many agencies, automation is defined by and delegated to the servicing teams. This is shown true at any user group event. Yes, agency principals are in attendance, but the bulk of these events are focused on servicing tasks, workflows and interface. While this level of detail should be maintained, this narrow-band focus is the greatest impediment to innovation.
From production to product lines, agency principals provide a wide-band strategic focus to their organization. This same focus is required when thinking about automation. At the end of the day, automation is customer service.
The idea that a single software vendor can provide a complete set of tools to cover all needs of all agencies is unrealistic. In addition to agency management systems, most brokers have deployed department-specific software and highly specialized systems covering everything from captive management to predictive modeling. Simply put, we require multiple solutions built by multiple firms with deep expertise in many disciplines.
Integration is complicated. In some cases, lack of integration is a conscious choice of system vendors. But, often, challenges are defined by individual engineering choices. These systems are not intentionally engineered to be compatible and thus are not. Integration requires joint development between vendors of both systems. But integration is expensive, and the cost does not directly translate into increased revenue.
Mind the Gap
Software development standards exist that ease the ability to integrate unrelated systems. Unfortunately, most software providers in our industry do not fully embrace them. For system vendors, the good of the industry is not the primary motivating factor. While agencies have expressed their displeasure, we usually acquiesce and accept the burden.
This has to change.
Our industry must pool the combined experiences of our leaders, define a business model that better serves clients, and demand systems that provide unified, collaborative placement ability with customer-focused functionality at the core of the model.
If we are to grow our agencies and keep pace with the rest of the world, we can no longer sit back and accept automation as defined 40 years ago. The agency management system vendors need our direction, insight and experience—not just at a detailed level but to define the overall direction of automation in our industry.
Agency systems that are built with the customer at the center more accurately reflect how we do business. The direct beneficiaries will be our customers. As history has demonstrated, this is always the right direction.