E-apps will save millions: Sinclair

The insurance industry has been left in the dust by virtually all other participants in the financial services sector, as technological advancements have been left untouched, according to a top carrier executive. Worse still, millions of dollars in potential savings are being left on the table, and the industry is struggling to attract new talent from a tech-savvy generation.

“You’re trying to recruit people, part of what you have to do is understand their expectation,” said Scott Sinclair, executive vice-president and chief operating officer with Aegon Canada/Transamerica, speaking at the recent Advisor Group’s Distributors’ Summit in Niagara Falls. “One industry is fully networked and integrated, I get instant gratification, I do my trade and my trade is done. It’s a one touch sale. Or I could go into insurance.”

He pointed out that the insurance industry is trying to recruit new blood from a generation that expects instant access to data. While the insurance industry has barely budged on creating an electronic application, the mutual fund industry has an edge in recruiting. “Each [application] is specialized for each individual company, because from a branding perspective, that application means everything,” he said with more than a note of sarcasm. “Regardless of what we think and want in this room, the next wave wants and demands change.”

Electronic processing is no longer a choice; it’s a matter of supply and demand. “The mentality of the application as a competitive advantage is a dinosaur,” he says.

The technology required to make e-apps a reality not only exists today, but it existed 15 years ago. According to Sinclair, it requires nothing more sophisticated than a PDF, which virtually every advisory office in the country can already create.

The insurance industry virtually stands alone in resisting the adoption of electronic processing.

Electronic signature pads that are common in retail stores across the country have not been adopted by the insurance industry. Clients can pay virtually every bill on their bank’s website, except their insurance premium. Even the Canada Revenue Agency (CRA), hardly a leader in making life easier for people, stands as a shining example of how sensitive data can be transmitted electronically.

“Straight through underwriting: the technology for that has existing for 15-plus years, almost no companies in Canada use it effectively,” Sinclair says. “Almost no companies in Canada use it [at all].”

Unfortunately, virtually everyone involved in the transaction — carriers, distributors, advisors and consumers — is resistant to change. Ironically, none of these parties are particularly fond of the paper-based application either. Inevitable errors are made due to illegible handwriting, ranging from the spelling of the client’s name to the type of policy and its face value.

Sinclair says his own advisor brought a homemade smart application to him when he was buying insurance for himself. It consisted of a binder holding every page of every application in the industry, with a sticky-note indicating what needed to be done on each page of the application.

“Advisors to me are the key,” he says, calling advisor refusal to use technology “the fundamental behavioural change we need to address.”

The benefit for the advisor should be obvious. Just as the CRA’s electronic tax-filing system allows 24-hour delivery of a refund (in theory), the e-app would mean the advisor could receive their commission in an equally short interval.”

“The money lies in the advisor,” he says. “If you can get an advisor to use e-technology at the point of sale, his and her bottom line is improved. [The distributor’s] bottom line is improved. If your advisor was able to sell on an electronic basis, then you’ve downloaded the data input.”

Not only would the managing general agency (MGA) save on staffing costs related to data input, but also on the courier costs. Sinclair estimates the savings for a mid-sized MGA could tally as high as $200,000 per year. For a mom-and-pop shop, the savings could be in the tens of thousands of dollars. The most common complaint in the MGA channel is that margins are razor thin; the savings realized by e-apps have the potential to make or break a company.

The savings for the carriers themselves would be immense, totaling tens of millions, and the industry as a whole could trim over $100 million in costs, by some estimates, if a universal e-app system was adopted.

He said in his office the very best application processor, a person who inputs data from the application by hand into the head office system, can process no more than 20 applications per day.

Aside from resistance to change and the misguided notion that a specialized application is some form of competitive edge, one remaining stumbling block is the attitude of the MGAs themselves, Sinclair says. The industry group trying to develop a standard e-app sometimes focuses too much on the tools that are needed, and not enough on the defining the desired outcome.

Threatening not to sell the products of a carrier because they are unwilling to participate is a hollow threat, he says, as this is essentially a threat to sell no insurance whatsoever as no carrier is showing much enthusiasm. What will change the carrier mindset is the business case of the cost savings.

“The bottom line financial benefit of going down this path is enormous. It’s not thousands, or tens of thousands, or even hundreds of thousands. It’s millions of dollars in savings per year,” he says. “The business case is a no brainer. Someone has to write the business case.”

(06/04/09)