Insurance distributors push for electronic data standards

Paper is bad.

That was the simple message insurance product distributors sent to carriers at today’s annual CLIEDIS general meeting. The association is dedicated to the development of a viable electronic data exchange between insurance carriers and distributors.

“Our management system has been able to give you all this data for years. You just won’t take it,” said John Hamilton, president of Financial Horizons, a Kitchener, Ont.-based MGA. “You have a web site that we can manually enter data on. You might as well give us a piece of paper.”

He noted his firm and those of his competitors are able to exchange files with their other business partners, “but not with our most important partner, the carriers.”

While Hamilton said the cost of entering data manually is high (he estimates he has 2.5 people on his payroll who do nothing but input commission data), he stresses distributors wouldn’t just bank the savings.

“If we could free them up and put them into sales support and new agent training, we could be brining you a lot more business,” he said.”

While there are more than one hundred MGAs currently operating in Canada, Hamilton said consolidation is inevitable and added the 17 firms represented by CLIEDIS at today’s meeting accounted for the bulk of the business carriers transact.

“How difficult is it for you to get into a room and realize 90% of your business is coming from 17 companies and do something about it?” he asked. “You need to start listening to us because we’re your future.” He added insurance distributors are only looking for a system similar to that already enjoyed by their counterparts on the mutual fund business.

NewLink Group senior VP and director Byren Innes backed up Hamilton’s comments with statistics from a survey he conducted among distributors, carriers, suppliers and vendors.

He found 74% of brokers and AGAs prefer distributors that can accept an electronic data exchange, and 71% prefer those that can feed such data out. Meanwhile, 71% of distributors showed preference for insurance companies with which they can exchange data electronically.

In terms of priorities going forward, respondents said they’re most interested in electronic applications, imaging, and adoption of standardized codes. “There’s a strong increase in people paying attention to E-app,” said Innes. “There’s interest on both the distributor and carrier side.”

Distributors are particularly interested in imaging, he notes, because it’s a cost saver. And standardized codes for insurance products are a key hurdle, because everyone currently has different names for nearly identical products. The first hurdle, Innes said, is to reach a point where a specific code equals a certain insurance product, such as Term-10.

When the information is segmented by respondent, Innes notes distributors rate code standardization higher than other respondents. That shows they see a business need.

For example, Innes said, code simplification would speed mergers and acquisitions activity by providing a common point of comparison for those examining the books. Further, it would help with communications, analysis of what policies are in force, and enhance data mining within a book of business.

“When we start sending data back to insurance companies, they might embrace standardized codes more,” commented Jamie McGeachin, vice-president, operations at HUB Financial.

Paul Brown, president of Worldsource Insurance Network, noted some U.S. distributors simply won’t do business with insurance companies that don’t cooperate with their requirements. “So, distributors need to turn the tables and tell the companies they’ll vote with their feet,” he said. “We’re not going to take it anymore and you’re not going to get the business.”

Dennis Craig, vice-president RBC Insurance, said his and other carriers are mindful of the comments and, while there are a lot of demands on carrier resources, the squeaky wheels will get the grease. He urged distributors to perfect their so-called elevator pitches and deliver their needs messages consistently. “Senior leaders have to say, ‘This is what we need and this is why we need it,’ ” Craig said.

Margaret Lyne, vice-president and head of operations at Dundee Insurance Agency, pointed out advisors frequently drive which carriers a distributor does business with. So, if distributors simply told advisors it costs more to do business with carrier X, and less to do business carrier Y (and that the grid would be adjusted to reflect those cost differences), there would be a dramatic shift in who gets the business. Innes pointed out this practice is already used on the IIROC of the business.

Among those Innes surveyed, 80% said they’d be willing to attend a meeting relating to guidelines development. Further, 63% said they’d either completed or were working on implementation of the CLIEDIS-sponsored CITS data standardization initiative; and 57% said they were doing CITS training.

(05/01/09)