The general insurance industry has an imposing decision to make: should it support the Internet portal hosted by the Centre for the Study of Insurance Operations (CSIO)? This question is on everyone's mind in Canadian general insurance brokerage circles. Officially, the industry is showing solidarity with the project, yet controversial comments have been made. The Synchron fiasco has not been forgotten.
"If we want to remain competitive in the new economy, as insurance companies we have no choice but to adopt the model proposed by the CSIO," Barry Gilway, Zurich Canada President, said frankly. Mr. Gilway is a staunch supporter of the portal project and sees no other viable option for an insurer who wants to maintain a significant market position. "This project is a major business opportunity that links insurers to a network. It will have a great impact on the industry. In fact, I doubt that insurers are in a position not to support this project. Those who do not get on board will definitely be at a disadvantage."
Mr. Gilway sees the CSIO portal as a means of standing up to direct insurance rivals: "The portal will decrease industry costs while leaving brokers' commissions intact. The average fee ratio in Canadian personal property and automobile insurance stands at 32% of the premium invoiced. To compete with direct insurance, we have to lower it to 27%-28%. We can do this with this portal, because it will let us reduce the insurers' underwriting workload and in turn lower costs. At Zurich alone, we issue 400,000 car and property policies annually. Half of this volume is done by brokers. Imagine how much we'll save!"
Zurich believes so firmly in this project that it has given CSIO its own XML screens to enable the centre to adapt its design to the standards it is offering other insurers. Mr. Gilway sees this move as another opportunity for his company.
"The CSIO portal will be launched even if we are the only ones to use it!" said Laurent Nadeau, Vice-President, Strategic Alliances at Zurich. Mr. Nadeau, who was actively involved with Synchron, admits that some insurers have developed their own portals and may not necessarily benefit from using CSIO's service. "But I know at least two other insurers who are absolutely convinced of the value of this project. It would only take three users to make it a success. The birthing process may not be easy from a technical standpoint, but insurers have shown a real interest in this portal. Just like in the Synchron era, some players publicly show their support but they may have a hidden agenda. I don't think there will be enough of them to block the project. And I hope that brokers will exert the necessary pressure, because they, too, learned their lesson with Synchron."
CGU is also pro-portal. "We believe in any initiatives that let us increase the productivity of insurance brokers," said Doug Hewitt, Cyber-Commerce Manager. "Especially because the insurance industry as a whole has climbed aboard the Internet train and we like the 'single window' principle put forth by CSIO. In our opinion, it's not essential that each insurer have an exclusive site, even though some stand out. Our priority is competitiveness: brokers must have tools that are easy to use and functional."
At Royal & Sun Alliance, Larry Simmons, Chief Operating Officer, hopes that the CSIO portal will enable brokers and their suppliers to better stand up to direct insurance competitors. "We even plan to increase our market share thanks to this tool. We back this project totally, even though it's a monumental and complex effort."
Working together: mission impossible?
Are insurers really willing and able to work together? Comments by Claude Dussault, President of ING Canada Brokerage Network, at a meeting for the portal project caused quite a stir: "I have openly recognized that this was an ambitious project that is facing several major hurdles, but I also know that there is a consensus in the industry on the relevance of this portal, given that it is not our first attempt."
Practically everyone interviewed for this article noted that the Synchron project did not fail because of technical reasons alone. In fact, what sabotaged Synchron was the lack of willingness from insurers to adopt a common platform.
Is today's context the same as in the Synchron era? Claude Dussault thinks so, but he added that: "We are still in the preliminary stages. When the tests are completed, then we will see the true commitment of all the players. First and foremost, the CSIO must work toward achieving a consensus within the industry. That is the most difficult aspect of this project, and this objective has not been meet yet. In practice, the moment of truth will come when it's time for insurers to take out their chequebooks."
Doug Hewitt, of CGU, recognizes that the success of the CSIO portal is directly linked to the capacity of insurance companies to work together. "We have to keep trying despite the reigning scepticism, which originates, in my opinion, from a huge lack of information about the project." In fact, the insurers' situation is comparable to the advent of Interac. "Think of the banks that all introduced automatic teller cards and were chastised by their customers. To better serve the customers, they created Interac, despite their notorious resistance to all attempts to pool certain services. Today Interac is the crowning glory of the banking industry."
"There were three good reasons to scrap Synchron, but today I am still convinced that none of these reasons was valid," said Pierre Lemonde, President of AXA Canada Tech. Mr. Lemonde, who was a pillar of the defunct Synchron if not its guiding force added that Synchron represented a $12 million tab for insurers. "It's a drop in the bucket for an industry that has sales of $16 billion."
But Mr. Lemonde emphasized that in the Synchron days, insurers did not all have their information systems operating in real time. The Synchron project demanded enormous effort from some players, both financially and technologically, particularly for underwriting and pricing. "Here we are four years later and technology has evolved. The Internet is here, and nearly all insurers have modernized their systems. Unlike Synchron, the CSIO portal is merely adding a technological layer to the existing infrastructure. All it does is manage message transfers. It's a much simpler and less costly technological solution for insurers. If the CSIO doesn't succeed, it will not be because of the technology."
The CSIO portal does not affect insurers and brokers exclusively. The comparative pricing services the portal will offer will impact some vendors as well.
This projection came as quite a surprise to Richard Sirois, President of MDI, who revealed that the CSIO promised that its portal project would not go that far in their service offering. MDI, a general and group insurance management software supplier, also offers comparative pricing applications. "The CSIO president told us that his project was not a form of competition. I find this news quite disturbing."
MDI is not the only industry player to offer comparative pricing tools. All suppliers update their data periodically for brokers. Sometimes, brokers complain about marked differences between prices posted by such engines and the final bid issued by the insurer.
"Our portal will obtain data directly from insurers to set rates used to prepare a bid," Klass Westera, CSIO President, explained. "There will be no approximate data because it will originate directly from insurers. Comparison engines in management software used by brokerage firms cannot offer this level of accuracy."
That being said, Mr. Sirois confirmed that his company will not discontinue its activities if the CSIO portal is launched. On the contrary, MDI is offering his expertise to help the organization develop the portal. "We have 15 years of experience in the field, and some insurers already turn to us to transmit their rates. I believe that companies such as ours are credible partners in the field of online comparative pricing. We are even prepared to play a central role in the portal in this area," he said, adding that renowned expertise will be essential during the extensive testing.
"You know, technological promises are always easy to make, but it gets very complicated when they must be fulfilled," Mr. Sirois commented. "The objective of offering a pricing tool on the CSIO portal is laudable, but pitfalls related to user friendliness, execution speed and integration make this project very complicated." Mr. Sirois anticipates many problems with data integration, ownership of risk management and the level of prospecting performed by the brokers. "To whom will the prospect belong? Under what conditions should brokers solicit? These are questions that are difficult to answer," he maintained.
Delays in the future?
Larry Simmons, of Royal & Sun Alliance, knows that the portal is a long-term project and admits that he would not be surprised if there were delays. "Every large-scale project generates diverging viewpoints during the development phase." Richard Sirois also doubts that the CSIO can stick to its timetable owing to the technical complexity. "And they haven't won the political battle either. The CSIO must satisfy twelve backers, some of whom have a hidden agenda. For eight years, insurers have invested millions to comply with CSIO standards. Yet for minimal sums, they could have hooked up with suppliers like us. Under these conditions, why should we believe in their current commitment?"
For Claude Dussault, the CSIO still has a lot of work ahead of it in terms of harmonization, "an area that has not changed much in 20 years." For that matter, will the CSIO portal undermine ING's Exclusive Alliance network? " Exclusive Alliance is an integrated financial services model. Its vision does not require commitment from all the brokers. We had our own objectives for technological integration and since then we have moved to a business-to-consumer marketing model. The advantage of the CSIO portal is that it offers a single window to all brokers."
"The current context is totally different from that prevailing in the Synchron era," said Klass Westera. "Synchron was a very cumbersome network application. All subscription and pricing functions for insurers were transferred to the Synchron machine. This was not a viable model. With our portal project, insurers keep full control over these operations. In no way are we trying to take charge of functions delegated to insurers, we are simply forging a link between insurers and brokers. And Internet technology is much more malleable and less costly than that of Synchron."
Mr. Westera added that "we are not copying what's being done in the private sector, contrary to what you may think. We are proposing a single window principle. The broker subscribes to a single portal. He does not have to carry out six different procedures and face multiple delays. The portal will recognize the insurers with which it has contracts and will supply brokers, in a single request, with all the information they are seeking."
However, many people doubt the CSIO's ability to offer a portal that allows a quick response based on data originating from several suppliers. Others see serious complications ahead: Will the broker have 72 questions to evaluate while the customer is waiting on the other end of the phone line?
"You have to wonder why some people are sceptical about this project, which would effectively stimulate comparison pricing," Pierre Lemonde commented. "In the future, no one can say that prices were not adequately compared. I think the CSIO portal is providing the industry with fundamental data: all brokers have rate manuals from their insurers. Today's comparison tools are recent technological shortcuts, but insurers are used to comparisons. Whether the rates are included in brokerage firms' management software or on a unique industry portal will not fundamentally change anything about brokers' and insurers' habits, despite the present turbulence."
It will take more than a simple profession of faith in the CSIO to sway the sceptics. "Several insurers who do business with us are not yet prepared to join this portal," said John Savage, President of Compu-Quote. "Technically, not all of them are equipped to abide by the CSIO standards. That's where we come in. We can become the facilitator that supplies the data from these insurers to the portal."
Mr. Savage does not consider the portal a threat to his company. "We don't see our market share shrinking. At any rate, I think a significant portion of the brokers will refuse to use the portal, for their own reasons. And a large group of brokers simply are not equipped to do so. Many of them are still using DOS technology."
What is the CSIO portal?
The CSIO insurance portal is a multi-supplier website dedicated to general insurance brokers specializing in automobile and home insurance. Registered brokers can access the portal by entering their password. They can obtain various services that will be gradually put in place according to a list of priorities defined by the CSIO. From the outset, the portal will offer a real-time comparative pricing engine that lets brokers obtain bids from insurer members of the portal, thanks to an interface between the portal and the insurer. Rates posted will be definitive. The portal will let participating brokers conceptualize their invoicing, track claims and find out changes in policies or loss ratios, among other features. The portal will be bilingual and operational by spring 2002.
To advance the project, CSIO has teamed up with technological partner IBM. The centre is also seeking to develop common standards in screen displays, data entry and transmission, computerized document posting and terminology.
The CSIO intends to conduct concrete tests with one or more insurers, as well as with brokers, before officially launching its portal. The posting of some data will also be linked to management software currently used in brokerage forms. Several observers have called this project a world first. It is certainly a formidable challenge, not only technologically, but also politically.
A look back at Synchron
In April 1996, ING Canada and AXA Insurance jointly launched the Synchron project. In June, Dominion, Economical, Guardian, Royal & SunAlliance and Zurich joined the project and brought in IBM to see it through to completion. In October 1996, Royal backed out in the wake of disagreement over the graphic interface. Wawanesa joined Synchron two months later. In February 1997, Synchron received backing by the Insurance Brokers Association of Canada. In August of that year, the project was put on hold at the insurers' request. That October, Synchron hired its first president, J.D. Jensen. In January 1998, the president visited insurers and brokerage firms to sell the project, but in April 1998, AXA and ING jumped ship. The other insurers soon realized that they did not have the critical mass to support Synchron, especially because ING Canada had purchased Guardian, one of the initial supporters.
Synchron was the first real-time network linking insurers and brokers through which brokers could obtain, within 15 or 20 seconds, confirmation of participating insurers' rates, on a permanent basis. The project was scrapped because insurers were reticent to directly inject tens of millions of dollars, not counting the staggering costs of modernizing their computer systems. As well, the players involved were not interested in handing over computerized management of part of their underwriting service to Synchron.