You’ve heard it all before: an electronic submission process used by insurance brokers and agents for middle-market commercial property-casualty accounts. A system that will collect the information once, then send it wherever the broker wants it submitted, stripping out the inefficiencies of multiple entries in proprietary carrier websites and bringing more competition to the system.
- Data collection will enable firms to benchmark results.
- Carriers relying on proprietary software will lose their advantage.
- Broker errors and workload will be reduced as the single entry system produces efficiencies.
It’s been touted in many different incarnations during the past two decades with little success. One system—tried and failed. Another system—close but no dice. Even some of the same players trying once, twice, three times, but not quite getting it right. In the words of Yogi Berra, “Déjà vu all over again.”
But come this fall, this version of déjà vu should be the last, as the LexisNexis Insurance Exchange is launched. With a trusted, well heeled company at the lead, the technology at the ready, and The Council of Insurance Agents & Brokers in a key role as facilitator, the deal is virtually done. A host of major brokers and agents are on board. Talks are under way and progressing nicely with the most important national carriers, and there are no significant hurdles left to clear.
The commercial property-casualty industry, hardly known for revolutionary change, is about to undergo some.
“I think the timing is right,” says Ken Crerar, president of The Council. “There have been attempts in the past that looked promising that have failed. But this is different because the stars are aligned. We are working with an incredibly strong, highly respected company that knows how to build things. This is not a venture capital thing. It isn’t a move by a player to get a proprietary advantage. This is an agnostic attempt at doing this to help the entire industry.”
This venture will work, says Peter Lynch, CEO of the LexisNexis Insurance Exchange, “because there is an overwhelming need for it. When The Council approached us to talk about the needs that the brokers had and we put together a business plan to attack it, the board of directors of The Council voted unanimously to support it. That was a good mandate from the brokers to fix the inefficiencies in the process. The carriers want better quality submissions, want to market their products and want metrics and analytics to help this process be more successful.”
“Lexis has a history of market initiatives and is a trusted steward of market data,” Lynch says. “All the other initiatives that have gone before have been biased in some way, but this is not carrier- or broker-centric. It is an open ecosystem.”
Jeffrey Glazer, who was involved with the last attempt to create an electronic insurance exchange and now is senior vice president and general manager of LexisNexis Insurance Solutions, says the biggest difference this time around is that “everybody is an equal participant in the Exchange.”
“It is not being run by an insurance company with other motivations,” Glazer says. “Anybody can play in the Exchange, and the only people who have decision-making capability are neutral. Every other exchange always had somebody else who had a slant.”
We are working with an incredibly strong, highly respected company that knows how to build things.Tweet
This exchange is neutral with brokers, agents and carriers. “Nobody will have a proprietary advantage in this,” says Crerar. “The company may have a proprietary advantage in the marketplace now, and this may help those players get even better, but it will not be because of some transaction.”
Frank Sentner, The Council’s director of strategic technology, says that the Insurance Exchange Trust has been created to ensure that the Exchange will fully support the needs of the independent insurance distribution market, carriers and their customers. All Exchange carrier and broker participants will be eligible to participate in the Trust. Sentner will be the initial executive director, and Crerar will chair the board, which also will maintain carrier and broker advisory committees. The Trust will, in essence, be the facility through which the carrier and broker market-participant users of the Exchange will work with LexisNexis to ensure that the Exchange satisfies their needs and is operated in a manner that meets their expectations.
“The reason a company like LexisNexis is interested in this venture is not solely to solve the transaction problem that the Exchange is designed to address. It is to aggregate information—the data—that is part of those transactions,” Sentner says. “The Trust comes in to help manage and monitor that, but if LexisNexis weren’t already a very good partner, this would not work.”
Trust and neutrality are key because the participants in the Exchange need to know that the data they submit will be kept confidential and used only for the purposes intended.
“One of the reasons that LexisNexis is the right player is that it, as a company, is a well established, traditional protector of data. They know how to collect sensitive data and protect it and aggregate it,” Crerar says. “Participants will still have jurisdiction over their own data, even after submitting it, but any data released by the Exchange will be aggregated and anonymous. The Trust will moderate and approve any use of Exchange data. That was something insisted on from the beginning.”
LexisNexis has deep pockets, has committed a large number of people to the Exchange initiative, and is prepared to fund Exchange operations for several years before the balance sheet turns from red to black.
“I will tell you that the investment LexisNexis is making on this is over $25 million,” Glazer says. “It will take several years before it becomes profitable, but it is intended to make a profit.”
The ability to gather new data on the industry is also a revolutionary development.
“What we don’t know factually about our marketplace is practically endless,” says Sentner, “and what we do know is purely anecdotal information. That is as good as beating drums but not much better.”
What we don’t know factually about our marketplace is practically endless. And what we do know is purely anecdotal information. That is as good as beating drums but not much better.Tweet
LexisNexis will be able to collect data from actual transactions—business that is quoted and business that is declined—and develop solid information on pricing and buying trends. For example, a carrier that joins the Exchange could learn how its products are performing versus the competition, within a certain business segment, and in a given geographical area—anonymously, of course. Or the carrier could analyze the potential profitability of products it is not writing. A broker might be able to find out which carriers are writing certain kinds of business—or which ones aren’t—so as not to waste time submitting a risk to an insurer that is unlikely to consider it. And brokers could identify under-served markets or find out how they are performing in a given area versus their competition—once again, anonymously.
Within the insurance industry, and unlike other financial services sectors, Sentner says, “Those sorts of market analytics exist nowhere today.”
But to benefit from the market information that will be available, one must pay to play.
LexisNexis will charge an annual membership fee to the brokers, agents and carriers who join the Exchange. There will not be a per-transaction fee, but there will be a charge for each person using the Exchange to submit data.
The Exchange will focus initially on middle-market accounts because that is where the bulk of the commercial property-casualty business is and the area where brokers and agents are the best at what they do. It is also the area of the market most threatened by the move toward proprietary websites by carriers.
From the first moment the Exchange starts operating, brokers and agents will be making actual submissions for all middle-market commercial lines of business to every carrier and wholesale market that they represent. A number of the nation’s leading insurance agencies and brokerages will launch the Exchange as “Early Adopter Brokers” (see list), and several major carriers—companies identified by the agents and brokers as the insurers they do most of their business with—are expected to be “Early Adopter Carriers” when the Exchange begins in October. LexisNexis officials say negotiations with the carriers are well under way, and the names of these insurers will be announced closer to the launch date.
“The national carriers we are in discussion with write the majority of the early adopter brokerages’ middle-market commercial submissions. We are also meeting with a number of specialty carriers who provide the brokerages with difficult-to-place, excess coverages and/or lines such as D&O and E&O,” says Clyde Owen, general manager of the LexisNexis Insurance Exchange.
Early adopter carriers will not only have access to important analytical information but also will benefit by having their own specific forms and supplemental data requirements integrated into the Exchange. Brokers and agents will submit information on potential business on standardized ACORD electronic forms, and that information will automatically be transferred to the specific forms required by the early adopter carriers.
The next wave of brokers, agents and carriers will join the Exchange beginning in February 2011, and planners expect the Exchange to reach full operation by this time next year. Dozens of major brokerages are signed up to be part of the “second wave,” joining once the initial testing and monitoring is over and the Exchange opens its doors to all agents and brokers.
The concept of the Exchange is to have many vendors who participate who have appropriate software that agents and brokers care about in the execution of the transaction.Tweet
Although there may be a limited number of insurance companies subscribing initially, from the moment the Exchange begins operating, agents and brokers can submit their business to any market with which they have a relationship—member or not. Submissions to non-member carriers will go out on standard ACORD e-forms, and supplemental information required by the insurer will not be supplied automatically.
“LexisNexis is limiting the number of brokers who will be able to submit information through the Exchange initially to monitor the flow of transactions and ensure the success of the early adopters,” Sentner explains. “But they are not limiting the markets to which agents and brokers can submit business. From day one, all carriers and wholesalers will be accessible through the Insurance Exchange. The only limitation is that the agent or broker must have an appointment or an arrangement with the wholesaler or carrier to submit business to them, and they must have an email address for the carrier or wholesaler recipient.”
Vendors also can join the Exchange to offer their specific services to carriers and brokers as part of the electronic transaction process.
“The concept of the Exchange is to have many vendors who participate who have appropriate software that agents and brokers care about in the execution of the transaction,” Glazer says. “We will see many vendors as part of the Exchange. They have products that make sense in the transaction flow, and they are offering their software on the Exchange. It could be bought through the Exchange, and we would pay the vendors.”
For example, if during a submission, a carrier wants a Dun & Bradstreet report or a prospectus as part of looking at a submission made by an agent, those reports could be available for purchase on the Exchange. “There is more likelihood of products being used if they are part of the Exchange model,” he says.
The Exchange has agreements in place with all the largest agency management system vendors except for Applied Systems. Applied was said to initially oppose the Exchange because it viewed it as being in competition with a system of its own, but it has been reported that its opposition has recently waned.
“You will find their position has changed and they now are, at a minimum, neutral with it,” Glazer says.
Lynch, Crerar and Sentner visited Applied at its University Park, Ill., headquarters to try to persuade the company to come on board, but the meeting was inconclusive.
Asked if her company was opposed to the Exchange, Sheryl Feminis, Applied’s marketing programs manager, says, “I think that is a faulty presumption. The decision as to whether to participate has not been made yet. From what I understand, there were some discussions, and it is probably understandable why somebody might have come to that conclusion. But the word from our CEO [James Kellner] is that the decision has not been made yet. I would guess that there were a number of issues that were being discussed that perhaps there was not a lot of agreement on.”
Although the Exchange is focusing only on domestic, middle-market, commercial property-casualty submissions at the beginning, there is potential to expand fairly quickly to large commercial accounts or small commercial accounts, as well as international business.
“LexisNexis has a couple hundred people dedicated to this, and they will be able to roll out the other segments fairly quickly,” Crerar says. “I am not sure if the next step will be up the ladder or down the ladder, but international will follow on pretty quickly. They have the patent for all of it.”
Lynch says using the Exchange for employee benefits business also is “on our long-term product roadmap, but that will not be on the Exchange for at least a couple of years.”
Early Adopter Producers
Initial Brokers, Agents on Insurance Exchange for October Launch
- Brown & Brown
- Edgewood Partners
- Early Cassidy & Schilling
- John L. Wortham & Son
- M3 Insurance
- McQueary Henry Bowles & Troy
- Roach Howard Smith & Barton
- Sterling & Sterling
- Van Gilder
Note: Dozens of Council member firms that were unable to join the early adopter program have already reserved their slots as “second wave” participants when the early adopter program is complete.