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Insurance distribution electronically 'an untapped reservoir'

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Insurance distribution electronically 'an untapped reservoir'

New technology has altered many insurance industry processes in the past several years, including placing insurance electronically.

Jeff Yates, executive director of the Agents Council for Technology for the Arlington, Va.-based Independent Insurance Agents & Brokers of America, said insurers have deployed sophisticated business intelligence and predictive analytics tools for years in underwriting, marketing and fraud detection, but the technology's use in the distribution channel has been limited.

“Business intelligence is an area where the insurance carriers have done a lot, such as using predictive analytics to decide how policies are rated,” Mr. Yates said. “However, when you look at the distribution side, it's really an untapped reservoir.”

This has begun to change, however, as brokers Aon P.L.C., Marsh & McLennan Cos. Inc. and Willis Group Holdings P.L.C. have launched online portals and platforms that are intended to capture placement data and use it to facilitate the process for all major types of commercial insurance as well as risk management-related information.

Other brokers, such as Arthur J. Gallagher & Co., also have platform-type offerings. Itasca, Ill.-based Gallagher's CoverageFirst website specializes in wholesale placements.

When Aon started working on its Global Risk Insight Platform, Stephen Cross, Dublin-based chairman of Aon Global Risk Consulting and CEO of Aon GRIP Solutions, said the goal was to take a process mired in tradition and update it with modern capabilities.

“Placement was archaic in the way it had been done for last 20 years,” Mr. Cross said. “Most brokers deal with perception, experience and knowledge, so the process was too anecdotal, too siloed, and all in people's heads.”

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Launched in May 2008, Aon GRIP helps Aon brokers evaluate which insurers to approach during the placement process. The platform provides real-time information on prices, coverage and limits that insurers in all major insurance markets use to quote and bind business. Nonetheless, Mr. Cross said, the system is intended to augment rather than replace the personal insights of brokers.

“We wanted to provide (brokers) with the tools that complement what they currently do with fact-based decisions,” he said.

London-based Willis Group Holdings P.L.C. also sought to blend art and science in its placement platform, WillPLACE. Irrespective of physical location, the platform gives Willis brokers an international view of markets while leveraging their local expertise, said Matt Keeping, New York-based chief placement officer of Willis North America Inc.

“From a business perspective, we run a decentralized placement model insofar that the brokers in our local offices are responsible for placing the business,” Mr. Keeping said. “We believe in having our brokers as close to our clients as possible.”

The system gives buyers a transparent placement process, Mr. Keeping said. “It gives brokers the data to sit down with a client and tell them which carriers are being selected, and more importantly, why. It creates a certainty around the products being offered by our brokers.”

Janet Pane, managing director of Willis North America Placement, New York-based managing director of placement at Willis North America, said the data can help commercial insurance buyers justify their decisions before their boards and senior management.

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“Clients now have an auditable process that they can take to their procurement or treasury departments and show the scientific factors that led to the selection of these markets,” Ms. Pane said.

In addition, the platforms perform analytics driven by proprietary algorithms on the data to best match buyer and insurer. While such analytics historically looked backward, the algorithms powering WillPLACE use historical data and information gathered in real time, she said.

“The best part of that algorithm is that it is not just comprised of static data factors; it also has a dynamic learning tool that learns in real time,” she said. “The actual transactions that are being placed in the system affect the dynamic score, which will change the total rankings for the markets in the system.”

Cutting-edge analytics also are a major feature of Marsh MarketConnect, an online portal the company introduced in 2009.

Robert F. Howe, New York-based managing director for Marsh USA Inc., said the purpose of the portal was twofold, to help align business between insurers and buyers, and provide insurers using the portal insights derived from the data.

For benchmarking purposes, the portal furnishes insurers with averages that can be analyzed by industry and geography. “With our system, we give them the averages against other companies that are writing the same type of business with Marsh,” Mr. Howe said. “The analytics we've done has opened up the eyes of a lot of insurance companies to just how they are performing.”

Moreover, the broker has formed Marsh Market Consulting to help insurers work with and craft business plans from the data. “It's a technology piece integrated with people who help facilitate successful use of technology,” he said. “We want to turn analytics into action.”

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The unit's staff includes financial analysts, line-of-business experts and quantitative analysts. “You need people for different roles than you might otherwise find in a brokerage house,” he said. “It's kind of a whole new business within a business.”

“Data enables a new level of consulting today,” Mr. Howe said. “The amount of information we can put in the hands of our brokers to make them smarter for our clients is a quantum leap from what it was just a few years ago.”

In addition to providing the financial and technological wherewithal to run sophisticated analytics, the size of the largest brokers provides another benefit by making statistically significant data sets for analysis easier to come by.

“Size is a great thing if you can use it to bring value out of it,” Marsh's Mr. Howe said.

Aon's Mr. Cross agreed that large data sets are needed for accurate projections, noting that Aon collects information from its 500 offices in 120 countries. “The value in this is related to our size,” he said.

“We're actually seeing over $100 billion in premium flow a year,” he said. “That's hugely predictive.”

“If you think about Facebook or LinkedIn, it's a very connected world around information,” he said. “The question is how do you shepherd all that information into one place that can give you output that is actually valuable.”

Others are less optimistic about the potential of big data to revolutionize the placement process.

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Claudia Mandato, executive vp at Kansas City, Mo.-based Lockton Inc. said the legacy system baggage of insurers was one potential roadblock. “The insurance industry doesn't do big data well due to the archaic systems in place,” she said. “If you look at the average insurance company they are dealing with 8 to 15 legacy systems.”

Moreover, she said while analytics-derived automated placement is feasible in highly standardized lines of business such as personal lines auto, the inherently complex nature of commercial lines makes electronic placement a challenge. “One of the challenges is getting all criteria that you need to make things match up perfectly,” Ms. Mandato said. “Human intervention is still needed.”

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