Add to these the difficulty (or flat out inability) of making these systems Web-enabled, and you have a huge technology challenge.

With such significant challenges, you need to focus on a multi-year, phased approach. In the short term, however, you can maximize the value of the data you're capturing to make decisions. The best place to start is with a strong, flexible front-end system that interfaces with other partners in the insurance distribution process, as well as the customer.

Leaving the Box

Advances in Web-based insurance technology offer creative solutions to old challenges. They provide new opportunities to remove redundant practices and costs while allowing the strong performers to continue generating revenue and serving clients. Following are some of the applications for Web-based technology.

Don't simply transmit data via the Internet. It may be a starting point, but that sort of thinking leaves you with the same functions and the same people in the supply chain-but with a better submission process. Costs don't decrease.

For example, let the agents rate the product over the Internet. Many small commercial product-rating tools can be placed online. Afraid you'll lose control of the rating? Think again: You create the “black box.” If anything, it will be harder for agents to get exceptions from friendly underwriters. In exchange for fair pricing, your distribution plant gets the ability to quickly rate, quote, bind, and issue from their offices. Data streams provide information back to the issuing carriers' systems so they can perform the statutory reporting, accounting and other administrative functions, and link to claims and risk management systems. Furthermore, rating criteria and underwriting guidelines can be changed in real time across the entire distribution chain.

Allow affinity and program business to be handled electronically. A large, homogeneous group with a single entry point is a perfect candidate for Web-based automation. Typically in this market segment, commissions average 17.5 percent to 22.5 percent or more. By automating the workflow process, you enable your distribution plant to do what it does best: generate new business, serve clients and-in the case of MGAs-manage other producers.

Maximize the Internet as a distribution channel. The winners over the next three to five years will be the carriers that can maximize all the distribution channel options available to them. This includes the more traditional agents and brokers as well as direct channels. But it also will require the understanding and mastery of some not-so-obvious channels-selling through banks, forming alliances with competitors, and seeking new outlets for products and services.

Provide clients with access to Internet tools. Imagine allowing clients to come to your agent's or sub-producer's Web site-a site that is powered by your back-end technology. The client has immediate access to her information, can handle service needs, view claims data, get a quote, and bind and download the policy or binder on the spot. All parties involved in the transaction, including the carrier, agents, and sub-producers, get copies of the inquiry and transaction.

Ask an agency principal what that's worth to him in terms of cost reduction and improved customer service. He never loses control of the client, and you, the carrier, provide a price he feels is fair that can't be altered without underwriting intervention. Look at your own operation. How much redundancy throughout the supply chain can be eliminated? What do double-entry processes and fixing mistakes cost you each year in dollars or public perception? What would your distribution partners' margins look like with fewer points of commission, but a lot less work? How much could be passed on to your policyholders as a result of their willingness to get involved in their own account? What's it worth to them to be able to have access to their data, online, in real time?

Web-based technology is a powerful tool to address and answer each of these questions, and many more.

Create cross-selling opportunities and increase your share of the customer's wallet. The Internet creates a single point of entry for the customer, or customer's agent, to you, the carrier. By understanding the demographics of the customers and other products they purchase, Web-based technology can identify and present complementary products that also meet the carrier's underwriting guidelines.

Managing the Money

Everyone in our industry is complaining about the costs of servicing small accounts. By offering a Web-based solution to your trading partners, you can lower commissions to the agent and lower expenses on the carrier side while improving both partners' overall margins. The quality of data you'll be able to obtain will allow you to make better decisions faster, and create a competitive advantage.

If you examine a carrier's cost structure for small commercial and professional liability lines of business, there are several main components excluding loss costs: taxes, overhead, and fees; underwriting and processing expenses; and commissions. These can total up to 38 percent of premium. Carriers have to pay taxes, some non-underwriting overhead and fees. This typically accounts for about six percent of premium. The second component, underwriting and processing, accounts for roughly 16 percent of the expense ratio, which leaves 16 percent for the third component, commissions.

Because taxes, fees, and overhead have to be paid, let's focus on the other 32 percent. Within these functions, there are ample opportunities to reduce costs and improve efficiencies utilizing Web-based technology. Many functions currently being performed by underwriters and brokers could be reduced or eliminated altogether through technology applications.

The online sales process that typically takes 30 to 60 days can be significantly reduced, operating expenses can be dramatically decreased, and carriers can increase their revenue opportunities.

Thinking Ahead

Change means opportunity-at least for those who can harness resources and execute. Agents and carriers will need to be honest with each other. Less paperwork and a more efficient process translate into less commission but potentially higher margins.

Web-based technology can help you to navigate these changing times. You can't expect your distribution partners to shoulder a disproportionate share of the burden. Bold thinking is needed-the winners will find a way to compete through more useful technology, efficiencies of the Web, and knowing the customer better.

Rick Ulmer is senior vice president of Insurance Technology Solutions (www.insurancetechnologysolutions.com).