They may not be the bullies down the street, but the insurance industrys largest carriers are usually seen as the biggest challenge to mid-size insurersthats according to Matt Josefowicz, senior analyst for Celent Communications (www.celent.com), a research and advisory firm for the financial services industry.
In his recent report, Technology Market Snapshot: Mid-Size Insurance Companies, Josefowicz explained that mid-size carriers need to make their distribution systems more effective, especially with Web-based tools, if they want to compete. That might seem like making a deal with the Devil; a few years ago, insurers were fearful of the Web and the effect it would have on their relationship with independent agents. But, says Josefowicz, That fear has diminished today.
But how big is a large carrier? Labels like large and mid-size have been muddied by the last decades mergers and acquisitions. Josefowiczs report lists mid-size carriers as those with direct written premium between $100 million and $1 billion. A lot of the larger insurers have scooped up the mid-size carriers, Josefowicz said. Depending on the company and the product line, though, not all these mergers have let either side experience true integration. Integration may be on the to-do list, but a lot of mid-size companies are operating independently of the parent, he said.
Josefowicz believes mid-size carriers have to focus on service to their agents if they want to be profitable in the years ahead. Over the years, the number of insurance agents has shrunk, but the need for those agents remains. Many are licensed to several carriers, but the majority of the business they write is with one to three carriers.
One tool that will make the agents enjoy working with your company is an extranet, according to Josefowicz. Agents need to sell, not spend time entering data or waiting for responses, he said. If you let an agent have access to your back-end system, it cuts a lot of steps. It can compress the policy origination time from 30 days to one hour. That can be a big benefit in recruiting new agents.
Another area that carriers are focusing on is policy administration systems. Mid-size carriers dont have the massive systems used by their larger competitors, but they still need to look at upgrading, Josefowicz said. They have to integrate the distribution system, add new products, and be flexible.
His study found that the third area that mid-size insurers are looking at is business process outsourcing (BPO). He believes that carriers need to focus on what they do best, not on specialty areas. And billing is one place a company can look for assistance without hurting the quality of products.
Too often, the mid-size insurers arenot surprisinglycaught in the middle. Large companies can write huge contracts with large technology service providers for complete and customized outsourcing service, Josefowicz said. Smaller companies can make do with more commoditized service. But mid-size insurers may not be able to function with a commoditized BPO or afford a highly customized full service one. For this reason, we expect only the lower-tier mid-size companies will embrace BPO for all their IT functions, although more commoditized functions like billing may have higher adoption rates. ROBERT REGIS HYLE
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