--Don Martin, CPCU, Chief Executive Officer, ePolicy.com
Sometimes it just doesn't seem worth the effort--preparing a commercial lines application and shopping a professional liability, workers compensation or businessowners package policy to five or six insurance companies on behalf of a small business client. After counseling the customer, responding to underwriters, collecting the premium and delivering the policy, the agent's commission on a $200 professional liability policy or $150 businessowners package premium works out to less than minimum wage.
The problem isn't the complexity of the coverage, it's the lack of efficiency in the manual marketing and delivery process, says Donald E. Martin, CPCU, founder and former chief executive officer of Cal-Surance in Orange, California, one of the nation's 50 largest brokers. And the solution may be a combination of automated underwriting and the powerful communication technology of the Internet.
"Look at the submission, underwriting and policy delivery process as we have all known it," he explains. "From the first request for coverage to the moment of handing over a policy, an agent can go through as many as 20 separate steps. By the time you receive the policy, you may have been working on the file for 30 to 60 days," he explains.
"The way to make small business and other thin margin coverages profitable is to reduce the number of steps and the delivery time for small commercial customers and their agents--to cut the built-in expense of service down to an absolute minimum."
Nearly two years ago, Martin decided to focus on the problem exclusively by moving from the top job at Cal-Surance and founding a new company, ePolicy.com, Inc., in Torrance, California, with partner Louis A. Kwiker, former president of Bristol Farms and Wherehouse Entertainment. The start-up company was funded with venture capital from a broad range of sources inside and outside the insurance industry, including Allen & Company, Seligman & Seligman, T.D Waterhouse and Co. and Bank of America.
Martin and Kwiker assembled a board of directors including Jerry Choate, former CEO of Allstate Insurance; Robert "Ted" Enloe, vice chairman of Compaq; and Clinton Bybee, managing director of Arch Venture Partners. Complementing the board of directors is a blue-ribbon advisory board which includes Barry Obrand, area manager/managing director with Russell Reynolds Associates; Sangam Pant, chief technology officer for eCompanies, Inc., and a former vice president of Lycos; Robert Puccinelli, retired chairman and chief executive officer of Industrial Indemnity Co.; and Richard L. Clemmer, executive vice president and chief financial officer of Quantum Corporation.
In March, the company announced its plans to forge a business-to-business link between leading small business and professional liability insurance underwriters, agents and brokers and business owners using the Internet and the latest online quotation technology. Charter insurers participating in the launch included Fireman's Fund Insurance Co., Kemper Casualty, TIG Specialty Insurance Solutions and the Interstate Insurance Group. American International Group, St. Paul Companies and four other leading insurers have since joined the carrier pool.
The company first tested its Web-based system at www.ePolicy.com with professional liability programs for more than 300 small businesses and occupations and has since expanded to include workers compensation coverage and Businessowners package (BOP) policies.
The company is licensed in all 50 states and the District of Columbia and now has more than 90 employees, including 12 call center operators and two compliance officers working exclusively on rate and form filing for individual states.
"What we have done is use automated submission and rating and the Internet to streamline the process of purchasing business insurance," Martin says. "We have essentially cut down the 20-step process to five steps or less and reduced the time from a month or more to a matter of minutes. By using this technology, we've attacked the expense portion of the combined ratio and returned that value to the participants in the process: insurers, agents and the business customer. Users access information about business insurance, get quotes, apply for coverage, bind the coverage, pay the premium with a credit card and download the policy--all in a matter of 20 minutes."
ePolicy.com functions as a managing general agency with underwriting authority for its participating insurers, automating the underwriting process for its selected classes of business. Retail agents or small business customers browse the Web site, which is designed for use by both insurance professionals and business owners, and select a line of coverage from the home page menu.
From the next set of specific coverage menus, the user selects a policy type. For example, among professional liability coverages, a user can choose from accounting, legal services, health care and other industries and occupations. The user then completes an application and underwriting information form that is submitted and rated automatically online. The rating system is proprietary, developed for ePolicy.com and patent-pending, according to Martin.
If a user accepts the quote, he/she can pay the quoted premium using a major credit card and download a policy that can be printed out with the user's printer. The coverage is bound immediately.
The company also operates a call center for buyers who do not use the Internet or are uncomfortable with submitting financial information online. Martin says he expects the call center will field informational or transactional calls for about half of the submissions in the first year of operation--until users become comfortable with the automated process.
Martin says the automated process reduces the underwriting and policy delivery expense by 15% to 20%, and that is returned to the participants. "Until now, small businesses and professionals have had few choices regarding insurance with only rudimentary services like a few competitive quotes and educational information sources online," Martin says. But ePolicy.com "gives small businesses the alternative they've been looking for: a cost-effective, convenient and fast way to select and buy the right policy form from the right carrier and at the right price."
However, Martin admits that Internet shopping for commercial lines is not for all small business buyers. The company targets businesses and professional firms with 25 or fewer employees and total annual insurance premium of $3,000. Larger businesses will need the broad expertise of agents and brokers to design the more complicated and diverse portfolio of coverages their operations require, he says. "The bigger they are, the less likely they are to buy on the Web, for a variety of reasons," he says.
However, early focus group testing of the service also revealed that many small businesses will want to continue to place coverage through their agents even though they could probably save some time and premium by shopping ePolicy.com directly.
"Our original market research confirmed what many agents have always believed: price is not the number one issue of concern for most commercial buyers," he says. "Trust and service rank first and second, ahead of price, indicating a continuing need for professional insurance expertise."
Martin says agents who participate in ePolicy.com will be able not only to more efficiently service their existing small business customer, but also to expand their penetration into a market he estimates to be more than 26 million individual businesses paying nearly $100 billion for insurance services.
ePolicy.com completed the initial rollout of its first set of products and services in October and plans a steady expansion of products and marketing through 2001, Martin says. Coming soon will be online rating and delivery of commercial auto insurance and umbrella liability coverage for small businesses and personal lines for business owners.
The company also plans to increase its access to alternative marketing channels including trade and professional associations, many of which are managed by agents-of-record and Internet portals which aggregate small businesses.
In July, the company announced an alliance with software publisher Intuit, Inc., in what may be the model for its Internet channel marketing, according to Martin. As part of the agreement, ePolicy.com offers its services to small businesses that use Intuit's Quickbooks line of business accounting software to manage their businesses. Business owners access ePolicy.com through a link to the Quickbooks Internet Gateway and the small business channel of Quicken.com.
"ePolicy.com gains unprecedented access to the hundreds of thousands of small business customers who use Quickbooks products. We anticipate that our alliance with Intuit will provide us with significant new business opportunities and help establish ePolicy.com as the premiere provider of online insurance solutions in the small business market," Martin says.
ePolicy.com may also market its technology as an Application Service Provider (ASP) to insurers that want to automate other lines of coverage for marketing through agents or directly to some insurance consumers, he says. *
--Don Martin
For more information:
ePolicy.com
Contact:Donald E. Martin, CPCUChief Executive Officer
Phone: (310) 819-3210
E-mail: dmartin@epolicy.com