TECHNOLOGY
Zurich offers Internet delivery and automated
underwriting for quick turnaround
By Len Strazewski
From left: Ty Petway, executive vice president, Zurich Insurance Services; Bob Castranova, president and chief operating officer; and Alan Ferguson, senior vice president, Builders Risk.
Fueled by low mortgage interest rates and wild consumer demand, new residential and small commercial construction is exploding around the country. In 2002, the U.S. Census Bureau recorded nearly 1.9 million new housing construction starts and projected $168.5 billion for existing home improvements and repairs this year.
This trend translates into big business for agents and brokers that specialize in builders risk and construction trades insurance, but it is also a huge challenge, says Don Bourdeau, principal and branch manager of Al Bourdeau Insurance Services, Inc., in Farmington Hills, Michigan.
The more than 80-year-old independent insurance agency with six offices and 125 employees services about 300 builders and home remodelers, Bourdeau says, and always has demand for builders risk and associated coverages. And when the builders, contractors and developers need the coverage to begin construction, they need it fast, he says.
"It's not unusual for us to get a call from a builder who is literally waiting to begin construction immediately, pending acquisition of insurance," he says. "They want--and need--the coverage as fast as we can provide it."
And the agency can quote, bind and issue a policy faster than it ever could before, Bourdeau says, sometimes in as little as five to 10 minutes while the client is still on the telephone call that initiated the request. The Al Bourdeau agency, a Zurich North America Small Business contracted agent, writes most of its builders risk coverage through a proprietary online underwriting system that automates quotation, binding and policy issuance for most risks under $10 million in value.
The Builders Risk Plan from Zurich Insurance Services, Inc., in Jacksonville, Florida was originally established in 1977 as part of an insurance program for residential and small commercial construction. It was designed to expedite and simplify agent access to a coverage that is particularly time sensitive, explains Robert J. Castranova, president and chief operating officer of Zurich Insurance Services. Today, the product has expanded to cover not only single-family dwellings but also commercial risks up to $25 million in value.
The course of construction plan and available endorsements offer broader coverage than a homeowners policy with a course of construction endorsement and includes coverage for:
* Theft of materials from the moment they are delivered to the job site
* Materials in transit and at temporary locations
* Materials installed or to be installed
* Contents in a model home
* Vacant and unoccupied completed dwellings
* Home purchasers under contract - allows the home owner to occupy a dwelling up to 90 days pending closing while the builders collect rent
* Losses due to ordinance or laws
* Inadvertent errors and omissions for reporting form policies
* A $10,000 reward program to deter theft and arson
"Builders need the coverage as quickly as possible to begin projects as soon as their contracts and financing are in order," Castranova says. "Every day lost in waiting for coverage affects their profitability and their ability to develop additional projects. Agents have to be sensitive to that need and realize that the ability to respond quickly gives them a competitive edge. They need a way to quote the coverage and deliver the policy as fast as possible.
"The economies of scale are such that an agent also needs to work as efficiently as possible to maximize the profitability from what may be hundreds of individual policies and accounts," he says.
In 1997, Zurich introduced Internet delivery of the Builders Risk Plan and other coverages to Zurich Small Business agents, allowing direct access to an automated underwriting system that incorporated the latest in expert systems. The system can quote from an underwriting questionnaire as fast as agents can enter and transmit the information, notes Alan Ferguson, senior vice president for the Builders Risk Plan. Agents also have online and voice telephone access to underwriters to ask questions about the coverage or answer questions related to underwriting.
The online service was a powerful innovation for agents, Ferguson says. "The process is very simple and very fast and provides agents with a point-of-sale tool that allows them to quote a risk and complete the coverage process through download of the individual policy."
Although computers can't make underwriting decisions for every risk, Castranova says that 99% of submissions to the program are processed automatically over the Internet in under 10 minutes--a dramatic improvement over paper-based submissions and underwriting. "This is the way that agents want to interact with their insurer," Castranova says, "by entering underwriting information only once in a computer system that maintains the information and manages the complete coverage process."
Agent Bourdeau agrees. "Considering the demand, I don't know how we could have handled the business in the traditional way. In the old days, we would have had to fill out an ACORD form application, mail or fax it to the underwriting office, diary the policy for issuance, issue a binder, and then wait sometimes a month or more for the policy. Then, finally, invoice the client," he says.
The online system for the Builders Risk Plan eliminates the delays inherent in a paper process, he says, and has allowed the agency to build a bigger book of construction and developer business in a particularly tight property/casualty insurance market. "We have had to write and re-write coverage for many of our clients due to the shift to a hard market, and the online program has allowed us to manage the process more effectively."
Bourdeau says that despite the general rate increases in the property/casualty insurance marketplace, Zurich rates have remained competitive and in line with loss experience.
In late 2001, the Builders Risk Plan became available to all agents through a special Web site, http://www.buildersrisk.com, an open distribution effort that dramatically increases access to the coverage, says Ferguson. Agents not contracted with Zurich Small Business can place builders and developers into the Plan through the Web site and take advantage of the automated systems, but they do not have access to other Zurich Small Business programs or the insurer's profit sharing program. Some of the agencies using buildersrisk.com may become candidates for access to Zurich's other small business products.
Fred Lautenbach, president of Lautenbach Insurance Agency, LLC, in Littleton, Colorado, has used the open distribution Web site for about one year and places about one risk a month in the program.
"It's been very helpful for us. It's very simple and very efficient. We're not a big agency so we don't have a lot of market clout, but the ability to place this business quickly and at competitive rates gives us a real competitive edge.
"Because of the shift in the property/casualty insurance industry, there are not a lot of markets out there writing this business. The ability to go to a Web site, get a fast and fair quotation and then deliver the policy in minutes is extremely valuable to us and our clients," he says.
The process also eases the burden on the five-person agency, he says, allowing employees to focus on sales and service instead of managing the application and underwriting process.
The online builders risk program has also been the prototype for most of the automated underwriting programs developed over the past year by Zurich North American Small Business in Baltimore, Maryland, according to the CEO, Ray Thomas. Zurich Small Business has about 11,000 contracted agents.
The builders risk program began as an experiment to test the acceptability of self-service for agents and their clients and the consistency of underwriting based on expert systems, Thomas notes. It now generates about $250 million in premium volume, based on an average account size of $750 and has allowed the insurer to capture an estimated 60% of market share of the builders risk coverage for its target market, he points out.
"This is a very desirable part of our offering to our agents and we will continue to improve and enhance our processes to make them easier, faster and more compellingly convenient," notes Thomas.
The online self-service system has also become the model for the Zurich North America Small Business World Class Classes, 115 lines of small business coverage that include trade contractors, travel agents, wholesalers and restaurant and hotel equipment sellers, among many other small businesses. In five years, the small business division has grown from $40 million to $1.7 billion in premium volume, sparked by the new technology and the efficiency it represents.
Prior to advanced underwriting and service technology, the coverage acquisition process from quotation to policy delivery could take as much as 60 days, he admits. The development of call centers and the reduction of steps in the underwriting process reduced the experience to 15 to 30 minutes.
But online self-service technology and the ability to automate underwriting for many standard risks reduces the experience to five minutes or less, Thomas says, including the online delivery of a valid insurance policy.
And for agents working in a competitive environment, that time is money.
The technology has also reduced the cost of processes from as much as $19 per policy in the old, paper-based application and policy delivery process to as little as $0.85 for self-service, Thomas says. The improvement in efficiency translates to increased profitability and revenue for agents and brokers, he adds.
"For the agent, the system value is all about pre-tax profitability," he says. *
For more information:
Builders Risk Plan from Zurich Insurance
Web site: www.buildersrisk.com
Phone: (866) 279-8253.