Agent forms MGA to sell small business coverages online

Rough Notes, Dec 2000 by Strazewski, Len

Policies can be ordered, rated, printed out and paid for in 20 minutes-with savings passed on to agent and insured

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 ir 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, ePolicycom, 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, TD 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-tobusiness 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 ePolicycom and patent-- pending, according to Martin.