Outsourcing of Administration to Short term insurance brokers occurs as a result of the desire of brokers to manage all the client “touch points” efficiently. Due to the fact that these brokers very often dealt with a number of insurers it was not always feasible to perform these admin functions on the insurers own platforms so IT companies developed standardised multiple insurer broker process systems, and a wide number of these external platforms are now used in the industry.
Whilst it was initially the intention of many insurers to outsource administration only, the lack of integration between insurer administration systems and these external platforms made it impossible to outsource administration without also outsourcing management of the book of business from an underwriting perspective, even with the implementation of black boxes.
Over time this lack of integration has resulted in growing business inefficiencies in the model as well as increased compliance risks from a regulatory perspective. While in some cases brokers have developed a real capability to underwrite and manage claims, in most cases the fact that the data lies on an external platform, to which the insurer has no access, has resulted in inefficiencies that need to be addressed.
The lack of integration has forced many broker administrators to take on more and more of the insurers functions against their business intention, which not only impacts on costs for the broker, but has put the broker in a conflict of interest position with their client due to the fact that they act as both broker and insurer for the same transaction.
Insurers are also under scrutiny by the FSB for the governance gaps in this model due to lack of access to data.
The Insurance Laws Amendment Act (ILAA) refers to brokers using this model as “brokers with binders” and will, through regulations, address conflict of interest, fees, governance and data sharing. The ILAA makes data sharing between insurers, and brokers using their own IT platforms to administer business, compulsory
Every insurer will be obliged under law to ensure it can access all the relevant data on clients they underwrite, this regulatory requirement will be supported by insurers and brokers since it also makes sense from a business perspective.
In order to ensure the sustainability of outsourcing of administration going forward there will be no alternative but to require an integration of IT platforms from at least a data sharing perspective. In order to avoid multiple approaches by insurers to a large number of brokers, at huge costs to brokers and insurers,
IT and now connectivity has evolved quickly and it has now become feasible to exchange data seamlessly and in real time. The challenge now lies in getting the industry to work together and to agree the best solution to serve us into the future.
Standardising methods of communication between rivals is nothing new. Think of the successes of SASWITCH in the banking industry, Galileo in the travel industry, the mortgage portals, ACORD in the UK and USA financial services etc. everyday examples such as SMS, Bluetooth and MMS abound. All were built on the basis of standards that allow different systems to interact with competing technology for the ultimate benefit of their respective industries but ultimately the end consumer.
Acknowledging the future challenges and to avoid multiple and very costly un-co-ordinated individual attempts to solve these issues, SAIA and FIA have embarked on a joint industry initiative to enable safe and secure exchange of standardised data between Broker as the representative of the client to the final underwriter of the risk.
The SAIA and FIA initiative aims to create one single source of integration or communication, requiring all brokers and insurers to conform only once to a single standard. An Insurance Data Exchange (IDE) steering committee was formed in 2009 and the respective boards of SAIA and FIA recently approved the initiative and the funding of the initial costs. The IDE Steering committee endorsed the formation of a South African ACORD standard and many insurers and intermediary groups have already joined the South African ACORD standards organisation.
Any broker using an independent IT platform to perform administration, every insurer which outsources administration, group schemes or Portfolio management, and all independent IT administration providers are encouraged to participate in this very important initiative.
A workshop to share information and additional detail will be held in the second quarter 2010
The details of the SAIA and the FIA as well as the relevant Steering and subcommittee chairpersons are:
SAIA - Barry Scott
FIA – Manie Booysen
Business Sub Committee Co Chairs: Karen Miller (Zurich) & Arnold van der Linde (IntegriSure)
Techincal Sub Committee Co Chairs: Jan de Klerk (Santam) & Willers Baard (Orico)
We encourage your participation and support in order to ensure the sustainability of your business models going forward.
Best regards
SAIA/FIA Data Connectivity Steering Committee
Johannesburg 8 April 2010
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