Bye-Bye Bricks and Mortar
Alberta's online brokerage Surex Direct has created a new business model for the broker channel. Will it be sustainable in the long run?
“Writing business through an online broker is a very new thing for us as an industry,” says Evanne Shepherdson, personal lines manager at Peace Hills Insurance in Calgary, an insurance partner with Surex Direct. “Brokers are certainly aware of them. A lot of brokers are watching what they’re doing very carefully. Some of that is purely for competitive reasons, because they’re probably losing some business to Surex.”
But Lance Miller, co-founder and CEO of SurexDirect.com and owner of Surex Insurance Brokers, says the catalyst for launching the online brokerage was, in fact, to bring Canadians back into the broker channel.
“Fifty to 60% of our new business, we are pulling back from the direct channel,” says Miller. “We are not just redistributing [broker market share].”
Through technological innovation and re-defining how producers do their job, Surex Direct is attempting to carve out an entirely new segment for the broker channel.
Booting Up a New Option
It all started nine years ago when Miller, a former real estate agent, bought a property and casualty insurance brokerage in his hometown of Magrath, Alta., population 2,300.
“I thought, ‘How am I going to survive in this changing environment if the banks get in?’ ” says Miller. “I decided I wanted my customers to have the same tools that most of the direct channels offer—get online and get meaningful quotes, make all changes and do all business online.”
Miller stewed on the idea for five years before approaching his friend, Matt Alston, who was running a direct marketing company in the United States.
“When I was looking at differences between the Canadian and US insurance markets, I found there was almost a perfect storm brewing in Canada,” says Alston, chief operating officer of Surex Direct. “I could just tell that the customer service aspects in Canada weren’t being met. Customers had higher expectations of service than they were getting from brokers.
“Unlike US consumers, most consumers in Canada have used brokers in the past,” he adds. “But the broker channel in Canada has been shrinking.”
Alston says the industry hasn’t been keeping pace with the technology utilized by banks and the direct insurers—primarily online quoting and purchasing options that, he says, better meet the needs of today’s consumer.
“I don’t feel like using a broker means people should give up or have less of a purchase experience,” says Alston.
What happened next was a whirlwind. In 2011, Alston, a young father of three, sold his company and moved back to Magrath, where he had grown up, then invested all his equity to launch Surex Direct. Surex Direct would be a separate entity from Surex Insurance Brokers—which at the time had two traditional broker offices: in Magrath, 32 kilometres south of Lethbridge, and neighbouring Raymond—but initially would run alongside it.
Miller and Alston spent five months in an extensive global search for developers who could create and code unique online broker software.
“We looked at all the tools available in the marketplace for online quoting and we weren’t happy with any of them,” says Miller. “We interviewed probably 20 developers before we ended up hiring someone out of New York.”
Specifically, Miller and Alston wanted software that would assist the consumer in getting real-time online quotes and replace most upfront labour for the broker.
“Our system does a lot of the work for our brokers,” explains Alston. “We have a lot of red flags built into the system. We quote everything the way we want as a brokerage—the full package—and then, if the customer doesn’t want certain coverage, they can get rid of some later when they follow-up with the broker.”
Significantly, providing a full-package online quote is the opposite of what many direct insurance sellers do, which is typically to quote the lowest price, rather than the most comprehensive package.
“We’ve probably lost sales because of that,” says Alston. “People see our quote and maybe it seems expensive, maybe they only want liability and they don’t realize our quote is full coverage.”
The online quoting system is available 24 hours a day, seven days a week. As soon as a client starts the quoting process, they are automatically assigned to one of Surex Direct’s 13 brokers. If it’s during business hours, a Surex Direct broker will pick up a telephone and call the prospective client within minutes of the login to walk them through the purchase process.
“We are brokers,” says Alston. “We want to make sure the clients get advice from a broker and an explanation of the differences between the seven different insurance companies we work with. Having a broker walk them through the online purchase gives the client more confidence in the purchase and immediately establishes the broker-client relationship.”
Surex Direct brokers are available to their clients or prospects from 8am to 9pm daily. Each broker is assigned a 24-hour toll-free number. In the event of a claim, clients have the option to call their personal broker, not a call centre.
“If the client chooses to do the claim process online, a ticket is automatically put into the computer database and it’s prioritized,” says Alston. “If it’s outside of business hours, brokers will see that claim flagged, and as soon as they are back in the office give it top priority.”
The client-broker relationship is mostly managed through telephone, email, text message and even Facebook, but with checks and balances in place to make sure everything is done legally and legitimately.
“Insurance is a relationship business,” says Miller. “Everyone said we were doomed to fail, that you can’t do it online. The difference is that our brokers know how to have online relationships. In today’s world, that’s a reality that people are looking for, and their relationships with clients are just as strong as those between brokers and clients they see in-person.”
But Miller acknowledges that relationships and the business models are notably different between the virtual and the traditional operations.
“They are two completely separate businesses,” says Miller. “One of the biggest differences is how we pay our online producers. In the online model, most of the costs are borne by the producers, themselves, because they are paid as independent contractors.”
“Another is the expectation from the Surex Direct customers of how quickly brokers need to get back to people. In a brick-and-mortar environment, a couple of hours is acceptable. In an online environment, people want things immediately.” Miller said they originally tried to have brokers from both sides of the business help service the online customers, and it didn’t work. “The two businesses had to be separated so that the online people and their colleagues are all working under the same sets of expectations.”
The real test for Surex Direct will be customer retention—the main thing that’s been viewed with caution from peers, competitors and insurance partners.
“It will be interesting to watch their retention because the assumption is that people who are shopping online are more price sensitive than people who are not shopping online,” says Peace Hills’ Shepherdson. “Therefore, if prices go up a little, will they stick with us or will they go back online and shop again?”
Now with its own in-house software developer, Surex Direct is constantly tweaking its software and its website to ensure they are responding to the demands of both clients and insurance partners—and retention is a big part of that.
“I think initially they set up to get new business,” says Penny McCune, vice-president of sales and marketing for SGI. “Now they’re also turning attention to ‘What do we do on renewal?’”
One of the biggest triggers for losing clients is policies expiring or failing to renew, says Alston. All memos Surex Direct receives about customers on a non-sufficient-funds (NSF) pay notice or anything to do with a client pay issue have now been programmed into the company software.
“They’ll get an automated email from their assigned broker; they get a text message; and they get a robo-call from our billing department,” says Alston.
Since this process was implemented in November, Surex Direct has seen its retention rate improve dramatically.
Alston also notes that brokers are motivated to retain customers because “the longer a client is with us, the more the broker makes.”
Who’s Using the Service?
One of the biggest surprises for Miller and Alston is the quality and diversity of the clients Surex Direct has attracted. When they first had their web portal designed, they instinctively thought they would need to appeal to young people—those between 20 and 40 years old.
“The first client we sold to [a lead from an online aggregator], before the website even went live, was an 82-year-old man,” says Miller. “That was one of the biggest surprises for us.”
Whereas clients with the brick-and-mortar business were once almost entirely local, Surex Direct is licensed in most provinces and territories, with plans to enter the Ontario market within the next three months.
Critics have questioned how effective a “virtual broker” can be in the event of a claim. But Shepherdson says this hasn’t been a problem so far. For one, adjusters are local. For another, there is a benefit to having clients spread out, for both the broker and the insurer.
“The online business derives clients from all areas of the province, not just the local trading area,” says Shepherdson. “For an insurance company, this is generally a good thing because we want to spread the risk. Anecdotally, I can say that the geographic diversity and the quality of their customers is very good.”
The upfront investment in Surex Direct has been substantial. But despite the cost of maintaining an in-house software development team, Surex saves a lot of overhead through producers that bear their own costs, such as their own office space and staff. As a result, Surex Direct is now primed for “explosive growth over the next seven to eight years,” says Miller, with profit margins expected to improve dramatically.
“The profitability in the early years is not great,” says Miller. “But the biggest difference will be how we grow. In a brick-and-mortar business, as you grow, you have to increase your hourly staff and your building requirements. That’s not the case for us.”
How big will Surex Direct get? Alston says there are no limits.
“I don’t feel I have to have a size that says ‘We’re successful,’ ” he says. “I think when you get to the point where you feel like you’ve hit that success bar, then innovation is quashed. We want to be one of the largest brokerages in Canada. As soon as every Canadian feels they have the option to use us as an online broker, maybe then we can say we’ve been successful.”
Copyright 2014 Rogers Publishing Ltd. This article first appeared in the February 2014 edition of Canadian Insurance Top Broker magazine