Online Bidding Aids Businesses’ Search For Insurance Quotes

The ongoing scandal over how bids are obtained for corporate insurance couldn't happen if the bidding were done through a competitive electronic bid-tracking system, suppliers of software for online insurance quoting say.

New York Attorney General Eliot Spitzer has charged that corporate insurance broker Marsh & McLennan Cos. steered customers to insurers who offered Marsh & McLennan the largest contingency fees, not those offering customers the best deal.

But "bid rigging," as Spitzer calls it, would be less of a possibility if corporate insurance were bid in open online marketplaces, reducing the potential for "kickbacks" in the form of extra fees paid to the brokers. Customers could debate the merits of all the bids rather than taking a broker's word that they were being presented with the best bid, say suppliers of software for such trading places.

Many insurance buyers, including companies purchasing health-care contracts, don't see the process through which bids are collected by brokers from insurers. They're just presented with the supposedly honest competitive results.

"When clients have complete visibility into processes and costs, it creates an efficient market," says Brent Bannerman, founder and VP of business development for IE-Engine Inc., a supplier of human-resources applications for obtaining corporate HR services, including insurance bids.

By using an online solicitation of bids directly from insurers, HR departments can bypass brokers and see which insurer is submitting what bid for the company's business, he said in a statement to the press a week after Spitzer filed suit against Marsh & McLennan last month. Marsh & McLennan practices apply to corporate property and casualty insurance, not health and life insurance, which would be covered by the IE-Engine HR applications.

IE-Engine, a 5-year-old company, teamed up with HR.com, an HR professional services organization, to establish the HR Buying Association in February. The association revealed last week its intent to combine the IE-Engine software with HR.com's "red book" of benefit vendor-rating guides, purchasing expertise, and best practices.

The partnership will lead to member companies "securing the best products and services at the best possible price," said Debbie McGrath, founder of HR.com, at the time in a press release. IE-Engine customers include Toyota, Florida Power & Light, Staples, and Rite Aid.

Another supplier, BenefitPoint Inc., sells software that helps insurance brokers establish an electronic bidding process. Its Aptus application established an online bidding process that identifies who submitted a bid and time stamps bids as they arrive.

BenefitPoint claims 400 HR brokers and consultants as customers, and its Aptus procurement application has been endorsed by the Council of Insurance Agents and Brokers, a professional insurance agent group.

This article originally appeared in InformationWeek on Nov. 1, 2004