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Proprietary Premium

Affiliated FM relies on proprietary technology for competitive advantage, supporting business growth past the $500 million mark in less than five years.

Sometimes, if you want something done right, you have to do it yourself. Affiliated FM, a business unit of the FM Global Group (Johnston, R.I.), offers its products and services through a network of independent insurance brokers and relies on proprietary technology for the flexibility to adapt to the changing needs of brokers and clients, even though building technology in-house isn't the predominant industry strategy. The insurer, which specializes in midmarket commercial property insurance and loss-prevention expertise, more than quintupled its earned premium from $94 million in 1999 to $500 million in 2004, and its proprietary business management system is getting some of the credit.

"Our business management system is the cornerstone of our business delivery systems to brokers and policyholders," explains Michael Lebovitz, vice president and manager of operations at Affiliated FM. "Even though we use an independent broker distribution model, we are customer focused. And having our own system allows us to invest in technology more efficiently, providing new products and services to our policyholders in a smaller time frame, with more value," he continues.

Affiliated FM's business management system was built in 1998 using Microsoft (Redmond, Wash.) Visual Basic 6.0, according to Lebovitz, who acknowledges that proprietary technology can be a challenge. But Lebovitz stresses that it also can provide a business advantage. "We do constantly have to reevaluate our platform based on changing technology, but the proprietary system allows us to focus on the needs of our customers," he says.

The insurer hosts several forums each year with its brokers to identify which features are most important to them and their clients. "As users go through renewal and new-business processes, they are constantly finding ways to improve the business system," Lebovitz relates. "The problem is finding the resources to do the things we would love to do with the system."

The first feature built into the system was an application that produces new-business and renewal proposals, and automates the steps that take the proposals to policies, explains Lebovitz, who credits the application with having the largest impact on the company's quickly following success. "Taking proposals to policy is a big piece of automation," he says. Thanks largely to the in-house-developed application, "We are typically able to deliver policy documentation within 10 days of proposal," Lebovitz adds.

Against the Grain

Though Affiliated FM enjoys success with its proprietary system, insurers more often are successful with third-party technology solutions, according to Matt Josefowicz, a New York-based analyst with Celent Communications (Boston). "In general, we recommend buy over build because software developers are able to do more than insurers as far as technological capabilities," he says. "Generally, a buy strategy reduces project risk to some degree. However, in a company with a tightly defined business process and strong IT group, it could be useful to build."

According to Affiliated FM's Josefowicz, a strong relationship between the business side and IT is critical to the success of IT projects. "It's important for the IT side to have close communication with the business side," he asserts.

Proprietary technology, though, offers an advantage to companies that are very specialized, Josefowicz relates. "Build versus buy is really a question of what the individual company's technology needs are," he says. "For a small company doing specialized business, building can be a good strategy." Though Affiliated FM operates in the midsize market, the level of underwriting is somewhat specialized, Lebovitz explains. "As far as underwriting goes, midmarket is at a different level of investigation that is not nearly as transactional as the large market, so we take more of a customized approach to underwriting," he says.

When deciding on which technologies to build, Lebovitz adds, the company focuses on feeding its value proposition. "We rely on our system and the policy processing function to be customer focused, and we invest in technology that allows us to partner better with brokers and plug back into our value proposition," he says. Lebovitz explains that the insurer focuses on adding value in four key ways: acting as an insurance specialist and customized loss prevention solutions provider; creating an ease of doing business; delivering transactional speed; and providing prompt professional claims service.

"Part of understanding the property market is engineering risk properly along with underwriting more intelligently, and Affiliated FM's technology gives them an advantage for such an exacting process," asserts Richard Kerr, chairman and CEO of Dallas-based MarketScout, an online distributor and underwriter of commercial P&C insurance that publishes a monthly online analysis of the insurance market.

But companies with proprietary technology must ensure that the resources to continue operating and developing specialized systems will be available, according to Celent's Josefowicz. "It is important that insurers with proprietary technology have a forward-looking IT group," he says. "Keeping future scalability and a future growth path in mind is key."

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