World Telecommunication Day 1999 |
According to Frank Lallos, senior analyst, financial services for Gomez Advisors Inc., an Internet strategy research consultancy, ''The insurance industry today is like that of discount brokerages a couple of years ago. Many brokers were reluctant to move from the phone to the Web at that time.''
Today, one-fourth of all retail brokerage activity takes place on the Internet, an indication of how quickly that industry and its customers have shifted in response to new technology and the opportunities it provides.
But not the insurance industry - at least not yet.
Booz, Allen & Hamilton Inc.'s 1999 Internet Insurance Study finds ''the majority of insurance companies well behind other financial services players, such as banks and brokerages.''
Says Gil Irwin, a vice president at the management consultancy: ''Today, several focused product players like Fidelity and GEICO have taken the lead in providing affordable, high-service offerings on-line. It seems clear that traditional insurance companies and smaller players need to match these capabilities or see their market share dwindle.''
Mr. Irwin's remarks reflect the North American experience, but the European insurance landscape is not that different. The industry is in for ''a bit of a shock,'' says Andy MacLeod, business development manager for Compaq Computer Corp. in Europe.
''With the explosive growth of the Net, and as more customers move their finances on-line,'' he says, ''there is a danger for the industry if it concentrates largely on competing for the reducing number of traditional customers. Therefore, the Internet must become a strategic focus for the industry, and this is now beginning to happen with the major players.''
Precise figures are hard to come by, but Mr. MacLeod cites research from Datamonitor PLC predicting huge future sales volumes on-line, even though insurance constitutes less than 1 percent of on-line sales in Europe today. Datamonitor sees it growing to 9 percent by 2002.
Gomez predicts that in the United States, $2.3 billion in premiums will be sold on-line in 1999. This is a drop in the bucket compared with the estimated $700 billion in total premiums (not counting reinsurance) sold in the United States this year, but Gomez expects the on-line figure to nearly double, to $4.5 billion, in 2000. In 2001, it predicts on-line sales of $7.7 billion, shooting up to $13 billion in 2002
The Booz, Allen & Hamilton study identified three distinct business models for Web business: direct selling by traditional insurance companies like John Hancock Mutual Life Insurance Co.; direct selling by nontraditional carriers like Citigroup Inc.; and what the study calls ''technical integrator/aggregators,'' such as InsWeb Corp., that create on-line insurance marketplaces.
InsWeb is an example of a business created for and through the power of telecommunications. On its site, consumers can comparison-shop among 41 different insurance companies for automobile, term-life, homeowners, renters and individual health insurance, and obtain quotes for actual coverage.
Last year, InsWeb had 3 million ''unique user sessions'' and nearly the same number in the first half of this year alone. The growing use of such aggregator sites will ''increase the transparency of prices,'' says Mr. MacLeod, noting that he already sees this happening in Britain in all sorts of businesses.
InsWeb is in the process of setting up its first site outside of North America, in Japan. Greg Jones, an InsWeb spokesman, points out that with deregulation in Japan, ''most Japanese consumers are expected to comparison-shop, making our on-line marketplace a great model.''
In spite of scattered successes and predicted large volumes of business, insurers have continued to drag their feet when it comes to the Web. More than half of the companies surveyed by Booz, Allen & Hamilton were spending less than half a million dollars per year on their Internet capabilities, far less than the cost of a single relatively sophisticated Web site these days.
The industry argues that it faces unique problems in migrating to the Web: the complexity of insurance products, the costs of changing existing computer systems that have been specifically designed for those products and the agents who have always been the distributors of those products.
Technology experts who know the insurance industry agree that insurance policies and products are complex, as is the industry's link to its legacy systems, but that change is coming regardless.
''The Web won't always replace the entire insurance transaction, but it can make the passage of information more efficient,'' says Mr. Lallos. ''Only 'plain vanilla' policies will be sold easily on the Web by themselves.''
Mr. Lallos describes the business-to-business potential of the Internet as tremendous. ''The biggest bang for the consumer's buck will occur,'' he says, when the existing computer and communications systems of companies and agents are integrated.
As for solving the conflict between electronic and agent distribution channels, Mr. Lallos uses the example of Citigroup's Travelers insurance brand. ''When someone goes on-line,'' he says, ''they are pushed to a local agent, so the site is used as a lead generator.''
Web sites:
Citigroup: http://www.citi.com
Fidelity Investments: http://www.fidelity.com
GEICO Direct: http://www.geico.com
John Hancock Insurance and Financial Service: http://www.jhancock.com
InsWeb: http://www.insweb.com
Claudia Flisi