Connecting: Are insurers losing the e-commerce race?

The time for discussion is over where e-commerce is concerned, delegates to the recently held E-Strategy “Super Summit” in Toronto were told. Notions that the Internet is a “passing fad” have to be put aside, as consumer expectations push the insurance industry willingly, or unwillingly, online. Speakers at the summit caution that, those who continue to take a “wait-and-see attitude” will find themselves left in the dust as their competitors — including the banks — surge ahead on the information superhighway.

“Just do it.” The consumer catch phrase of the 1990s is turning corporate as insurers watch the competition rush online.

Is the industry being left in the dust? While no one advocates making huge investments in e-commerce strategies without proper planning, experts on both the outside and inside of the insurance industry are saying the time for action has come. At the recent Strategy Institute E-Strategy summit, property and casualty insurers heard from a range of speakers urging them to move beyond the planning phase of technology initiatives.

New competitors ready to jump on the e-commerce track are going to glut an already saturated insurance market, and if the lower cost promised by technology bears out, traditional suppliers could be caught in the crunch. A multitude of fears about e-commerce, including friction with the broker distribution channel, Internet security issues, and the high stakes involved in risking success on e-commerce must all be dealt with. However, despite these obstacles, the time to deal with the technological needs of the future is now, say forecasters. As Corrine Charette of KPMG remarks, “do it, and do it quickly, because time is marching on”.

Pushing product

A recent survey by Tillinghast-Towers Perrin revealed that technology is definitely on the minds of p&c industry CEOs. Distribution came out as the number one issue facing insurers, and 55% of respondents said technology limitations were at the heart of their distribution concerns. “Three years ago [when the CEOs were previously surveyed] distribution was seen as a cost issue and a people issue, now it’s a technology issue,” notes David Oakden, principal for Tillinghast-Towers Perrin. But, Oakden says CEOs may find the Internet is not the answer to their prayers. “It’s unlikely most companies can launch a technology solution”, because of the cost involved. “We believe they may be whistling in the dark.”

That said, others say the industry is not investing enough in its e-commerce strategies. Charette points to survey results that suggest p&c companies are not putting their money where their mouths are (see chart 1). Projected spending on technology is insufficient, particularly for smaller companies, she adds. Smaller players should see the Internet as a real opportunity to compete with larger players, particularly as barriers to entry, including cost, become less of an issue. The potential to reach new markets through the web is one way for the “Davids” of the industry to compete with the “Goliaths”, she stresses.

“The insurance industry is premiere at coming out with a list of reasons not to do it [go online],” comments Charette. But, as technology costs drop and consumer expectations for access, speed and the ability to comparison shop increase, traditional excuses for inactivity will no longer be acceptable.

However, the payoff may not come as quickly as some hope, despite the speed of technology growth. Experts tell insurers not to bet the farm on Internet sales, but to place their bets carefully. As consultant Brenda French-Mullins, of Mullins and Associates notes, “we have to look realistically at the medium to long-term ROI [return on investment]”. In fact, insurers may find pricing a challenge on the Internet. “The Internet is driving price commoditization,” Charette observes, “because all of a sudden the consumer has full access…it’s easier to comparison shop”. As a result, CEOs who indicated through the Tillinghast-Towers Perrin survey that pricing was their lowest priority with regard to distribution concerns may have to rethink their strategic positioning as new competition promised by e-commerce emerges.

Broker Blues

With e-commerce activity predicted to rise, perhaps the most threatened group in the industry is the broker distribution channel. “The same way brokers couldn’t stop direct marketers from coming in and taking a piece of the market pie, e-business is going to take a piece of it,” predicts Ajit Someshwar, president of Iter8 Incorporated.

That said, a growing consensus is building that brokers can — and should — develop their own e-commerce strategies and use technology where possible in their operations. Noting the survey’s prediction that only 2% of U.S. insurance sales are expected to be transacted online by 2003, Alan Boyes of the Insurance Information Centre of Canada (CSIO) remarks, “The Internet should not be a threat to agents and brokers any time soon…and there’s nothing to keep brokers from using the Internet too”.

Traditional concerns that insurance is too complex to sell online, and that consumers want the face-to-face expert advice provided by brokers will not last long, Boyes warns. The trend will be to more online sales, not less, and brokers should be prepared for this shift in market trends. In fact, new survey data from Forrester suggests the earlier predictions cited by Boyes may be conservative. Forrester expects online insurance sales in the U.S. to approach 10% for personal lines by 2004. The Internet is “an area where they [brokers] are going to have to invest,” remarks Murray Abbott of AGTI Consulting Services. “More and more vendors will bring out e-commerce systems for brokers, and portals.”

And, Abbott expects brokers will demand those systems, just as they have “taken the bull by the horns” in the use of EDI to conduct their sales in a quicker and more cost-effective manner. The ideal situation for brokers is a single-entry, all-company, web-based interface with online quotes and binding policies, he suggests. “It sounds a lot like Synchron, but technology has changed a hell of a lot since Synchron.” Today’s e-business solutions are cheaper and faster than those proposed just a few years ago, he notes.

However, the biggest stumbling block to such a comprehensive solution remains the competitive environment within the industry itself. “We’re asking people who are competitors to work together,” says Abbott. “I can see larger companies not being willing to take part.” But he does think smaller companies could gain a competitive edge by getting together on such a system. Insurers should make it easier for brokers to work online, agrees Charette. Brokers “should be able to access the whole book of business on the web”.

Personal service

But, whether brokers will be able to provide the same personal service to clients in e-commerce transactions remains to be seen. Lawyer Donna Spagnolo, of Borden Ladner Gervais LLP, points out that new Internet laws and existing insurance regulations have yet to be untangled. For example, the structure of Internet forms with regard to meeting brokers’ required duties to their clients is currently under discussion. “RIBO [the Registered Insurance Brokers of Ontario] and other regulators have considered the question of how, and whether, brokers may provide adequate advice over the Internet, but do not yet have answers,” she says.

With no precedent to rely on in this emerging method of distribution, RIBO does not expect any answers for another year at least. In the meantime, brokers will be struggling with cost and consumer needs, trying to keep up in the e-commerce race, she remarks.

New competition

What will the face of the competition look like in this new emerging e-commerce field? Insurers will have to look beyond their old nemesis — the banks — to a multitude of potential new competitors entering the market, the speakers predict. Competition, rated as the biggest issue, ahead of distribution, for Canadian insurance CEOs, is expected to be intense and far-reaching. Transaction-based industries , such as insurance, are well-suited to Internet, and well-suited to companies trying to take advantage of new markets. “If someone can figure out a way to sell insurance cost-effectively over the Internet, they don’t even have to be an insurance company,” observes Oakden.

Partnerships between Internet companies and insurers or brokers could also become commonplace in this future landscape. The banks, blocked from selling insurance through local branches, could see an easy alternative in direct Internet sales. Or, other mega companies, hoping to capitalize on strong brand names, may move into the insurance game. The lethargy of the insurance industry in terms of e-commerce is making room for these new competitors, says Abbott. “If we moved as fast as other industries, it would do us a lot of good.”

This “borderless” or ethereal world that comprises the Internet may soon have a significant impact on the business of insurance, Charette surmises. In fact, as many technology marketers have noted, financial services being a non-tangible product, is ideally suited to the electronic world of e-commerce.

And, as regulations open up the marketplace, there is no certainty that foreign companies, which are moving fast and furious into the Canadian digital market, won’t move into the game of insurance. “We are not aggressively going after that marketshare,” she says, so what is to stop someone else from moving in? New competitors are ‘nimble’, not just because they are not weighed down by investments in legacy systems, but also because they are willing to take risks, she remarks. “The biggest obstacle to change is fear for bricks and mortar companies.”cu