ONLINE SALES: THE “BLEEDING EDGE”

A recent StatsCan study reveals that for every two e-commerce sites launched last year, five online shops closed their doors. And, while the value of goods sold online jumped 74% between 1999 and 2000, they still only accounted for 0.4% of the economic activity of businesses surveyed. Even less activity took place in the B2C (business to consumer market), which accounted for only $1.5 billion of the total $7.2 billion in online sales last year.

At the same time, a Swiss Re sigma study released last year predicts that by 2005, online sales will hold somewhere between 5% to 10% marketshare in the U.S., and 3% to 5% in the U.K., for standardized personal lines, points out Doug Grant, consultant with Insurance-Canada.ca and moderator of the recent Strategy Institute Super Summit held in Toronto. Like the plethora of survey results, the property and casualty insurance industry itself is divided in its take on the potential of the online sales channel. The few living examples, such as ING’s Belair Direct, insurance “marketplaces” like Kanetix, and some broker sites that offer actual online purchase have yet to give a clear indication of this potential either. Yet, other studies show that the industry has high hopes for the Internet.

Betting the farm

Marsh Canada Ltd. managing director Stephen Mallory points to a PriceWaterhouseCooper’s survey that suggests insurers not only expect the Internet to become the number-one way to communicate with customers, but also to become the top source of revenue by 2005 (see Charts 1 and 2). “According to the survey, we will be propelled forward by our investment in technology…is that realistic?” Mallory asks.

“Do other industries look at our industry as cutting edge?” he further questions. The truth, he says, is that “in many ways our industry is quite archaic”. Assessing the industry’s current financial woes in terms of the poor stock market performance of insurance companies, Mallory says that many companies will be struggling in the next five years to find ways to innovate. Technology may be seen as the answer, but he wonders if companies are prepared for this “very expensive proposition” of Internet investment. In his view, “there will be a lot of casualties in our industry in the next five years”.

Peter Breuer, former vice president for Belair Direct and now vice president of sales for Potruff & Smith Insurance Brokers, predicts companies who expect the Internet to be a key source of revenue will find themselves disappointed. Companies will be making a huge investment, “and the revenue’s just not there”, he contends. “The insurance buying consumer isn’t going to plunk down $2,000 over the Internet…I wouldn’t build a business model with a strong revenue component there.”

Companies may want to be on the leading edge in terms of online development, but they could well end up on the “bleeding edge” if they bet the farm on online sales, he says.

Belair example

The present benchmark for the Canadian online insurance market is Belair Direct, ING’s online sales channel. The online service offers home, auto and travel insurance through binding online quotes and policies. If quotes are an indication of success, then Belair meets the mark, offering 300,000 quotes last year, up from 171,000 in 1999, and predicting about 500,000 for this year. The Belair experience shows that consumers do want the convenience of 24/7 access to quoting, notes the company’s vice president of operations, Peter Weightman.

Surveys conducted by the online insurer indicate that most visitors to the site are primarily interested in the “convenience factor” rather than price. In fact, most activity on the site occurs outside of normal business hours, in the evening and on Sunday, even on Christmas Day, he notes. And, as the site has developed, lessons learned have lead to such things as real time quoting and processing, and more intuitive arrangement of online questionnaires to respond to the natural thought processes of consumers. User friendliness and speed are the functions online users list as most appealing about the Belair site, he adds. Although price has long been seen as the big differentiator for online markets, Weightman notes that it is difficult, particularly in the troubled Ontario market, to beat the generally soft rates. In fact, the number one reason respondents list for not purchasing online is that their current rates are lower than those offered online. Still, Weightman contends, studies support that idea that insurers can lower costs through online sales.

As such, he points to an A.M. Best report which estimates that while a broker sale costs about $19, and a call center sale about $8, an Internet sale can cost as little as 45 cents.

But the process is not without hiccups, especially for a company that is first out of the gate. In Belair’s experience, this included the need for auto insurance “pink cards” to actually be pink. “That’s one example of where regulations haven’t caught up with technology.” Another is responding to the different regulations and laws in different jurisdictions. Although Belair currently only sells in Ontario and Quebec, there have also been adjustments to make between the online questionnaires used in the two provinces.

Sales slump

So far the biggest stumbling block for Belair has been the lack of actual sales completed online. Weightman admits that consumers still show a reluctance to close a transaction over the Internet and often use the company’s call center to finish the deal. Some estimates have seven of eight Belair transactions being completed through the call center. “If you’ve got a closing ratio of 3% to 4% on the Internet, you’re probably doing pretty well.”

However, Weightman believes that Internet sales “are going to be pretty important for [ING] in the long-term”. The reluctance to buy online is something he is “hopeful and confident will change as they [consumers] become more comfortable with finalizing transactions online”, such as buying tickets or books. The trick will be getting online shoppers to associate the new medium with insurance. “That saying, ‘if you build it, they will come’…wrong.” Marketing will be a key for online insurance, including leveraging existing brands.

And, while Weightman says “there’s still a very, very big hesitancy to actually close the deal online”, he does think that insurers who do not at least offer the option to buy online will suffer. Consumers may not actually buy online, but they want to be able to do it.

Other directions

What do companies risk by not investing in online sales? Weightman believes one benefit of a web presence is the chance to manage customer information. Belair’s early experience suggests that customers were interested in using the site to learn about other products beyond the initial auto offering. And with a 20% to 25% response rate to its online survey, Weightman says the Internet provides a great chance to know the customer.

Breuer suggests that the industry is “lagging” in the field of technology-leveraged “customer service”. Specifically, he says, in the area of developing customer information, including cross-selling. Instead of using the Internet as a “self-service” tool for consumers, the industry should be looking at it as a vehicle for using the expertise of people in advising consumers and creating “customer-tailored” products. One issue which all of speakers agree on is that p&c insurers need to assess their Internet strategies in terms of overall business strategies. With the Internet as a direct sales channel still in question, companies must look to ways to make technology pay off while still focussing on the core business of insurance. At the same time there is pressure to use the Internet, there is also pressure for immediate return on investment, which the Internet as a sales channel has not proven itself to provide. The challenge will be to find ways to incorporate the Internet into the industry in a way that does maximize that return. As Mallory notes, “our industry is ripe for aggressive business design and innovation…we have a l ot of work to do in the next five years”.