Taking Shape: Insurers move online

The potential of the Internet has been bandied about for the past several years and finally insurers seem to be taking heed of the message. In an effort to reduce escalating expense ratios, insurers are putting the Internet to work. But the shape of things to come may be a surprise to many who saw e-sales as defining the future of insurance. The failure of some high-profile ‘e-tailers’ and the reluctance of consumers to buy online suggested by survey results is leading many to question the soundness of directing technology investments toward direct online sales. The business-to-business (B2B) movement that has taken the Internet by storm, accounting for an overwhelming majority of e-business transactions, now appears to be driving the insurance industry forward, and the development of a broker-company portal may be a sign of things to come.

With the recent announcement that the Centre for Study of Insurance Operations (CSIO) would proceed with its proposal for a company-broker Internet portal, it appears the industry long criticized for lagging behind in the e-commerce game is now inching its way online. The original vision for e-commerce struck fear into the hearts of many – online direct sales that would displace the broker distribution channel, or at least significantly impact its share of the market.

But the failure of many online sales initiatives, including the big ‘e-tailers’, to produce real returns is changing the focus of Internet initiatives.

And there is not much evidence to convince insurers to make the investment in online sales at the moment. Despite the steep rise in Internet access, survey results continue to show reluctance on the part of consumers to buy insurance online. Last year’s Pollara InsurPoll is one example, with 78% of respondents saying they wouldn’t buy insurance over the ‘net [see chart, p.12]. And last fall, an ongoing survey by CanoeMoney showed similar results, 70% of respondents saying they would not buy any kind of insurance online [see chart, p.14].

Canada’s online insurance pioneer Belair has not been unsuccessful, but even there most sales have been closed through the company’s call center, rather than being completed online. Consumers still appear to need the reassurance of human contact when making insurance decisions and want verbal confirmation of rates quoted and coverage.

Even the banks, in whose Internet shadow insurers have been thought to stand, are having their struggles. A recent survey by Gomez Canada finds that although about 20% of customers were willing to use the Internet to check their account balance or pay bills, they were not really ‘purchasing’ online, with only less than 3% using the Internet to apply for loans or buy GICs. The findings led Gomez to conclude that banks were not achieving real penetration with their online initiatives.

These and other results make it easier to understand the industry’s reluctance to spend millions of dollars to set up online sales sites. Industry analyst Ted Belton writes in a recent issue of The Belton Report that both broker and insurer “doubts are reinforced by conflicting surveys… Faced with uncertainty about the extent of consumer acceptance of e-insurance, it is hard to be critical of insurers and brokers for being hesitant to make a big investment in technology and infrastructure.”

Belton goes on to say that while insurers may see the Internet as one potential sales channel, it is unrealistic to expect them to focus on this as ‘the’ sales channel. “Failure to succeed online may result in failure of the entire business. Such thinking is anathema to insurers whose entire culture dictates a conservative approach to the management of risk,” he writes. “Betting the farm on any one venture is unthinkable.”

Brokers rebound

Broker fears over the impact online sales might have on their marketshare are beginning to dissipate, notes Jim Ball, chair of the Insurance Brokers Association of Canada (IBAC). “Initially we were concerned as intermediaries that the value we had to give to the customer would be lost… a lot of that’s dissipating now.”

“What’s contributed to that is the failure of e-tailers,” he says, as well as the belief that insurance will be an even tougher sell than other items. “The product we sell is low interest and complicated.”

CSIO president Klaas Westera agrees that brokers should not expect to find themselves ousted by online sales. “Disintermediation was exaggerated” by people who “did not recognize the realities of today’s business,” he asserts. Westera feels that brokers will become even more crucial in the new economy where more sophisticated consumers are expecting expert advice and personalized service.

Ball does admit that brokers are looking at ways to take advantage of the Internet. They fear “the cost of keeping up”, he explains. “A lot of brokers have rushed to get ‘brochureware’ sites up, but they’re just sitting there”, with the information not being updated regularly and customer self-service applications not being used. Jeff Purdy, president of broker automation vendor Applied Systems Canada, says brokers want to establish “a real presence” on the Internet, including personalized access to information for customers, such as billing schedules, for example.

Purdy doesn’t see broker fears dissipating about online sales. Company-specific websites bring the potential to “bypass” the broker sales channel, he notes. But the Internet is also bringing hope to brokers and the potential to tackle their long-sought technology dream – single-entry, multi-company interface (SEMCI). “The biggest issue is SEMCI…and how the Internet can get that to come to fruition for them [brokers],” says Purdy.

While some success with SEMCI-type systems has been achieved in the past, it is not as much as brokers, carriers or vendors would like to see, he explains. Brokers need real-time interaction with company systems to take full advantage what the Internet can offer in terms of customer service. Underwriting rules, for example, are “sitting in the company mainframe”, and not available to brokers on a real-time basis. The Internet technology now available to achieve this interaction “is critical to our customer base”, he says. “We firmly believe that’s how the business has to change.”

B2B focus

Purdy is not alone in seeing the potential for the Internet in B2B applications.

Whether the focus will shift completely away from direct sales remains to be seen, but several companies are currently investing in Internet solutions involving their broker sales channel.

At a recent e-commerce conference hosted by the International Quality and Productivity Centre, the potential for B2B Internet applications in insurance took center stage. “Companies are willing to pay right now to make their brokers more effective,” notes Justin LaFayette, president and CEO of vendor DWL Inc. Regardless of what companies’ future e-business plans might be, companies are now integrating their back offices with the broker channel via the Internet, he says. LaFayette does see a time when more companies will use online sales as one more distribution channel, but doesn’t see this as a death knell to brokers. “We’re not one of the companies that think brokers are going to go away… [but] there may be less of them or higher qualified ones.”

No one can “just sit on the sidelines” and rely solely on the broker channel, in LaFayette’s view. Carriers are going multi-channel and brokers are going to be just one of them, “and they only want the best brokers”. Technology is becoming a way to attract and mobilize the best brokers, he adds.

Creating an online relationship with brokers is one way to increase a carrier’s marketshare with brokers, agrees James Barber, client executive for Information Builders. He adds that while companies can make long range plans for e-sales, the more immediate need is to organize the information existing in their databases in order to make it accessible to consumers. “The informational piece is delivering returns today”, while the benefits of online sales remain to be seen.

Ball says that B2B solutions have the potential to address the industry’s “biggest bugaboo” – reducing expense ratios by streamlining business processes.

“That, to me, is the biggest area where the Internet presents the best opportunity.” He predicts a time when not e-sales but “value added” customer service functions – payment, updates, communication – will be the focus of Internet strategies, rather than e-sales.

A narrow view of the Internet that accounts only for its use as a sales tool has hampered the industry thus far, says Rob Gow, vice president of e-business solutions for InsuroCity.com. The industry can “more effectively influence bottom-line results” by using the Internet to automate workflow, he asserts. “I look at the Internet as a utility, the same as a telephone. You would never just use the telephone to sell things.”

E-sales are “probably the most dangerous step” for a company to take in terms of uncertain return on equity, but it is often seen as the first step for companies, says Gow. Companies who seek competitive advantage by being first on the block with Internet sales will soon see that advantage wear itself out. “The real advantage comes from use of technology within the company itself… the greater you drive the Internet into your business, the greater and faster you’ll see the benefits”

Explaining the potential benefits the Internet can provide in B2B transactions, Barber notes, “the web can help you sell a policy worth a couple of thousand dollars, but what if the web could link you with a decision-maker [an underwriter] who will stop you from taking on a bad risk that could cost you big?”

Portal potential

Cost efficiency is a key driver behind a new industry initiative to link companies and brokers across the Internet, says Westera. The CSIO broker/company portal, which will begin construction this year, is in part an effort to deal with the industry’s expense problems. “There is recognition within the industry that the industry itself has to reduce operational costs.”

More than 40 companies, representing 61% of the direct written premium, are CSIO members, making the portal a widespread proposition. Brokers would have single sign-on access to multiple companies through web-enabled screens, allowing them to do a variety of transactions. CSIO plans to expand the number of transactions as the portal moves through various phases of construction.

Ball feels the portal could bring the best advantage to brokers by increasing their productivity, reducing the amount of time spent on routine transactions and freeing up time for customer service.

But one criticism brokers have of the portal, at least in its initial stage, is that it will lead them to individual company websites. While these sites will be similar, conforming to CSIO web screen standards, they will take brokers away from their existing management systems, a process which Purdy says is less efficient. “Our customers have invested a lot of money in our systems”, and have spent time training staff on those systems, he says. Purdy adds that his company is having discussions with CSIO about how a more seamless approach for brokers can be achieved. The initial concern will be the transmission of data between broker management systems and the company browser screens, but the long-term concern will be finding a way to let brokers use their existing systems to work within the portal environment.

Purdy and others are impressed with the level of commitment companies seem to be showing for the project, especially in light of the competitive nature of the insurance market. Companies will “co-operate where and when it makes sense…but it’s still a very competitive environment,” notes Alan Boyes, senior vice president of business development and marketing for the Insurance Information Centre of Canada (IICC).

Ball admits “there seems to be that fear among companies” that they will give up some competitive advantage by co-operating. The thinking is, “if my product isn’t unique anymore, the broker gains more control”, he says. Companies may fear the broker’s ability to “hit a key and go somewhere else”. Companies, including those involved in the CSIO portal, are also establishing proprietary websites. “Are they going to want to take a step back and join everyone else?” Ball wonders.

Westera says the companies involved in the project prefer the idea of a portal to proprietary sites, if only as a more cost-effective means of doing business. He sees the company sites as a “back-up plan”, given that the portal is a recent initiative. Companies could not afford not to have some sort of site for their brokers to interact with on the chance the portal did not happen, he says.

Companies are looking at the portal as a way to make doing business with their brokers far more efficient, says Keith Eva, vice president of management services for Royal & SunAlliance. Royal is involved in both its own Internet applications for its broker force as well as the portal initiative. “We’ve got to change dramatically the way we’ve done things [as an industry],” he says. CSIO’s standards and Internet interaction have the potential to make once cumbersome tasks much more efficient. Eva uses the example of policy changes which, he notes, account for 70-80% of broker/company transactions. Through CSIO standards, this once troublesome process is being streamlined.

Claims focus

After the broker channel, the second area of focus for Internet investment is claims, notes LaFayette. Part of the reason is again to deal with the expense issue. “Insurance companies, on the claims side, need to reduce the cost of claims administration,” observes Dale Hardy, president and CEO of Correlation Technologies. His company provides service claims software via the web to streamline communication between companies, adjusters and suppliers.

InsuroCity.com’s Gow agrees that claims is a key area where the cost benefits of the Internet can be realized. His company links suppliers, adjusters and consumers online. The biggest challenge facing the industry is “getting people out of the culture of picking up the phone” to conduct business transactions. As the Internet becomes integrated into day-to-day operations, he predicts the industry will develop a “can’t live without it” attitude toward the new technology.

Hardy agrees that companies are going to embrace the web as a business tool. “Most businesses have moved at least part of their operations onto the Internet… the will is there.”