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March 13, 2000
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Online brokers prompt traditional companies to step up their Web efforts
By Charles Waltner
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he Internet is shaking up the insurance industry. Web sites are now operating as super insurance agents, offering more policy options from more insurance companies to more people at one time than any brick-and-mortar agency or flesh-and-blood agent.The threat of losing sales to this new form of competition is finally prompting the technologically reticent insurance industry to begin using the Internet as a sales channel. A growing numbers of insurance companies are spending money on full-scale E-commerce Web sites where consumers can research, apply for, and buy insurance without ever picking up the phone and talking to an agent.
However, many insurance companies are still struggling with the challenge of keeping up with the digital revolution without undercutting their all-important agents, which have been the companies' direct connection to consumers since the inception of the modern insurance industry.
Activity is clearly picking up in the industry. Most significantly, Allstate Insurance Co., one of the largest carriers in the business, said in November it would start providing full-service insurance sales over the Internet. Allstate, which provides property and casualty insurance to more than 14 million households and has 15,500 agents in the United States and Canada, declined to discuss its plans, saying it would be premature to talk about the May rollout of its E-commerce site.
Even without details, Allstate's move to the Internet is "huge," says Keith Lippiatt, senior VP of technol-ogy for one of the Internet's most advanced and largest "super-agent" insurance sites, InsWeb Corp. in Redwood City, Calif. Lippiatt says insurance companies were hesitant to work with his company as little as 18 months ago. But the Allstate announcement has spurred many to rethink their views of the Web as a sales channel. Some of those same companies that closed their doors to InsWeb last year now are calling back, he says.
But don't expect E-commerce insurance sales to skyrocket soon. Forrester Research predicts online sales will grow steadily from about $250 million in 1999 to $4.1 billion in 2003, or roughly 2% of the personal insurance market. But Forrester predicts the Internet will influence more than $11 billion in insurance sales by 2003 as many people use the Net to do research and make decisions, then go offline to make purchases.
Bill Doyle, a co-author of Forrester's report, says a survey of carriers shows that they are starting to take the Internet more seriously. But he stops short of saying the Internet will radically transform the insurance business. Still, he says, companies that don't take advantage of the Internet will likely suffer. "It's a storm that will cut down laggard institutions," he says.
Insurance companies cited fear of alienating agents and the complexity of their products as the two leading hurdles to selling insurance online, according to Forrester. Only about 55% of insurance companies thought the Internet would be a good place to sell insurance. And only 33% of personal and casualty insurers (auto, home, health insurance) thought more than 15% of their sales would come from the Internet in five years. And more than one-quarter of all insurers dismissed the Internet as a valid outlet for insurance.
"We aren't selling insurance online," was the response of one of the carriers in the report. "We think it's more hype than anything else. It's a pain in the butt to buy online."
Insurance companies don't have so many objections to providing quotes or self-service information to customers over the Internet, but they are proving slower at letting consumers make purchases online. Safeco Corp., a Seattle carrier with $6.6 billion in annual revenue, 12,000 employees, and an 8,000-agent network, typifies the attitude of many traditional insurance companies that rely heavily on a network of agents.
George Johnson, VP of corporate marketing and communications for Safeco, says the main problem with online sales is "channel conflict"; Safeco worries about competing with agent sales and taking away their commissions, which average 10% but run as much as 20%, by selling policies online. He's also quick to point out that insurance isn't like aspirin or books--people want personal support and advice. He says Safeco's customers aren't "clamoring" for Internet service.
Nevertheless, Johnson says, Safeco is enthusiastic about providing Internet insurance services on the Web. The company is developing an online service to assist customers in getting quotes and writing their own insurance policies. In the meantime, customers will be referred to a local agent to complete any sales transactions. Online buying from Safeco won't be available until 2001, he says. The company has also launched Safecom, an extranet for commercial customers that lets them research information on their policies.
Overall, insurance isn't exactly burning up the E-commerce track. Only a handful of full-service Web sites offer electronic interactive service for every part of the shopping experience, from information and quotes, to online applications and policy purchases.
Most insurance sites are predominately informational, with some offering automated price quoting. Very few sites are receiving raves for their ease of use, the Forrester report notes.
InsWeb and another leading super-agent site, QuickenInsurance in Mountain View, Calif., provide general information about auto, home, property, and life policies for consumers and small businesses, and offer insurance quotes from several companies, in some cases letting consumers buy the insurance online. Such market transparency helps customers find even lower prices on insurance than before, executives from these sites say.
Certainly, insurance sites such as QuickenInsurance and InsWeb claim plenty of the biggest insurance companies as partners. Quicken's 40 partners include Travelers, Transamerica Occidental, John Hancock, and State Farm.
Steven Aldrich, president of QuickenInsurance, part of Intuit Inc., says some carriers license the sites as agents while others only let them refer interested customers to agents. The Web sites get a commission from agents or insurance companies for each lead generated.
These super-agent Internet sites haven't been without their challenges. Quicken and InsWeb both note that back-end integration with insurers' legacy systems has made for slow going. Aldrich says it takes six months to a year to complete a back-end integration with one of his company's partners; data mapping is one of the most challenging aspects.
Quicken uses a technical framework supplied by BroadVision Corp. and an Oracle database running on Sun Microsystems servers. It uses C++ to write objects that request quotes via a secured asynchronous transfer mode link from the mainframes of its insurance partners. The quotes are returned to a Netscape Web application server, which works with the BroadVision software to produce the interactive interface on the Web site.
Quicken, like most companies involved in Internet insurance sales, is looking to the Extensible Markup Language to ease the challenges of exchanging information between carriers' legacy databases and Internet E-commerce applications.
But some aspects of insurance purchasing just aren't possible online. Term life insurance contracts, for example, can't be sold without customers leaving their computers because they require a medical examination. "You can't draw blood through a keyboard," Aldrich says.
Still, the Net is prompting action on the part of insurance companies. But only a handful of companies are aggressively moving into E-commerce. The insurance companies making the fastest move have been direct insurers--companies that sell their products directly to the public, usually via toll-free call centers.
Progressive Casualty Insurance Co. in Mayfield, Ohio, has been an industry leader in E-commerce. Progressive has already set up a self-service function, called Personal Progressive, which lets customers do what-if scenarios for insurance pricing, alter policies, and pay premiums electronically. Its quoting engine even will generate comparative quotes from a few of its competitors, as well as its own.
Alan Bauer, the Internet business leader for Progressive, says the site accounts for 12% of all of Progressive's direct sales, up from 2% a year ago. Direct sales account for 25% of all of Progressive's business.
Other insurance companies with existing direct-sales operations have also shown interest in expanding their operations onto the Internet. Scott Alexander, chief E-business officer for the American International Group Inc. in New York, says his company has no problems with selling policies over the Internet for its direct-sales division, AIG Direct. "We see no channel conflict there."
But his company still provides only online quotes at its site. Consumers have to E-mail policy requests and wait a day to get a quote back. Alexander says his company is working on creating an interactive agent for executing sales online, which will be tied into the same systems used by its call center.
But even AIG draws the line at Internet sales and is steadfastly loyal to its agents. AIG isn't considering Internet sales for products in any of its other divisions, besides its direct-sales group. In its other business groups, AIG's Internet initiative focuses only on helping customers access information and helping brokers use the Internet for their own businesses. Says Alexander, "We're in the business of working with brokers."
Photo of Johnson by Ellen M. Banner
Photo of Aldrich by Danuta Otfinowski
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