Debate Goes On Over Using The Internet For Distribution

By Ara C. Trembly

Two surveys done by industry analyst groups seem to agree that insurers see a bright future for the Internet in the industry, but the studies disagree when it comes to Internet sales and distribution of insurance products.

In a recent survey by Greenwich, Conn.-based IVANS, 75% of insurance companies polled said they regard their Web sites as sales vehicles for insurance. “We take that to mean everything from new customer acquisition and applications to referrals to agents,” explains Clare DeNicola, vice president, sales, for IVANS.

In contrast, however, when asked whether or not they view the Internet as a vehicle to sell insurance, 69% of companies who said they use independent agents to sell “either disagree or strongly disagree that Internet is a viable distribution model,” says DeNicola.

Among a smaller group of respondents who dont use independent agents (about 20% of the total sample), more than 50% either agree or strongly agree the Internet is a sales vehicle for selling policies, DeNicola adds.

In addition, while some companies in the IVANS survey said they considered their Web sites to be sales vehicles, “only about 15% of respondents are currently using the Internet as a distribution channel for insurance sales,” says IVANS.

The IVANS survey questioned 80 information technology (IT) executives from both life-health and property-casualty companies, notes DeNicola. Job titles of those surveyed include CIO, CTO, director of MIS, vice president of IT and director of IT.

According to DeNicola, the survey revealed that insurers are finding “practical” uses for the Internet. “They are being neither aggressive nor conservative [in utilizing the Internet], which is good news,” she notes. “If youre purely aggressive in adopting technology for technologys sake, it’s going to burn out.” A more moderate approach, she adds, lets insurers “adopt the best technology for that need.”

The IVANS survey also found that only 8.1% of respondents said they had no plans to replace their legacy systems, while 30.2% were rewriting their systems to be Web-based. The latter group, says DeNicola, is rewriting its systems on an application-by-application basis to run on smaller networked systems, rather than mainframe computers. “They will eventually dump their mainframes,” she says, adding 1.2% of respondents have already done so.

An additional 53.5% of respondents said they were implementing Web-based front ends for their existing legacy systems running on mainframes.

“Were in a very good place,” says DeNicola of the insurance industrys progress on technology, emphasizing what she calls the industrys “practical approach” and tendency to “evaluate the right things on an ROI basis.”

She characterizes the insurance industrys technology progress as “comparable” to banking and brokerage, indicating that “it could even go beyond that.

“Were probably still behind in [producing] flashy Internet sites, but were not looking at the Internet to be a sales vehicle.”

In the immediate future, she adds, insurance IT development efforts will focus on “back end stuff that wont be seen. Thats where you get the real benefits to the bottom line.”

Meanwhile, a survey by New York-based Tillinghast-Towers Perrin predicts “the expansion of the use of the World Wide Web as a distribution channel and to make current distribution channels more effective,” says Jenny Emery, Tillinghasts global e-business leader.

The Tillinghast survey, based on 120 responses from financial services company executives, found 91% of respondents believe that over the next three years, technology will drive “dramatic” changes, not the least of which is increased Web utilization.

According to the Tillinghast survey, “the number of companies that conduct more than 10% of their sales via new technologies is expected to quadruple in three years.” This is in contrast to what the researcher says are “previous reports that indicated most insurers did not expect the Internet to be a significant sales channel.”

Tillinghast noted that “distribution was clearly priority one for many insurers.”

Emery says one way in which the Web will expand is via establishment of broker portals, Internet sites where brokers and agents can get access to information for faster quoting. Larger insurance companies, she notes, will probably develop proprietary portals, while smaller companies may gravitate toward forming consortiums for the same purposes.

One barrier to development of such portals, however, is that “customers arent ready for it,” says Emery. She believes that will change, however, as younger generationsraised on computers and the Internetgrow up and begin doing more transactions online.

Demonstrating that customer relationship management (CRM) has had a significant impact on the industry, the Tillinghast survey also found that most respondents (75%) believe new technologies have heightened the strategic importance of “owning” the customer relationship.

The surveys reported sample is drawn from some 248 North American financial services companies participating in the Tillinghast e-Track program. Among those participating in this study 44% were life insurers, 35% were p-c insurers and 15% were health insurers, the researcher said. Senior management and planning executives made up 32% of respondents, finance executives 30% and IT/e-business executives 19%.

While the survey found that 70% of companies expect to increase or significantly increase their investments in new technology over the next three years, it also found that 60% do not believe the adoption of new technologies has led to a significant reduction in costs.

According to Emery, the insurance industry hasnt been successful in achieving cost reduction, because it has not “put the right kind of business case together.” In many cases, she notes, companies merely put a new technology layer on top of old business processes. “Until you re-engineer the business process, you [wont] get the kind of ROI that youre looking for,” she explains.

Historically, she adds, “the insurance industry has neither embraced nor been rewarded for boldness [in adopting technology].” This may explain “why so many are willing to wait and see results from peer companies before moving ahead.

“It remains to be seen,” Emery notes, “if being a fast follower is still the right strategy in insurance.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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