Insurance Companies Ride The Waves

The insurance industry is full of com-
panies repositioning themselves as ?financial services’ firms and as suppliers of investment products. This, however, is only one aspect of tidal wave of change, much of it now driven by the rapid growth of e-business.
Recently AMP announced service that allows customers to buy life insurance on the Internet. In Europe and the US, similar trends have been under way. The research firm Forrester expects 20 percent of UK insurance company sales to be online by 2005. In the US, the giant insurance firms such as Allstate and State Farm have announced billion dollar-plus ?e-budgets’ and made it clear that they will sell directly to customers bypassing existing sales people. Allstate alone ran over 15,000 agents.
At the same time, new companies are appearing. Pure-play dot.coms have entered the fray. In the US, the best known are eCoverage and eSurance, which now provide online quotes for customers and, in California (the first state to recognise electronic signatures), sell insurance on the web.
Another model is the insurance supermarket. Supermarkets, such as InsWeb, are websites that allow customers to compare insurance offerings and select their provider online. There are two kinds of supermarkets: independent sites, which offer new brands, and ?white-label’ sites, which work in alliance with existing companies. In many ways, supermarkets hope to become virtual insurance agents. They offer fast advice and broad range of services by partnering with other e-businesses specialising in health, car sales, homes and holidays. And they offer low prices by undercutting traditional brokers.
While traditional insurance companies may work with supermarkets, they’re often unsure whether their new partners are force for good or evil. The supermarket play shifts the customer relationship away from the traditional company and also encourages customers to shop around on price, leading to increased customer churn and all its associated costs.

New customers
It’s important here to understand the world’s changing demographics. third of all people alive today are teenagers. Young consumers (age 16 to 22) in the US are estimated by Forrester to number only 5.7 million people now but are expected to grow to 21 million by 2003. Many of the young people who make up this emerging market already regard the Internet as ubiquitous. It’s part of their lives and they expect that it will be part of the lives of the people they do business with.
Increasingly, the evidence suggests that these younger consumers don’t value the traditional service provided by established financial services firms. They regard themselves as capable of performing their own research and making their own decisions. They are less dependent on advisers and are happy to build trust via cyber-relationships. In other words, they are the ideal audience for Internet entrepreneurs. They are also the developing market for financial services firms.

New customer focus
Irrespective of the customer’s age, customer service will reign supreme in the future financial services model. The smart companies are moving to provide what, research tells us, the e-customer wants: easily navigated websites capable of being personalised, with efficient service and comparison capabilities and good deals. Some companies are now using e-business low-cost reach to appeal to target markets that companies have traditionally ignored, such as women, minority groups and blue-collar workers.
The online supermarkets are also continually raising the bar in customer service in other ways. Time to market is catchphrase in e-business. The supermarkets are shortening times for applications and claims, simplifying the underwriting process and giving customers more options. Customers are coming to expect instant quotes and answers to their questions. Traditional companies will be forced to follow suit or will simply fall behind.
This doesn’t mean that the traditional agent role is dead. Some people will never want to use technology and always prefer face-to-face contact. Many customers will expect combination of personalised attention from their local agents and direct sales and service access. It seems logical, however, to assume that less of tomorrow’s business will go via agents and that only the smartest agents will survive.

So where are the old companies and their strategies?
While most of the large insurance companies are embracing e-business, their strategies – and the pace at which they deploy them – often remain conservative. Our experience suggests that less than third of senior executives in established financial services companies regard e-business as priority.
Most of these companies are using the Internet to advertise products and distribute information: business as usual but with different channel. They don’t see the need to change their strategies for e-business. They also underestimate the threat from the start-up dot.coms – nearly 90 percent maintaining that the traditional firms will still be industry leaders in 2005.
Many of these companies are also sticking to their own brands: strategy that may see them lose ground in the face of the supermarket sites.
There are many other reasons why the traditional companies are delaying action. Those most regularly cited are:
?Consumers’ fears over Internet security.
?Their own fear in untried e-strategies.
?The fear of revolt from an agent workforce threatened disintermediation.
?The difficulty of integrating e-business with existing technology.
?A lack of skills in the new technologies.
There’s another reason, though, that is less regularly acknowledged by the companies themselves, and which may be the biggest of them all: the problem of resistance to change by big companies with well-established track records, structures and processes.
The conservatism of traditional companies provides an opportunity for smaller, entrepreneurial companies to build an online customer base. Banks, too, see chance to broaden their businesses by using technology to manufacture and sell insurance more efficiently than traditional companies.
The new entrants are creating the new market while established firms are waiting for it to develop before diving in. This is likely to be crucial, losing factor in established companies’ strategies.

The way forward for old companies?
It’s easy to say that financial services companies should develop and execute an e-business strategy. In reality, they need to examine themselves and ask whether such strategy – no matter how clever – really stands chance of working within their existing culture.
If the answer is no, they should consider radical moves. The most radical of these is the creation of standalone e-subsidiary and the acceptance that it will cannibalise the head company. (My view is that if it’s possible for part of your business to be disintermediated, it will happen, so you may as well do it yourself.)
This will seem like an extreme strategy but it may be the only one that works: traditional companies often don’t provide the sort of flexible structure and culture needed to nurture e-business.

Time will tell
Time will tell whether those established firms that take less urgent approach to e-business are right or disastrously wrong. In one of my previous articles in this magazine, I described the development of online sharebrokers such as eSchwab and E*Trade. The rapid growth of these companies suggests it will be the latterÉ

Mike Cartlidge is director of e-business strategy at SeraNova.

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