There are some obvious, and not-so-obvious reasons for the insurance industry to take up the revolution of electronic commerce, writes Dan Carmichael.

Electronic commerce, by its revolutionary nature, creates a great amount of excitement in the insurance industry. It breaks the normal barriers of business providing the potential to open new markets and operate more efficiently.

Instead of speaking on the telephone, people conduct transactions electronically through a network, perhaps using a web browser to tap into a partner's extranet or submitting changes directly to a company's legacy systems.

Just like most other revolutions in business, e-commerce has many myths swirling around it. Some characterize it as technology that is nice to have, but not critical to business success. However, there are plenty of surveys that support e-commerce as a compelling business opportunity and not just a flash in the pan.

E-commerce potential

International Data Corporation, a respected industry analyst in this area, estimates that the e-commerce market will grow from over $5 billion in 1998 to more than $200 billion in 2001. This revolution is happening fast and companies that do not get involved early may be threatened. is a good example of how traditional book stores have been impacted by e-commerce. became the third largest bookseller in the world without opening a single, physical store.

Not only are more people becoming more comfortable with the online medium, but more people are getting online than ever before. There are some obvious, and not-so-obvious reasons for the insurance industry to take up the revolution. E-commerce is fast, it reduces costs and errors. But e-commerce may also help the insurance industry provide better service to customers, and potentially provide a competitive advantage in new markets.

Some very recent numbers from Nielsen Media indicate that the number of North Americans (US and Canada) surfing the internet has surged to 79 million. This study showed an increase of 36% in the number of adult users in the US and Canada compared to the 58 million users measured in a previous study less than a year earlier in September 1997. Furthermore, only 18 million North Americans were online when Nielsen conducted its first internet survey in 1995.

E-commerce and insurance

So what does all this mean to us in the insurance business? IVANS decided to commission a study to find out more. The study examined internet usage among more than 2,000 consumers across the US, and their attitudes towards online insurance transactions.

IVANS discovered that many people are net surfing at home. In fact, 29% of the respondents have internet access at home - a fairly large number. But while consumers are quick to spend their money at online music stores and booksellers, they are not as anxious to conduct insurance transactions online.

The survey revealed that consumers prefer the human touch when it comes to insurance purchasing - certainly good news for the independent agent.

Could the insurance industry be betting on the wrong horse? If insurance perfected an online purchasing mechanism, would consumers use it? Probably not. Those who are quick to point to or CD Now, are not making a fair comparison. Consumers purchase books and CDs many times during the course of a year. When a consumer purchases a CD that he or she does not like, the financial risk is minimal - perhaps $10 or $12.

But insurance is usually purchased only once a year. If a customer has a good relationship with their agent and company, that often turns into a renewal once every few years. It is a transaction that consumers are not as familiar with, and one that has dire financial consequences if incorrect coverages are purchased.

Does this mean that a web presence for insurance companies is unnecessary? Absolutely not. At the very least, the internet provides opportunities to build brand awareness, and offers an entirely new way to provide - and enhance - customer service and sales. If companies can make that insurance policy renewal or change an easy, self-service, online transaction, they will find online success.

Transactional web sites will be the key to the future for companies and agencies, whether these sites are designed to actually sell policies, service customers, or provide a higher level of information, marketing and consultative selling to new markets.

Next steps

A web presence is a critical first step. Evolving to a transaction web site will be a key to future success. The right combination of technology will help companies provide better service and open new markets. Independent agents will need to be connected to take advantage of a company's successful technology strategy.

For a short time, companies may be able to get away with a minimal e-commere strategy, or even survive with no e-commerce strategy at all. But it is very likely that these companies will continue to be beaten on a regular basis by competitors who have embraced the economy of the next millennium.

Dan Carmichael is the ceo of IVANS, a network services organization based in Greenwich, Conn. that provides a comprehensive array of insurance-based, electronic commerce solutions using the internet, intranets, consulting and network services. He is the former chairman, president and ceo of Anthem Casualty and The Shelby Insurance Group.