The growth of the internet has been explosive. Consumers have adopted the internet more rapidly than they did with radio, television and the telephone. The number of internet users doubling every few months and the number of internet millionaires - even billionaires - has made us all take notice.

But how will the insurance industry take to the internet? More specifically, how will the internet change the way insurance companies conduct business in the large risk segment of property/casualty insurance?

While the adoption of the internet by insurance carriers is developing very rapidly, early indications suggest there may be very different models of development for different segments in the insurance market.

Internet talk versus money

Most of the talk about the internet has been about its use in the business-to-consumer (B2C) environment. Some of the clearest examples are, E*TRADE and InsWeb, where individual consumers conduct their business directly with the electronic merchant.

Yet most of the money on the internet, in terms of sales, is in the business-to-business (B2B) environment. Approximately 90% of e-commerce today is B2B, and it is growing at twice the rate of B2C e-commerce. In the B2B marketplace, the internet is the tool of transactions between businesses. For example, a merchant may order supplies from a manufacturer, or an insurance agency may submit a piece of business to an insurance carrier for a quote.

Insurance carriers on the internet

A recent study found that 93% of insurance companies had an internet presence. As would be expected in the property/casualty industry, the traditional split between personal lines and commercial lines has carried over onto the net.

In personal lines, the internet is evolving as in the rest of the B2C market:

  • Brochureware: Most insurance company websites provide general company information similar to that provided in their brochures; hence, the characterization “brochureware.”

  • Interactivity: Many websites add the ability to e-mail company employees, to locate agents and brokers who represent the company, and to collect information on qualified leads.

  • Sales: Few customers indicate a willingness to buy insurance online - only 10% according to a recent study. As a consequence, only 12% of insurance company websites sell policies online. While insurance sales volume is growing, a study found that total premium from online insurance sales was less than $300 million in 1998. Still, many companies provide quotes over the internet, and InsWeb can provide quotes from multiple insurance companies for comparison shopping.

    Some other factors have slowed online insurance sales. Security of transactions is paramount, yet only recently has security evolved to the point where consumers and carriers are comfortable enough to transmit sensitive data over the internet. And the regulation of insurance by state insurance commissioners, including the regulation of insurance agencies, has meant that issues must be resolved state by state.

    Still, a recent study by an investment bank estimates that 15% of the $100 billion spent on automobile insurance every year will be purchased online by 2003.

    Internet evolution in B2B insurance

    In commercial insurance, the adoption of the internet appears to be taking two divergent paths.

    For the small risk market, the evolution has been similar to that of the B2C internet marketplace in general. Initially, insurance carriers posted such brochureware as their financial ratings, product and service offerings, underwriting guidelines, sample insurance contracts and a directory of company locations. The ability to send an e-mail to the company also is a common element on the website.

    Notably, some of the information on carrier websites is available to anybody who logs on, while other information is available only to select groups, such as producers, and requires a password to enter. Some insurance companies are using the internet to conduct all types of business transactions with their agents and brokers. At The Hartford, for example, agents can use the internet to apply for, quote, order, issue and bill for small miscellaneous surety bonds.

    Large risk B2B insurance on the internet: development stage

    When it comes to the large risk commercial insurance market, the internet evolution is quite different. That's because the dealings that large commercial clients have with their agents and carriers are radically different from those of personal lines consumers or even small commercial insureds. While many of us may deal with our insurance agent for automobile insurance only once a year, large risk insureds have constant interactions with their broker and carrier throughout the year.

  • First, the negotiation process when purchasing insurance and risk management services can be lengthy, extensive and interactive. Many coverages, pricing programs and services are custom built to meet the client's needs.

  • Second, each client's service plan - developed as a collaborative effort by the carrier, agent and client - must be continually monitored, and often modified, to ensure that everyone is working toward the shared goal of containing the client's total cost of risk.

  • Third, large commercial clients tend to have many claims each year, which must be reported, managed and analyzed to focus loss control activities on the most critical areas.

  • Fourth, large commercial clients tend to have very dynamic operations. Throughout the year, plants and offices are opened or closed, product lines are expanded or shrunk, markets are entered or exited, and employee counts are continually right-sized. All these changes can affect the insurance program and must be captured by the broker and carrier.

    Providing account services to a large commercial client may require daily interactions among the client, broker and carrier. Brokers - being on the front line with their clients and under fewer regulatory constraints - have led the way in using the internet to provide all types of services to their large risk clients. Now, insurance companies are rapidly adopting the internet to break down the traditional walls that separated carriers, brokers and clients.

    On the internet, the dynamic and interactive nature of the many continuing contacts between the carrier, agent and client first manifested itself in e-mail, which initially took the predictable form of letters and notes. At Hartford Specialty, one of the many features of our @venture website is that agents and clients can e-mail individual members of their account team, or the entire account team as a group.

    Soon, carriers began to use e-mail to distribute structured forms on which an agent or client could enter information that the carrier would then re-enter into its internal system. For instance, Hartford Specialty clients have the option of using a claim reporting form that is transmitted back and forth as an e-mail attachment.

    Current stage of net use in large risk B2B

    A more recent use of the internet in the large risk arena is to transform what has been called RMIS (risk management information systems), but was in actuality “CMIS” - that is, claim management information systems. The internet is helping to turn CMIS into true RMIS, useful for capturing, reporting and analyzing the full breadth of information required to manage risk.

    For more than a decade, risk managers have used automated RMIS systems to track and analyze their losses. Initially, automated RMIS tools were distributed using private dial-up networks. More recently, RMIS has migrated to the internet to take advantage of browser technology.

    For example, our @venture website has allowed us to evolve our former CMIS into a RMIS by adding numerous functions that support and ease many of the tasks that brokers and risk managers perform.

    Today, we are seeing the continuing development of new e-business applications, including:

  • Program specifics. The posting of information about the structure of a client's past and present programs, including service fees, policy limits and states.

  • Policy forms. The actual document may still be issued on paper, but the producer will never again have to worry about finding the paper file to know what the form says.

  • Billing. An invoice for transactions on a thousand claims per month, requires a lot of paper to print and mail. It also makes it difficult for brokers and risk managers to reconcile items on the invoice with the transactions that triggered the charge, which often are stored in a separate database. Internet browser tools such as search, sort and drilldown greatly ease this reconciliation task.

  • Service plans. The web is the ideal place for posting a client's service plan, where all the service commitments made by the insurance company - whether for claim, loss control or account services - can be captured, monitored, modified and measured.

  • Auto ID cards and certs. Brokers and clients can use the web to produce their own automobile identification insurance cards and certificates of insurance.

  • Claims. Clients can report losses over the web and locate authorized medical providers who are in the carrier's medical network.

    The future stage of large risk B2B on the internet

    The next steps on the internet's evolutionary path for large risks will further support customer initiated transactions. This is a giant step from simply sending a note on some matter or viewing some information in an electronic file. With customer initiated transactions, the client or producer will actually operate the carrier's system. Examples include:

  • Renewals. Brokers and clients will be able to develop and compare alternative renewal proposals (seeing the effects of different options through iterative what-if queries), and then make their submissions via the internet.

  • Claim management. Brokers and clients will be able to be actively involved in the claims resolution process through online discussions with claim handlers, nurse case managers and vocational rehabilitation counsellors.

  • Libraries. Carriers will open “virtual doors” to their loss control libraries and other valuable information to their brokers and clients.

    These are examples not of “one-and-done” transactions, but of functions that will radically improve brokers' and clients' risk management practices, as well as their day to day risk administration burdens.

    How will the internet affect agents and risk managers?

    Some insurance companies, including The Hartford, service large commercial accounts with an account team that includes the broker, the risk manager and carrier representatives. Some people worry that the direct, one-on-one nature of internet transactions will facilitate cutting the broker out of risk management.

    At Hartford Specialty, we believe the opposite will occur. The internet will facilitate tearing down the walls that traditionally separated the broker, client and carrier. By providing all members of an account team with an eye into information and data they didn't have before, the internet will be an inclusionary - not exclusionary - risk management tool. The internet will bind people in a collaborative, consultative effort that will improve the practice of risk management and enhance its value to a company's shareholders.

    What will be cut are the inefficiencies and errors of moving around outdated, inaccurate paper, of not connecting with busy people when you need them, of having valuable information in databases you can't access or analyze. As a result, the internet will allow easier, less expensive, more accurate and, thereby, more effective risk management, with greater and more measurable impact on a company's success. And that will be a better time, indeed.

  • Raymond J. Sprague is senior vice president and managing director, Risk Management Division, The Hartford Financial Services Group, Inc.