Early in 2000, just as doubts were beginning to spread about the exuberant ratings enjoyed by dot.com companies at the end of the 1990s, a report was initiated by the Chartered Insurance Institute (CII) and PMI Management Consultancy into the use of e-commerce by the insurance industry. Its objectives were:
To achieve these objectives, the researchers used three main methods:
The state of the industry
All the evidence from this survey, the financial press and from discussions with people in the industry, indicates that the development of insurance products over the internet has been cautious, and as a result the industry is in “catch-up” mode with the rest of the financial services sector.
One of the main reasons cited for this slow development is the complexity of insurance products, which often require considerable advice for the consumer. The “on-line suitability” of an insurance product depends chiefly on how much advice is required, and as with securities transactions only the simplest operations seem to be suitable for the internet. Thus motor, household and term life insurance might feature strongly, but pension plans would not.
The customers themselves are torn by conflicting attractions: on the one hand, the internet makes it much easier to compare prices offered by different suppliers; on the other, many of them prefer to talk through their insurance needs with another person rather than buy a policy off a “virtual shelf”. And it is hardly surprising that the agents through whom traditional insurance companies operate continue to emphasise the human contact element: for them the internet is a major threat, as direct insurers make savings by eliminating commissions.
Other difficulties include the lack of harmonised standards across the industry - for example with the settlement of claims - and divergent regulations in different countries, which cause particular problems for companies with global aspirations.
Faced with such daunting hurdles, the prospect of transforming a company from a bricks and mortar operation to “clicks and bricks” is not an attractive one, but perhaps competition will make some changes in that direction inevitable. The emergence of the internet has lowered the barriers to entry into the financial services industry, including insurance, and the much lower set-up costs have encouraged “non-insurers” to enter the market. Leading banking groups in Europe derive a growing proportion of their profits from insurance activities by exploiting the investment they have already made in e-technology. More and more customers are looking for integrated solutions to their financial services needs, and for many of them bancassurance groups provide the answers. Others may find that their banking and insurance needs are catered for by their local supermarket with its well-established brand.
Whether insurance companies have enough brand leverage and trust among their clients to extend their “market space” is another matter. Certainly some of the bigger names (Prudential, for instance) have developed a banking business, but only at the cost of paying a high premium for deposits.
Competition from all directions puts enormous pressure on insurers to cut costs - start-up companies have a lower cost base and can compete on price to achieve market share - and general insurance products are being increasingly transformed into commodities. The resulting lack of differentiation means that insurers have to look for new ways of distinguishing themselves from the competition, stretching their marketing budgets in the process.
The outlook is not altogether gloomy, however, and many speakers at recent insurance gatherings have argued that e-commerce presents more opportunities for them than risks, despite the increased competition. First, the internet increases the number of selling opportunities, and second, the pressure to cut costs should lead to less expensive and therefore more attractive insurance services. Again, the internet means that insurance products can be offered to customers worldwide, though there are many cross-border legal constraints to overcome and local customs to understand if international expansion is to be worthwhile. And, of course, the UK domestic market may for the same reason of greater accessibility begin to look more attractive to foreign competitors.
The CII/PMI report looks at the extent to which companies are communicating and integrating their e-business into their corporate strategy, and finds a wide variation. For some, e-strategy is a separate part of the business, treated as an autonomous start-up operation. For others, it is the central strategy around which everything else revolves. When it comes to staff communication, it is interesting to note that members of senior management (and indeed most other employees) feel better informed of the company's e-business intentions than their junior colleagues. This finding could tell us a great deal about the ways in which companies keep their staff informed - or could just be an indication that senior managers are not as good at communicating as they should be.
Friend or foe?
The insurance industry's perception of the impact of the internet was assessed in the course of a series of interviews with the chief executives of a number of leading insurance companies. Some were sceptical, convinced that there is a great deal of hype about e-business, and comforted no doubt by the fact that there have been some notable dot.com failures recently - in the US a number of internet-only brands have either been closed or absorbed into the parent companies. Some sectors, however, foresee a dramatic impact - brokers for instance, and other intermediaries, who are bound to lose business as insurers sell direct to their customers.
Benefits would include sales of new products which the internet has made possible, cost reduction through greater process efficiency and much faster customer service. No-one, however, was very optimistic about the prospect of giving advice on the internet, and the general view was that in this area face-to-face contact with customers would remain vital.
Very few of those consulted saw the internet as a stand-alone alternative to the traditional distribution channels. Most regarded it as a necessary part of a multi-channel strategy and emphasised the need for integration across various channels (such as retail outlets, call centres and the internet) and across all appliances (PCs, TV, telephone). Others even felt that the internet might be more suited for processing transactions than for selling policies, and that some products, such as life and health insurance, were hardly ever likely to be sold on-line.
Security (especially about giving credit card details over the internet) and consumer protection (do customers get enough information over the net to be able to make reasoned decisions?) both seem to work against using the internet as a stand-alone distribution channel.
The battle for skills
According to the interviews with chief executives, “the insurance industry has been characterised by a nanny state for too long, and it is time that people started taking the lead in determining their own future”. Such comments, heard frequently in recent years, illustrate once again how research into specific areas can draw forth observations about the general condition of a business. In this context, the message is that e-commerce puts more emphasis on lifelong learning and on people's responsibility for their own training and self-development.
The earliest stage in this part of the research was to examine levels of confidence amongst staff in dealing with new technology. In general, the younger and more educated the staff concerned, the more techno-confident they are, and the more willing to take the initiative in improving their skills (though most seemed unsure about exactly how they would do this). Senior managers, old and young, remain optimistic about the impact of e-business on their career opportunities. Even amongst the 50-year-olds, less than 20% of the respondents thought that their careers would be threatened by it, though most of them are uneasy about the amount of e-business-related training being provided by their companies. The best qualified group - those who already have degrees and/or professional qualifications - are the strongest in the belief that on-the-job training will not be enough. (A strong cue for providers of adult education?) Such people no longer expect to have a job for life with the one company, though it was evident from the questionnaire results that very few of them would consider moving to other companies simply for the sake of better e-business training.
Retraining and retaining
Middle managers are the category perceived to be most in need of retraining, and indeed the whole middle management layer was thought by some to be under threat from e-operations.
Fewer people are likely to be needed in the physical roles, as these are complemented and replaced by virtual roles, but the transition is thought likely to be gradual, “evolution rather than revolution”. Nevertheless, one wonders whether the speed of change will be so slow bearing in mind the rapid growth of call centres.
As for retaining staff and attracting them to the industry, senior managers are not too optimistic, as the dot.com companies absorb talent from traditional companies, and the industry seems to be sluggish in counteracting this trend. One chief executive summed up the battle for skills as being like choosing between working on a battleship or on a speedboat.
E-insurance: the dynamics
Looking at the big picture, the company CEOs and the focus group saw many similarities between the experience in the USA and that in the UK, and identified four main categories of insurance providers over the internet:
1) direct insurers - still a rudimentary insurance market in the UK, compared to US insurance “malls” where customers can buy from one central site without needing to surf various websites;
2) on-line intermediaries - traditional brokers backed by strong brand names (“aggregators” or “quote malls” in the US);
3) portals - a new breed of “cybermediaries” selling on-line insurance products provided by a panel of insurers (US - similar, with heavy emphasis on car websites); and
4) aggregators - in the UK, behind-the- scenes operators who do not deal direct with customers but are more concerned with the business-to-business (B2B) scenario. (In the US “reverse auctions” enable clients, usually large companies, to put their insurance needs out to tender.) Aggregators do not have a publicly known brand or label.
Looking at the impact of new competitors, the chief executives felt there were two important factors, operating in different ways:
Start-up companies can outsource the processing side and concentrate on distribution.
The winning team
The focus group considered the following to be the key success factors in e-insurance:
Above all the winning team, it seems, will be one which can turn on its head the old belief that insurance is a “sold” rather than a “bought” product. The customer should be both the starting point and the end point of product development, and e-business will be a key part of the process.
Eric Glover is editor of Performance Matters and an advisor to PMI. The full report is available from PMI Management Consultancy, 5A Praed Street, London W2 1NJ. Tel: +44 (0)20 7724 9005
Fax: +44 (0)20 7706 2100.