With the dawn of commercial reality that follows the peak of expectations connected with all new technologies, there could be bright possibilities for intermediaries to trade and service online, with the internet playing its part in a multi-channel distribution model.
However, the future for e-intermediaries has been put into the spotlight, following Misys's plans to close its internet financial services businesses, Screentrade.com and Theformula.com.
Screentrade was launched in November 1997 and has been one of the most successful online general insurance intermediaries to date. Citing a lack of consumer interest for the demise of their online business, the closure of Screentrade isn't unique, with other sites in the US and UK similarly in trouble. It begs the question: if such an established intermediary is forced to close, what does the future hold for other online broking sites?
So far the concentration of effort has been in setting up facilities for the online sales of personal lines products. The difficulties in getting the public to use these sites, combined with the relatively low conversion rates that have been experienced, have definitely been factors in forcing some virtual intermediaries to shut up shop.
For example, online insurance intermediary Rapidinsure, launched in a blaze of glory in March 2000, attracted only 3,000 customers and marketed only 14 lines of personal and commercial insurance before difficult business conditions forced the company to cease trading at the end of last year. The trading company was subsequently bought by one of the original investors, personal lines intermediary Berkeley Morgan.
Why have intermediaries like Rapidinsure found themselves struggling to survive?
Many of the original online intermediaries launched with a flurry of bravado and hype, promising to attract thousands of buyers and market dozens of insurance products. However, many launched without any air of commercial reality or social awareness. According to Datamonitor, conversion rates from online quotes in all areas of financial services are still low, typically around the 1% to 7% mark. Even with Germany, the UK, Italy and France accounting for two-thirds of European households with home net access, many commentators see consumer inertia to buying goods online as an obstacle only now being broken down.
A lack of long-term financial backing has also been a crucial factor in deciding the fate of some online insurance intermediaries. Rapidinsure and direct insurance aggregator Inspop were both unfortunate that, when they needed additional funding the dotcom meltdown in the stockmarket scared away investors. While being an early entrant into a growing market can be advantageous, it has to be on the back of a sound business plan and long-term funding secure enough to get an organisation past the point where their market achieves a critical mass.
As far as the new dotcom entrants are concerned, a significant reason why some of them have struggled is that they have lacked the necessary expertise in insurance. Without this, or partners that intimately understand the market, many have focused on a low value-added, self-service and automated processing. A number have made huge infrastructure investments and ended up playing a numbers game with numbers that just aren't there yet.
Channelling the net
While there are exciting developments in digital TV, the internet is likely to continue as the leading medium for electronic commerce for the foreseeable future. According to Forrester Research, by 2003 there will be 154 million people in the EU who have internet access via a PC, including those who have access via work. This constitutes 39% of the EU population, with the UK representing a large portion of this. The use of the internet and other electronic channels for purchasing and service will increase as the cost-benefit models are far too persuasive for this not to happen. So where does this put insurance intermediaries?
Despite some of the issues outlined above, there are now a number of intermediaries that are successfully using the internet as part of a multi-channel strategy, alongside branch and telesales operations. Some have chosen to do so as part of long-term plans to improve and support customer relationships, some because they specialise in niche areas for which online trading can be ideal. Others do so because they can use the internet as a cost-effective way of expanding their market penetration. But all are looking for sustainable results in the long-term, not just quick wins.
The criteria for success at the moment would appear to be adopting the internet as an integral part of existing operations (not a replacement), being clear on how it fits with the current and future business and a readiness to make an ongoing, but affordable, investment in the technology.
Good integration is crucial. Back-office efficiency is the keystone of successful insurance intermediaries and many have invested heavily in systems that currently do a good job. To maximise that investment, they should consider putting effort into integrating web functionality into these wherever possible rather than running parallel systems. This will also ensure their client information is kept up-to-date, whichever channel the customer uses to deal with them.
Think outside the browser
What our experience has shown is that, in the long run, if the internet or other digital media are going to become major channels for general insurance – for business-to-consumer (B2C) or business-to-business (B2B) purposes – many current processes and relationships are going to have to be radically re-engineered for the online environment. For B2C, the emphasis has to be on speed, simplicity, ease of access and convenience, otherwise the majority of end customers will just not use these methods.
Meanwhile, we have to operate within the confines of standard industry processes and continue to work with our Icons customers to both extend the facilities they offer on the web and make them a more compelling. Sometimes it is just a question of thinking “outside of the browser”.
For example, Choicequote Insurance Services, a specialist in motorcycle insurance, is about to go live with an Icons solution. Because existing online motorcycle quotations can take in excess of 15 minutes, Choicequote have adopted a “quick quote” facility, allowing consumers to key in a minimum amount of personal data to obtain a quotation in just 60 seconds. This allows Choicequote to play to the strengths of the Internet as a distribution channel and provides them with a valuable additional route to market.
While sales and servicing of conventional personal lines products will remain an important area of web trading, there is a great deal of interest in deploying other lines of business such as small package commercial lines, for which CSC will shortly be offering a Icons version of its Gilt Edge system.
Beyond selling, as processes, security and communications improve, the potential exists for intermediaries to utilise the internet as a comprehensive servicing and communications hub for their markets. But technology is only one part of this. They will have to open up their systems to their customers, and ensure that operations and personnel are geared to handle an “anytime, anyplace, anywhere” consumer culture with its high service expectations.
If they can get it right, then the internet could provide them with a cost effective way of allowing 24/7 access to data, information and facilities and put them on a par in their local markets with much larger, national, organisations and brands.
Not all intermediaries will need or want to adopt this way of working. It may still prove
too expensive for some and require a step change in thinking that may prove too big a pill to swallow. However, and despite the recent collapse of prominent e-intermediaries, the rewards are surely there for those who can get it right.