Richard Quagliaroli, executive vice-president of giant US insurer Hartford Financial Services Group is quietly confident that “the internet will play a bigger role in the distribution of property/casualty products”. Speaking at a US conference in December, Quagliaroli predicted that the internet would become another channel for insurance consumers to use.
Few could disagree, since even as he spoke Quagliaroli's forecast was indisputable fact. Insurance is already sold over the internet. But how important will the pipeline be? Will the world experience a revolution in personal lines distribution, as some hype has suggested?
Recent news on this side of the Atlantic hints that those whipping up the internet pudding may have added a bit too much egg.
For example, following its purchase of Iron Trades, acquisitive Australian insurer QBE opted to abandon Ironsure.com, Iron Trade's retail internet distribution site.
Days after came the news that Rapid-insure.co.uk, an insurance intermediation “comparison engine” owned by retailer WH Smith, was no longer accepting new business. According to the Financial Times, the venture's managers were in desperate talks over funding after the site had attracted only 3,000 customers since February.
Blaming the dotcoms
The company said the state of the financial markets (that is, the dotcom sector's fall from favour) is to blame for its woes, not consumer disinterest. In fact, it claims that its own performance was 15% ahead of target. But Rapidinsure had managed to offer only 14 lines of cover, instead of the 70 proposed at launch.
The intermediaries' troubles followed those of Inspop.com, the bizarrely-named comparison engine that its marketing manager Mark Garrett describes as “an electronic yellow pages with a large marketing spend”. Alas, customers who visited the site found that Inspop didn't have much on offer, due, Garrett said, to the “technology” challenge. “We launched with seven insurers. Two particular insurers couldn't move as quickly as we wanted to,” he says.
Perhaps more surprising than any of these developments, however, is the recent news from Prudential's ebank Egg.
Egg is considering adding bricks-and-mortar branches to its electronic distribution. In common with so many technology-based listed companies, Egg's share price is lagging below its launch value, and the company needs to expand its customer base: the high street, it seems, is where Egg hopes to crack the growth challenge.
Part of the problem for internet insurance retailers is the simple fact that very few UK consumers want to buy things on the web. “Most households in the UK are still not online, and could not buy from an etailer even if they wanted too,” says Thorold Barker, technology columnist at the Financial Times. Research by Swiss Re UK supports the premise. Earlier this year the reinsurer found that just 29% of consumers would consider using the internet for their next insurance purchase.
More significantly, sales of insurance products over the internet have remained virtually unchanged from 1998 to 2000. Swiss Re's survey found that fewer than 2% of motor and household sales were made from a computer, including buying through non-internet screens.
Subtract those sales, and the internet's UK market share is less than 1%. That's hardly revolutionary, especially since 9% of Swiss Re's survey respondents say they use the internet regularly for purchasing products and services. Not insurance, apparently.
“We would argue on the basis of our data that [the market share of the internet] is negligible, notwithstanding the research was conducted in the spring before we saw a mini blitz of dotcom advertising,” said Paul Martin, head of the chief executive's office at Swiss Re UK. “That is substantiated by focus group work we did. There was a huge degree of ignorance about what was available over the internet.”
Recent figures from the Association of British Insurers (ABI) support Swiss Re's finding. Data published in November shows that distribution of motor insurance by other means – including the internet – is less than 0.5%. “As yet, few policies have been sold [over the internet],” the ABI said. “However, many commentators are expecting a sharp rise in the importance of the internet in all sectors, including insurance.”
One such commentator is Swiss Re. “We suspect many pundits have overestimated the speed of change prompted by the internet,” Swiss Re said, “but we suspect, too, that they are under-estimating the magnitude of the change when it does happen.”
How much will that be? If ten times as many people as Swiss Re counted as ecustomers were to buy their insurance over the internet, the total market share would be around 10%, certainly making it an important channel.
Come the revolution
But when will the revolution happen? Some would say when the young grow older, but of the 804 respondents to the Swiss Re study who have motor insurance, only three bought their policy over the internet (a rollicking statistical 0%), and the youngest was in the 35 to 44 age group. None of the 289 younger insureds bought online.
Benjamin Ensor, an analyst with Forrester Research, the international internet and financial services organisation, sees the channel growing quickly, but not without some more casualties along the way. “We think by 2005, about 20% of sales will be online, including through media such as interactive TV,” he says.
The slow start is due to past mistakes. He described two hitches that have plagued some early einsurers. “To date, most of the insurance companies' direct [online] offerings are failing to satisfy consumers. They are neither cheaper nor more convenient than using the telephone. We are not seeing insurance companies pushing the frontiers of ecommerce.”
A second major problem is that the existing intermediaries have not yet made their moves. “The players there are small and unknown. The internet gives consumers the possibility of getting large number of quotes easily, but the first comparison engines were slow, and most sites pretty much neglect customer service.”
For Ironsure and Rapidinsure, branding was the catch, Ensor claims. “Neither of them were an established brand, so they were not a logical place for consumers to look. Both had nice sites that worked well, and their prices were reasonable, but consumers were not aware of them.”
In addition, they failed to offer choice, he says. “Consumers didn't get the confidence that they would get the best quote possible. Getting a quote from a single insurer isn't satisfying – although Direct Line has avoided the problem by positioning itself as having the cheapest prices.”
Brand is the big issue, Ensor says, suggesting that start-ups are unlikely to be able to master both brand and technology. “You don't come across many companies in any sector that have excellent products and are also good at attracting customers. The firms that specialise are usually the ones that win.”
So companies attempting to build a trading platform and supply network, as well as fighting in the fiercely competitive battle for market share, may need a strategic rethink. “I wouldn't be surprised if Inspop changes its strategy,” Ensor says. “I think it will struggle to build a new insurance broker, because it is very, very hard to play more than one role successfully.”
In part, Rapidinsure's scapegoat – the financial markets – will prevent them from trying for too long. “We believe that new companies like Inspop can't spend a sufficient amount both on technology and on building their brand. Investors are not prepared to fund customer acquisition.” The result? “I think we could see more failures,” Ensor predicts ominously.
Forrestor Research sees a future with three kinds of internet distributor: underwriters' direct sites which focus on products offering the very best value; online “supermarkets” which let consumers sort through a large number of competing quotes; and so-called “attractor” sites such as Yahoo!, which already have high traffic levels and can present their surfers with an insurance proposition.
For each of the types, brand-building need not be the main focus. Consumers will already know and, presumably, trust the company behind the product, leaving the operator to concentrate on products, technology, and service. And in the UK, the underwriters' sites are already ahead as the big players lever their brands.
All are coy about quantifying exactly how much business they have done over the internet – because it is not very much, Ensor suspects -– but each of them has an internet presence, and is already selling through the industry's latest, albeit non-revolutionary, distribution channel.
