Numerous questions abound in the insurance industry today. Are we seeing the end of the broker? Will the internet take over as the preferred distribution channel for insurance products? Is the electronic platform going to rule the world?
If you listen to the systems designers and providers, that is what the future will look like. Insurance will be sold electronically at much lower costs and with deeper market penetration. Customers' PCs or television sets will interface with intermediaries' and direct sellers' systems, and there will be minimal human involvement in the whole process. Policy production, premium collection, claims handling and settlement and related matters will all take place in cyberspace.
Privately, most insurers and brokers scoff at these predictions, if only because the available evidence is that insurance buyers prefer the human touch and welcome the chance to discuss their needs face-to-face or at least over the telephone.
The much-heralded advent of the virtual insurer and the virtual intermediary remains some way off, although product sectors such as motor and household insurance offer themselves as ideal areas in which to develop web-based business.
Direct Line reports that its internet vehicle, directline.com, has proved hugely successful and claims that it has captured almost one-third of the online insurance market in its first year of trading. It claims to have sold more than 100,000 personal lines policies through the site, taking an average of ten minutes to complete each transaction.
Admiral Insurance, an arch-exponent of direct selling, is adopting the internet route wholeheartedly. Its freshly launched motor site, elephant.co.uk, is targeted to sell 5,000 policies within its first six months and will undercut Admiral's telephone sales premiums by up to 10%. Other products will be added to the site if things go well.
Contrary to the received wisdom that life and health products are not well-suited to electronic distribution and selling, some insurers are taking that route – although in many cases the products on offer are not as comprehensive as their land-based counterparts. Legal & General, for instance, has launched an online term assurance product and expects a considerable degree of take-up.
What is increasingly evident, across the industry, is that insurers are being driven to adopt internet and web-based technologies. Not only are the potential lowered unit cost outcomes very attractive to insurers battling an increasingly competitive and expensive environment, but there's a mounting air of “me-too-ism”.
“If we don't do it, someone else will,” says David Sweeney, UK business manager at Hiscox. “We must keep up-to-date and not miss out on any business opportunities.”
In common with other mainstream insurers, Hiscox is spending heavily on the new technologies. “We are investing a lot of money in various systems, and may not see an immediate return. Also, we are planning to develop a number of web-delivered products and hope to unveil those fairly soon.”
Graeme Sutton, marketing manager at Independent Insurance, stresses the insurer's commitment to its broker network and says that electronic channels offer the chance to deliver existing products and services faster and more accurately.
“Our approach is to use technology to help our brokers. For instance, we can deliver documents to them within five days, unlike some other companies which invariably take weeks – or even months – during which time the nature of a risk may change.”
The speedy and tailored exchange of information is, he argues, one of the major advantages of any electronic channel. “We use technology so that a broker can feed us information electronically. The aim is to reduce costs for both ourselves and the broker and to improve our service to the broker and the policyholder.”
Independent's determination can be measured by the extent of its investment, for example, in software developer Koukia, where some £12m has been committed over a six-year period. It has also invested in websites such as business-risk.com, through which selected brokers can transact small to medium-sized five-year commercial policies, and in managerisk.co.uk, providing access to practical risk management tools and information
Notwithstanding the determination of individual insurers to support and bolster their broker networks, many see the emergence of new and swifter media as offering an opportunity to circumvent or even replace the intermediary as a primary outlet. In most cases, the driving force behind the rush to electronic distribution channels is the urgent desire to add another string to the selling bow.
“It's all getting a bit silly,” says one regional broker. “Instead of concentrating on what they do well, and playing to their strengths, insurance companies are alienating many of their traditional outlets – the experienced and skilled intermediaries – and seeking to cut them out altogether, although they deny that fervently.”
No Luddites here
The critics of the rush to edistribution are anxious not to be seen as Luddites, however. They readily embrace the many advantages of the internet as an information and administration tool.
Insurers recognise the unlikelihood of the internet emerging as a major distribution channel for anything other than individual personal lines business and relatively small commercial lines products. But they persist in their determination to participate fully in the new channels.
“What we have here is an industry pre-occupied with the need to open more channels to the consumer,” says Andy Cherkas, head of strategy economics at management consultants Tillinghast-Towers Perrin, “and looking to information technology as the magic tool to do that.
“Many companies want to be multi-channel, multi-product providers. Few, it seems, are prepared to focus on being particularly good in specific channels or products, or in serving specific customer groups.”
Cherkas bases his assessment on the results of his firm's recent survey of European life insurer chief executives. According to the research, distribution effectiveness is the top strategic challenge facing companies in the coming five years, with 56% of respondents selecting it as the key issue. The next two are changing market and customer needs (48%) and the increasing demands of information technology management (41%).
He reports that four out of every ten insurers are looking to develop alternative distribution channels, improve customer service and use technology more effectively. Opinion on the likely future of the internet as a distribution channel was sharply divided, with 60% feeling that it would emerge as a major distribution channel in private customer business, while the remaining 40% disagreed. Almost all those asked, however, believe that the internet will become a significant information and service medium for customers and intermediaries.
Where insurers are falling down in their rush to cyberdom, according to analysts at Swiss Re, is in adopting the internet as just another distribution channel. That isn't the right approach, cautions the analyst. The internet works best when used to do new things in a different way.
Cherkas emphasises the importance given to distribution channels by insurers to describe how to tackle the next half-decade's challenges: “We could sum it up as ‘more products pushed at more consumers through more channels'. One out of two insurer chief executives intend to develop alternative distribution channels as a way to improve their company's competitive position.”
Some products will never lend themselves to electronic distribution, for instance employer-bought or sponsored personal accident and travel insurance, although the internet provides valuable opportunities to promote those products and target would-be policyholders.
“Our marketing is essentially paper-based,” says Gary Anders, ACE Europe's head of accident and health for the UK and Ireland.
“However, we find the internet valuable as a first port of call for potential insureds. For instance, a product ‘flag'
on an employer's website can direct employees to information on a product and point them in the right direction to receive more details.”
Sweeney says that the time is near when most traditional products will be available online, but that the bigger or more complex programmes will continue to be broked and written in the time-honoured way – face-to-face and on paper.