Ecommerce is already going through a period of some turbulence. The share price bubble of dot.com companies has burst, the business to consumer (B2C) model has fallen out of fashion in favour of the business to business (B2B) model and everyone now has to have an interface for mobile phones as WAP and mcommerce are the “next big things”.
Despite the hype and the uncertainty about true ecommerce revenue and profit volumes, every company must take a view on the issue – even if that view is a considered “not for us at the moment”.
As a starting point it is worth defining ecommerce. My definition of ecommerce is the establishing or supporting of a trading relationship by utilising internet technologies, which means that it is possible to link trading partners with no more investment than a web browser and some kind of telecommunications link. This leads to opportunities to exploit markets that were previously unattainable, to become more efficient and to offer far better service.
In reviewing progress to date, the insurance market can be split into three main areas. The first is the commodity or personal lines market. This market is seeing a mixture of new entrants and established players. Looking at the US market, two of the major launches there have been Quotesmith and Insweb. Both of these offer a wide range of products in most or all US states.
While their premium volumes has grown threefold in the last year – $4.9m (£3.3m) in the last reported quarter – Quotesmith is losing money and is expected to continue to do so for at least another two years. Insweb is in the same situation and has decided to cut back and refocus the business. Its revenues are flat and again it is at least two years away from profitability.
In the UK there are also a number of initiatives. Direct Line claims to be the UK's number one online insurer, having sold 100,000 policies in its first year. It maintains it is well ahead of its plans to achieve 15% of sales online by 2003.
Rapidinsure's approach, asking a reduced number of questions to overcome cumbersome online proposals, was less successful.
These examples suggest that ecommerce is becoming an increasingly important channel for personal lines, but that market leadership comes at high cost.
Strengths and weaknesses
The second area, the London Market of non standardly rated, non commodity risks, still has considerable strengths. These include a wealth of underwriting experience and the flexibility in acceptance of risks in London that can not be placed elsewhere.
The downside is that the working practices are also non standardised. London needs to re-establish itself as an efficient marketplace or it will continue to lose market share. The market has finally recognised this serious threat to its future and is seeking significant changes through the work of the Lloyd's Forum.
Most ecommerce initiatives in this market have been designed to support the existing business process. For example, the technology for repositories has been available to businesses for some time although the uptake is proving slow.
Repositories allow insurance documents to be lodged in a central place and shared, thus cutting down on duplication and increasing the speed of distribution. The issue here is primarily one of market leadership. The benefits of this technology will only accrue once there are significant volumes transacted through it – until that point it actually costs more to transact both electronically and traditionally in parallel.
In the reinsurance market, Wise provides a framework of services such as audited email, data migration services, directory services and certification for security which is backed up by an interchange agreement.
There have also been attempts by some in-surers to auction insurance capacity via ecommerce. The first initiative of this nature was Elrix from Swiss Re. This was followed by RIO by ERC Frankona. It is understood that the volumes transacted through these initiatives are light, but it is early days and these developments should be closely monitored.
The third area is the (primarily) standardly rated non commodity market, typified by the small commercial market. In these more specialist classes, issues other than just price influence the purchasing decision for customers.
Areas such as security of the insurer, claims service and coverage are important issues to the client. Once there are “soft” criteria to be considered then the customer is far more likely to use a broker to provide expert advice and the broker can truly add value to the process.
The move towards ecommerce in this sector has seen closed extranets being established, where a group of underwriters and brokers form a trading platform. These extranets provide tools to support the brokers in servicing their clients; such as systems to enable quotation, binding, documentation and claims support.
This sector is likely to be the next main focus of ecommerce investment, as there is such a clear win-win situation for the insurance chain – it can use these systems without greatly threatening the role of the broker in the short term. However, it is Enterprise's belief that the long-term winners will be those companies in the supply chain that establish the best systems and cement their “added value” into that chain.
The insurance market remains behind the rest of the financial services sector in adopting ecommerce. The main issue appears to be that the boards and senior management in the industry, while stating their commitment to ecommerce, have not yet identified those applications where ecommerce can substantially benefit their organisations.
It is the responsibility of senior management in the insurance industry to reassess their business strategies in the face of the new opportunities offered by ecommerce. While the IT director's role should be initially to educate his senior colleagues and to facilitate the process, ultimately the business strategies must be driven by the business itself.
Once it is understood that ecommerce has implications for the business strategy, questions must be asked, such as:
The answers to these type of questions that start to formulate the ecommerce strategy. Traditional barriers to implementation of ecommerce, such as channel conflict and security, should be regarded as considerations, but not obstacles, to proceeding.
A whole new world
The main issue on the technical side is recognising that ecommerce systems need to be designed to be more robust and more scaleable than any of the systems that have traditionally been developed for the market. No longer is it a mere inconvenience if the system is unavailable, now unavailability will lead directly to lost business and to a drop in customer service. Systems should be capable of 24-hour availability. Selection of the technical platform and of the operating environment must reflect these new requirements.
In short, companies should go back to basics with their ecommerce initiative. They should revisit business goals, educate the board and the company as a whole of the issues, the opportunities and the threats. Companies should also keep an eye on competitors and trends in other markets. Responsibility for implementation of the strategy must be kept at board level.
You will see and hear the view of many “experts” in the market who will state categorically what is going to happen in one or in three years' time. So many have already been proven wrong with the internet. By all means listen to these “experts” but recognise that ecommerce opens up a new world and the rules have not yet been written.
