Manjit Rana outlines some of the business models
that are prevalent in today's marketplace and looks
at the role of the virtual intermediary.

The Insurance industry is in the middle of a technology whirlwind that is transforming traditional business practices and redefining the roles of its participants. Recent newcomers have broken into what was a steady and conservative business and, by using new technologies, have transformed the way insurance will be transacted forever.

Model 1 - Virtual insurer, direct writer
The virtual insurer model is used by insurers and small businesses for products such as motor, travel or office combined policies.

Typically, a virtual insurer will establish itself in a niche, such as car insurance, and then expand its product range with the aim of becoming a one-stop shop for all insurance related needs.

In future, these sites will probably allow policyholders to register claims, make mid-term adjustments and request copy policy certificates.

Model 2 - Broker extranets
A number of insurers are setting up private internet-based networks. These will enable brokers to obtain copy policy certificates, record or query claims, obtain quotations for niche products and manage large fleet policies. This is likely to extend to areas such as accounts reconciliation in the future.

Modern technology is enabling firms to build a single site or broker portal and use sophisticated content management tools to handle requests from brokers, who can then tailor products to individual customer needs, and increase service levels and the range of products.

Model 3 - Online/virtual brokers or quote aggregators
These are basically intermediaries on the net. Users supply their details once and obtain a quote from a number of insurers. There are a number of sub-models in this segment.

Quote consolidators capture the requirements and personal details from the client, along with the risk information. This information is then provided, at a nominal fee, to insurers and brokers to quote against.

Virtual intermediaries
Virtual intermediaries are similar to high street brokers. In some instances, the business is completely online - there is no face-to-face or even phone contact.

Quotes are often limited to attracting "safer" business as the site can state certain criteria, such as no accidents or convictions in the past five years, up front. This limits the market to a highly competitive segment, but eliminates customers having to input additional details. These models require high levels of marketing spend to attract attention but offer the opportunity to cross-sell further products to the client bank.

A new model likely to emerge over the next two years will be the electronic software agent or Intelligent Agent (IA). In this scenario, a consumer looking for a motor policy goes to a site powered by an IA. He enters his details onto a generic intelligent form that validates his data to make sure other sites can cope with the information. He then sets the IA to work and logs off the system. An hour later, the customer receives a text message from the IA on his mobile, naming the cheapest, the highest and the average quote.

Another trend is the reverse auction sites, currently more prevalent in the US than the UK. A customer enters the risk details and specifies type of cover required, along with the excess he is willing to accept. Insurance providers then log on via a secure interface and bid for the business. These sites assume the customer has sufficient knowledge to be able to specify exactly what cover he requires. However, this model drives down premiums at a faster rate than others and provides little opportunity to up-sell or to sell on the quality of service. The sites generate revenue through taking a cut of the premium charged or a fee for being involved the auction.

There are many e-commerce models in the insurance space. A number of experts are claiming that the internet will be the death of the intermediary. It is more likely that it will help create a new generation of intermediary businesses that take full advantage of the opportunities that e-business economy generates.

  • Manjit Rana is head of insurance e-business at ICL e-innovation.