Compared to the banking industry, insurance seems miles behind in terms of e-commerce. But, says Chris McKevitt, the gap is slowly closing up.

You only have to look at headlines like those from Barclay's Bank 12 months ago - announcing it would spend more than £325m on IT - to know that the financial services world is investing huge sums in technology.

Yet while the banking industry's approach to technology has been seen as aggressive, the insurance sector has been criticised for its lack of innovation.

Ed Plowman, senior IT consultant at Bacon & Woodrow, says: "Business-to-consumer websites in this sector are generally of a pretty poor standard, with one or two exceptions. Often this has more to do with a lack of product innovation than a lack of IT investment."

Much of the criticism of the general insurance sector centres around outdated technology holding back rating sophistication - especially in the broking channel - and too much focus on quotations in e-business sites.

IT consultant Ross Hall agrees that the general insurance sector could do better. He says that the first system he worked on saw productivity leap by a factor of three in less than two years but recently the industry has entered a gentle curve as many intermediaries now have the technology to process business by now. Adding features like postcode detection and registration number-based quotations is only going to save two or three minutes.

He adds: "The real benefits in technology are yet to appear and are going to come from being able to use the information in customer databases in different ways. This means having internet access, but it also means providing much more sophisticated marketing and knowledge management tools."

Facing the pressure
Cox Insurance is one of the few general insurers that can rank itself alongside the major UK banks, having spent £10m in 2000 developing its general IT capabilities, the business-to-consumer internet brand and finally,, the UK broker market's first internet-based quotation and administration service.

Sales and marketing director Nick Potts says the industry pressure to concentrate on providing competitive premiums has led to a death in investment in new technology. But at Cox, the cash spent has generated some £13m in new business, with an impressive 14.1% conversion rate from online enquiries for quotes. The company has also proved that not just customer relationship management, but also customer risk management, is possible via the web. In addition, cash-back provides financial incentives to loyal customers who remain claims free.

"While the insurance market as a whole has perhaps been slower than other financial services companies to respond to new technology, our investment has reaped its own reward," says Potts. "We are in negotiations with building societies and life assurance providers about how our technology can assist them to sell general insurance products."

It seems technology innovation in general insurance is a mixed bag, making a direct comparison with banking even more difficult.

Hall says: "Banking is a very different beast to the general insurance industry. There are limited products and none of the complex relationships that the average intermediary has to manage, and the banks own their own technology rather than being dependent on software houses to play catch-up with the real world."

Making life easier
Most of the large UK banking operations encourage customer interactivity at some level, usually in paying bills and moving money between accounts. One of the main innovators is Nationwide Building Society. It was the first UK financial institution to introduce internet banking in 1997 and at last count had in excess of 250,000 online customers. Its objectives are to remain a mutual society and to maintain its market-leading position. Harnessing technology has been the cornerstone in this campaign, and is likely to remain so.

For some banks though, not everything is rosy in the garden. Abbey National, for example, is in the throws of a £200m spree over three years on e-commerce, mostly in the shape of its stand-alone internet bank However, there is growing concern about the value of stand-alone internet brands, due to their low recognition rate among customers. The City prefers banks to integrate any internet offering within its own brand identity. Meanwhile, Alliance & Leicester dropped its plans for a pure internet brand, costing £15m, at the end of last year in response to growing marketing concerns about its long-term success prospects. And Halifax Bank has suffered bruising criticism for the delayed launch of IF, its internet banking brand and for subsequent problems with the service.

General insurance is also often compared to the life assurance industry and many consultants believe the level of investment in IT by the two is on a par.

Plowman says: "I don't believe there is a big gap, if any, to the life insurance sector. It is perhaps fair to say that there are many more small general insurance companies that cannot afford to invest large sums in technology than there are in life insurance." He adds, though, that a lot of general insurance spend on technology constitutes "trying to make the best of what they already have and arguably much of this is misdirected effort".

Manjit Rana, ICL's head of insurance e-business, believes there is further opportunity for technology expansion in the life industry: "I would have expected more companies to have launched sites where policyholders can log on and view their investment and pension funds. As a customer, you have the option of moving your investments across the various funds offered, but most policyholders don't think about it until they receive their statement from the company every six months.

He adds: "Companies could reduce processing costs and provide a higher level of service to the customer by empowering them to make the decisions and instigating transactions directly."

Certified digitally
Examples of well received business-to-business sites include Scottish Amicable's IFA extranet Launched in March 2000 to deliver information to their panel of IFAs, it makes use of what is termed a "digital certificate", which is issued online once a user's registration details have been verified. The plan is that most IFA queries will be channelled through a self-service option via the extranet rather than through more traditional routes.

The extranet complements an earlier venture to equip IFAs with a web package which allows them to administer stakeholder pensions much more cost effectively. The software is able to import payroll details from employers which can then be converted into a quotes illustration. Scottish Amicable is determined that, despite the low management fees, IFAs will be able to derive profits from stakeholders. In helping IFAs do this, Scottish Amicable is nurturing its own ambition to take a hefty chunk of the market.

Meanwhile, Scottish Equitable, which deals exclusively through IFAs, has had to tread a very careful path designed not to alienate its intermediary customer base. As its 1999 annual report noted: "In the short term, we see e-commerce primarily as a means of improving our service to IFAs and their customers, and not as a medium of sales or distribution."

The company has moved to automate various aspects of its services with IFAs in an effort to save time and cash. In 1999, it set up over 1,500 new group personal pension schemes using its "Smartscheme" software, which assists IFAs to create and service these pension plans.