E-commerce is an integral part of the e-economy - a new era of economic organisation brought about by the convergence of three formerly distinct technologies - computing, communications and digital content. To thrive in the new economy, insurers will have to learn to play by a new set of rules.
The rapid growth of e-commerce is having a dramatic impact on the insurance industry as it tears down barriers to entry and creates radically different ways of doing business. Companies that have been in the industry for years may, understandably, see e-commerce as a threat.
In the e-economy, any company with a strong brand, or the marketing budget to create one, can set up a web-based insurance business in no time. Unencumbered by the baggage of the past - such as old IT systems and branch offices - these new players have the low cost bases and flexible business structures that established firms can only dream of.
Yet the e-economy is not just for newcomers. Every company can benefit significantly. The challenge lies in identifying and unlocking the opportunity, which companies can approach in three different yet complementary ways.
First, the internet has created an accepted standard for communicating within and between businesses. This provides an important opportunity to cut costs and improve relationships across a variety of business processes. In the insurance sector, claims processing and procurement on the web are just two specific areas where this could have a significant impact on operating efficiencies.
Claims processing absorbs a substantial proportion of premium income, and so has already been the target of technology-driven improvements such as workflow and document management. E-commerce provides the opportunity to go further by connecting the broader claims process community: claimant, insurance company employees and third party providers of products and services. Procurement processes can also be improved significantly using internet and intranet technology to improve demand and hence supplier management.
Lloyd's of London, for example, is already working with the International Underwriters Association on an e-commerce venture to streamline procedures and speed up the payment of insurance claims.
Secondly, the internet makes it possible to reach new and existing customers in a new way. In a recent study, we found that Italian insurance company Lloyd 1885 was generating 22% of its sales via the internet, just six months after it started using it to penetrate new markets. However, companies do not necessarily need to sell to customers directly - with e-commerce you can also work better with traditional brokers or with new web-based brokers.
Finally, e-commerce allows traditional insurance companies to reinvent themselves when they go on-line. At its simplest, they can set up new ventures under a new brand. Egg is one of the first and very best examples of this.
But insurers can go a step further and adopt new approaches that are radically different from their traditional businesses.
These include transferring processes into the hands of the customer (known as "self-servicing"), forming buyer-focused one-stop shops with other complementary companies and "selling" core or non-core processes and activities to the wider market (known as "net-sourcing").
In the months ahead, I will look at ways of unlocking e-commerce opportunities in more detail. But for now, insurers should ask themselves this key question: How can we use e-commerce to make our business processes more efficient, to reach customers in new ways and to reinvent our business?