Wayne Parslow, area vice president, Northern Europe, for internet infrastructure experts SilverStream, reviews the realities of emerging web-enablement in the insurance industry and highlights some of the most important ebusiness advantages

The insurance industry has come in for a great deal of criticism for the perceived lack of speed with which it has grasped the ebusiness opportunity. However, as with many industries approaching the web-based development of their business, it is arguable that there is an over-concentration on dot com activity, compared with business-to-business web enablement.

Dot com trends

SilverStream's latest research project, the Interactive Web Advertisers League (March 2000), looked at companies which are now heavily advertising their website as a main point of customer query and/or actual ecommerce. We then scored the sophistication with which each website dealt with consumer queries, quotes and applications, and from there drew up an industry league table. Whereas banks and mortgage finance providers came top (and amusingly, the consumer computing industry scored rather low), insurers as a group sat on a firmly average score, despite some excellent examples of innovative best ebusiness practice.

This moderate score, we believe, reflects the certain realities of the direct writer's business (whether on the telephone or on the web), plus the nature of customer relationships in the insurance business.

Commodity business

Firstly, there is the fact that, up to now, the direct writer's business had to comprise a few simplified, commoditised lines to be successful. It is worth illustrating this point with a quotation from the recent Datamonitor report, Customer Loyalty in European

Financial Services (1999).

The study says: "Increasing customer volatility has developed in response to the competition unleashed by deregulation and by new entrants, but also as consumers take a more independent, demanding attitude to financial services, treating them like other consumer services. Coverage of financial services in the press has increased consumers' awareness of the different offers available, while falling interest rates have prompted them to look around for the best offers on insurance, savings and loans."

Secondly, in contrast with banks, insurers have few opportunities to build customer relationships. In addition, research is now showing that while consumers feel they need to have a relationship with their bank, and with their broker, the notion of a 'relationship' with a motor insurer or household underwriter is seen by most ordinary folk as a nonsense. Until, that is, a claim is badly handled – at which point that consumer takes a particular and abiding dislike to you.

The same Datamonitor report notes too that: "The scale of the threat posed by customer infidelity is shown by the example of the most volatile of all retail financial services, motor insurance in the UK. Churn rates (the percentage of customers changing provider in a year) on most banking products is below 10%. The churn rate on UK motor insurance is estimated at 32%.

"Although direct channels can offer a cheap, low-cost service, they eliminate the personal relationships, which are important in building long-term loyalty. Instead, the internet makes it easy to check competitors' interest rates or premiums and to change provider in a vicious circle."

So, we must at this point conclude that:

  • To date, insurers are modest players in effective ecommerce direct with the consumer
  • The investment in dot com business to underpin Customer Relationship Management (CRM) is difficult to justify because the notion of a customer relationship is much shallower than in banking
  • The lines which one can sell and process over the web are limited to the least complex, most commoditised products.

    Real web application benefits

    Where then can web technology bring more reliable and tangible benefits?

    Most underwriters would agree that the future of product distribution is firmly multi-channel. At one and the same time, products must be sold direct, through brokers and IFAs, over the phone and the web, through affinity partner brands, through banks – the lot.

    From an IT infrastructure point of view, that immediately means a consistent, standard web application development environment has to be chosen to link all parties. We all know the escalating cost of rapid growth in a multi-system environment. In fact, the greatest danger is not just the cost – half the time these confused IT environments simply don't work properly.

    Not only must the development platform be standard, it must also enable the most complex functionality that the group requires. It also has to be rapidly scalable, because the relative importance of any one channel may suddenly change, or indeed a completely new channel may appear. The advantage of being able to add new members to a distribution intranet with just the issue of a password (no software installation, no maintenance and updates), gives the underwriter enormous strategic flexibility. At the same time the bulk of technology costs associated with this critical business management task are stripped out.

    Integration with back office systems is also a major requirement. Although we have questioned the business case for bringing quotation or applications processing engines forward onto the underwriter's own website, there is no question that this facility must be offered to the various players in the distribution channels. Many system vendors will claim easy integration – however, the real requirement is for rapid integration. In a commoditised marketplace like insurance, the speed with which products can be brought to market through all critical channels can make the difference of millions in revenue, not to mention competitive advantage. At the same time, claims processing has benefited enormously from the efficiencies delivered by workflow and document management. Now web-based versions of these applications are enabling new ideas such as virtual call centres and workgroup management, at the same time as taking the cost out of the process.

    The age of the broker

    Finally, let's turn to the brokers. Logically speaking, the web should herald the age of the broker. Broker business is predicted to stay fairly stable to 2004 in one of the most volatile general markets – motor. Independent advice on more complex financial service decisions is becoming the main differentiating factor that is genuinely valued and sought by the consumer. Certainly, from our SilverStream survey, it is something that one major reseller channel, the banks, seem to be taking seriously in their web initiatives.

    A handful of broker portals are already live on the web, and the operators of each have consistently nominated three main requirements that their internet infrastructure and applications have to deliver. Firstly, self-updating is paramount, where non-technical staff can add and amend information onto the portal. Secondly, is easy integration with the underwriters' systems for rapid product offering along with quotation and application processing facilities. And thirdly, is failsafe operation, most obviously during sudden surges of volume. Failsafe is critical. As one pioneering ebroker said: "If, for instance, brokers became liable for administration fees for consumer complaints, what happens if our site goes down? The financial and legal

    ramifications of technology reliability are considerable."


    The importance of dot com business in the insurance industry will eventually be as important as the telephone-based revolution has been. However, the most immediate and tangible returns are to be gained from enabling the many distribution channels which together cover the bulk of any writer's business.