In commercial lines insurance, radical ventures in ecommerce in Europe are notable by their absence. Many arguments could be put forward as to why this is. Perhaps European businesses are keeping a cautious eye on developments in the US – looking before they leap, as much of the Continent looks west in other sectors. Or perhaps the industry is simply resisting the implied loss of control in an imposed step towards change. Maybe the commercial lines industry has been too busy fearing the risks inherent in ecommerce, and has therefore been insufficiently entrepreneurial in finding opportunities to exploit change.
Ripe for change
There are key criteria that indicate whether ecommerce will effect radical change in an industry. Applied to commercial lines insurance, it is clear that these already exist:
Clearing the hurdles
If the industry is ripe for change, and the potential benefits of adopting ecommerce are so evident elsewhere, why have commercial lines insurers held back? Some apparently sound reasons are offered – yet, under scrutiny, few of these remain robust.
Perhaps in contrast to expectation, analysis shows that much of commercial lines business could be readily standardised – between 50% and 80% (£4.5bn-£7.6bn) of the motor market, up to 90% (£2.7bn) of the marine insurance market, 60% in both property (£5.1bn-£3.3bn) and liability (£3bn) markets and 50% (£3bn) in other product lines – a total of between £18.7bn and £21.8bn (all volumes: Europe).
A second hurdle to adoption is the fear that there will not be enough people willing to buy insurance without a traditional intermediary to offer assistance. Research shows that a large customer-base exists. In the UK, 44% of buyers are ‘transactional' with a mindset suited to buying online (32% in Germany). Meanwhile, 56% are ‘dialogue buyers', who seek advice before they buy (68% in Germany).
Each combination of product (standardised /non-standardised) and buyer (transactional/dialogue) can be built into a matrix. Analysis shows that each buyer/product mix is significant and that the four key segments are of roughly equal size. This is an important perspective since the industry has traditionally segmented its highly fragmented client base by size of customer/risk only. But in each segment, there are different ecommerce activities.
Transactional buyers – standardised products
It is clear that the greatest impact will be felt from around 50% of the industry's premiums – those that can be standardised and offered online to serve the 30-45% of buyers who are transactional. New approaches are already emerging:
It will also be possible for these insurance buyers to use insurance-specific websites:
Intermediated ecommerce approaches are likely to prevail since they maximise customer choice and buying power. The strongest value proposition for the transactional buyer perhaps lies in the procurement and data benefits offered by multi-product emarkets. Here, buyers can aggregate all purchases – including insurance – to both increase buying power and gain commercial insight. The emarket uses the data collected to play back information on benchmarking and purchasing effectiveness.
Dialogue buyers – standardised products
The broker/agent acting for dialogue buyers will be able to access either a wholesale ebroker (www.channelpoint.com) or an insurer's broker/agent access-site. A wholesale site could potentially become a vertical emarket supplying a range of broker needs, from insurance quotes to services that help them run their businesses.
Suitable markets will also emerge for non-standardised higher premium products to be sold over the internet. Insurance auctions (such as www.insureXL.com and www.dotrisk.com) are already being used for medium non-standardised products, with insurers bidding to cover bespoke RFQs (requests for quote) in an interactive reverse auction. Manual online trading will continue to be important for those risks that cannot be standardised, so that emarkets and web sites will probably have some facility to accept free text and attachments for an underwriter to view and then return a quote by email.