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:

  • If markets are dispersed, if process costs are high, and if the markets are intermediated with high margins paid to intermediaries, then what could be more suitable for ecommerce? Commercial lines insurance meets all these criteria
  • If there are some viable customer segments with a low interest in personal interaction, isn't the internet suitable for them? Market research indicates that these segments are substantial
  • If certain products can be standardised and made comparable, then are these products suitable candidates for translation to ecommerce using this approach? Again research shows that this is indeed the case.

    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.

  • Risks are seen as too complex – yet all underwriters have been able to standardise risks, especially in the small customer bracket
  • The adoption of electronic technology – such as electronic data interchange (EDI) – has been slow. But internet trading is different. It is economical and it enables greater access, liquidity and critical mass
  • A highly intermediated market leads to a risk of conflict between channels – yet other industries have successfully transformed
  • The time and cost implications of integrating legacy systems with internet platforms are indeed daunting. On the other hand, the long-term effect of doing nothing at all could be much higher costs.

    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:

  • Horizontal emarkets: benefits centre on general products applicable across industries –
  • Vertical emarkets: all products are specific to an industry –
  • Diagonal emarkets: products are specific to a function but across the industry – fleet management emarket in

    It will also be possible for these insurance buyers to use insurance-specific websites:

  • ebroker: this site is equivalent to its off-line counterpart providing insurance quotations –
  • Seller-centric: insurance company direct sales website; it is expected that these will only be successful in a specialist market with few suppliers or (in a few cases) where a distinctive supplier becomes a ‘must' for a quote for an insured

    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 ( 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.

    Non-standardised products

    Suitable markets will also emerge for non-standardised higher premium products to be sold over the internet. Insurance auctions (such as and 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.

  • This is part one of a two-part feature on estrategy for commercial lines insurance. The second part will run in one month's time.