On the outset, the development of new technologies has led many to believe that all sectors of activity were to undergo an unprecedented revolution that would bring about a radical change in the ways of management and distribution of services, but the reality was far different. One of the key episodes of the process was the new economy burst causing the collapse of numerous start-ups fuelled by the money of Stock Market transactions.

Image provided to Microsoft by Photolia. Used with permission from Microsoft (modified picture) This set back has brought many companies to a standstill and bound them to a more realistic stance. Within insurance companies, in particular, experience has led many to acknowledge that while the business is meant to develop, the mentalities were not yet ready for a radical change, and that evolution can only be achieved through progressive steps.

The development of information and communication technologies has witnessed an abrupt acceleration at the beginning of the 2000s, triggering off an upsurge of electronic commerce. This stage has been marked by the emergence of e-insurance, that is, the online achievement of all operations pertaining to the policy underwriting and management without any direct physical relation with the conventional system of distribution through the sales service or agency's office.

In practice, the concept is subject to some subtleties. For in the absence of statistics leading to accurate appraisal of its impact, even the notion of e-insurance still remains vague. While electronic commerce in the sector of large-scale distribution and entertainment is reporting a spectacular growth, it remains, nonetheless, relatively limited for insurance. Given the nature of the business based on the personalised client-insurer relationship, a website can in no way be a substitute for an insurance company in the entire duties.

That's why, and despite its aspect of mass media, the internet acts within the system as an additional channel to the conventional distribution network.

Steps to technological innovations

The introduction of the new information and communication technologies into the sector of financial services has been achieved through three steps:

Used with permission from Microsoft
  • In the 1970s and 1980s: the introduction of systems allowing a progressive automation of distribution such as the fax and the home terminals has initiated e-insurance, with or without a physical player and a distribution network.
  • Towards the start of the 1990s, the setting up of complementary platforms for traditional networks, the introduction of interactive terminals and of videophone, vocal services and videotexts have rendered the concept of home insurance effective, thus, making it possible to achieve a large number of operations, mainly in non-life insurance business. That period marked also the arrival of counter-free agencies.
  • Towards the end of the 1990s, the development and the generalisation of intelligent and more effective computer tools (data bases, internet, intranet, electronic messaging, ADSL, cell phones) have marked the emergence of new distribution channels: it is cyber insurance or e-insurance, a concept based on a relationship that is devoid of any physical contact.

Benefits of the technological tools

  • Transparency at the level of management
  • Transaction anonymity
  • Data availability, e-consultancy, and possibility to compare tariffs
  • Standard rating and real-time risk management
  • Time-saving and absence of travels
  • Reduction of the company's management and distribution costs
  • Customer loyalty: in a saturated market where customer renewal rate is low, customer loyalty based on personalised relationships is the right channel for margin improvement. (Studies have shown that the conquest of new prospects is three times as expensive as the management cost of an existent customer).
  • Picking up high-revenue prospects
  • Service quality combining speed, security, proximity, simplicity and user-friendliness is essential to preserving and promoting customers and creating internal underwriters.

For a new technology, new customers and new ways of conduct

Image provided to Microsoft by Photolia. Used with permission from Microsoft The spread of the internet and other electronic devices has created a more and more demanding type of customers.

Being henceforth reassured about the safety of online payments, the net-surfing customer has now learned to master the tool and thus becoming free, he is able to surf the net and operate anywhere and at anytime he likes, making use of the means of his choice.

These new customers are both demanding and volatile. Enthusiasts of zapping toward other spots, they are requesting a service distribution that is bound to the principle: “anywhere, anyhow, anytime.” This type of consumption is defined as a “customized” one.

In the United States, the disappearance of intermediaries and the rising transparency dictated by the emergence of virtual markets have prompted the development of all activities including the traditional crafts. Insurance brokers are already proposing the company's best products matching the prices and the conditions that the customer is willing to accept.

Like large-scale distribution, it is the net surfers who set their price for a given insurance product; the specialized sites are in charge of collecting orders and negotiating the best offers thanks to an immediate comparison of quotes.

E-insurance: what the net surfers are seeking

  • to compare spots
  • to compare offers
  • to have access to general information
  • to ask for a quote
  • to modify the terms of a contract
  • to have access to the contract
  • to underwrite a policy
  • to report a claim

The new relationships company-customer

Image provided to Microsoft by iStockphoto. Used with permission from Microsoft The concept of e-insurance services has already been in practice, especially for the processing of commonplace operations, hence, the establishment of new relationships between clients and companies.

As far as companies are concerned, this means the prior processing and exploitation of data on customers thanks to marketing tools, whose commercial offers must be elaborated in compliance with a refining interactive system with partners.

Downstream, the change results in supplying customers with real-time offers that are likely to incite purchasing reflexes thanks to the new distribution modes which no longer go through a direct contact.

As a consequence, the company has to show responsiveness in order to cope with a series of combined effects: the phenomenon pertaining to the rapid obsolescence of instruments, the shrinking distribution chain and the profound mutations affecting customers' conduct induced by the bulk of technological innovations.

As the agency is no longer the mandatory channel for counselling or for purchasing operations, its customer contact rate is falling. This means a new structuring of the tasks related to direct physical reception, and a coordination of their use to compensate relational loss.

E-insurance today

In Europe, it is estimated that e-insurance has not yet achieved satisfactory results. These limited growth opportunities are not likely to develop a significant way during the next five years, because the return on technological investment takes time.

According to some studies, the main reasons behind these mixed results are due on the outset to the system of design itself. The juxtaposition of distribution channels that self-developed oblivious to the harmonisation and integration results sometimes in a competition targeting the same activities, hence, the difficulty to assign duties.

In the United States where net surfing has been in place for a long time, households are seeking information and comparing them online. According to some surveys, 22% of households underwrite their car insurance online. The polls equally point out that the more net surfers use the net, the more online underwritings they make.

The leadership of the U.S.A. in comparison with Europe regarding the dissemination of e-insurance is mainly accounted for by a generational factor, a handicap that is likely to vanish on the more or less long-term basis.

Some estimates

  • In the United States: 22% of households underwrite their car insurance online.
  • In Europe: In 2005, the insurance sale on the net has accounted for 2% to 3% of the market.
  • En France: The online sale of car insurance should account for 1% of the overall market.

E-insurance beneficiaries:

  • Insurance portals
  • Product comparers
  • Discounters (wholesale dealers)
  • Broker-free mutuals
  • Bancassurance
  • Life insurance
  • Savings
  • Credit
  • Entertainment insurance

Evolution perspectives

Image provided to Microsoft by iStockphoto. Used with permission from Microsoft (modified picture)The growth of online insurance remains linked to the number of net users. Nevertheless, it is widely believed that the new enthusiasts of the net surfers are not likely to make their sales before a two to three-year-long period of adaptation.

The exponential progression of mobile equipment rates (microcomputers, cell phones) and of household access to internet, boosted by the ADSL, has made of the website a worldwide distribution channel.

In France, the current growth rate ranges between 12 and 15% per year. This means that in 2003 one of two households has access to internet and that 4 million net users have performed online purchases.
The potential of e-business, and by extension e-insurance, is enormous with internet standing for an inexhaustible customer pool.

In order to cope with technological mutations and take full advantage of their benefits, companies have to integrate e-insurance within their development strategy and design their products and rating policy in accordance with the new distribution techniques. Both direct marketing operations and simulation software provide appropriate tools to get better acquainted with customers, their expectations and to adapt selling strategies to the new distribution systems.

The emergence of future distribution channels in which information becomes itself a genuine source of production compels insurance to enlarge the definition of the business and to develop collaboration with other professions, especially with computer science engineers who become an integrated part both at the level of production and distribution.

The technological revolution should lead, in due time, to a progressive evolution of the insurance business towards information and consultancy.

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