Insurance Trails in Online Offerings

When it comes to online offerings, the majority of insurance companies are well behind other financial services players, such as banks and brokerages, according to the third annual Internet Insurance Survey by Booz-Allen & Hamilton.

“Online offerings are increasingly important to financial services institutions, with consumers conducting a significant and growing percentage of all financial transactions online,” said Grande Bucca, A Booz-Allen & Hamilton VP. “There is a substantial opportunity for the player who can put the right ingredients together to create a truly powerful Internet insurance offering.”

According to the study, more insurance companies believe that their Internet strategy is directly linked with their corporate strategy than it was one year ago. Fewer insurance companies, however, are willing to spend on the Internet, with more than 50 percent spending $500,000 per year on Internet capabilities. Most of this spending is focused on marketing, customer service, agent support, and infrastructure, the study found, even though 58 percent of the sites surveyed could not respond to a basic customer email question.

Sixty percent of the companies surveyed said they have no plans to sell insurance directly via the Internet in the next two years, and the companies that do plan on selling online expect to generate only a small percent of new premiums from the Internet. Insurance companies are focusing on building capabilities to support agent sales and plan to devote their largest online investments in the next two years to customer service capabilities.

“While customer service and referral capabilities are critical, many insurers are being surpassed by players who are also focused on learning how to develop online sales and relationships. It’s not a question of either/or,” Bucca said. “The fact that 67 percent of insurers surveyed said they would never sell an annuity online is indicative of where many companies thinking is with respect to the online movement.”

Overall, the study projects that the Internet will have a dramatic impact on insurers by influencing sales through traditional channels in the short term and gradually shifting customers to direct channels and lower cost, product-focused players, which will create even further distribution overcapacity.

While many factors indicate that the insurance industry is ripe for an explosion in e-commerce activity, the study found three reasons why the insurance industry is lagging behind the rest of the financial services sector in Internet innovation. First is product complexity an regulation. Second, insurance companies continue to struggle with the cost and complexity of Internet-based sales capabilities and do not expect cost reduction from building these capabilities. Third, these companies are still very dependent on, or influenced by, agents/brokers and are therefore reluctant to offer online sales capabilities.

The study was based on a survey of more than 150 insurance companies and an evaluation of 200 Web sites.

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