What's New in Cybertalk?

By Jean Gora
July 2000

Note: CyberTalk is a column that appears monthly in LOMA's Resource, the magazine for insurance and financial services management. To see more contents of the magazine and to see how to subscribe, click on RESOURCE MAGAZINE.

European Insurance Multinationals Expand Internet Activities

Insurance conglomerates typically publish annual reports in the spring. This year, the annual reports of several European conglomerates with large U.S. operations are particularly interesting. They provide new information about the groups’ Internet strategies. In some cases, they disclose statistics on their Internet sales volume. The groups are Zurich, ING, AXA, Prudential U.K., Fortis, and Skandia. These reports show that the groups are pursuing two important strategies.

First, they are making major commitments to direct Internet distribution and customer service in multiple countries and achieving impressive results in some cases. They take technologies and services developed for one market and move them quickly to other markets around the globe. Providers of Internet services typically have to invest a lot of up-front money to develop the services; to make a profit they have to wait until volume builds. A conglomerate that takes a service developed for one market and offers it in multiple ones clearly has significant economy-of-scale opportunities that are unavailable to its competitors operating in only a single market.

Second, the groups are using the Internet to operate virtual diversified financial services conglomerates. What is a virtual diversified conglomerate? Prior to the spread of the Internet, an insurance group that wanted to diversify into banking went out and acquired a bank—often a very large bank. Now, instead of acquiring a bank, the group starts an online banking service. It does the same thing with online securities brokering. Increasingly, the world’s largest insurance conglomerates will present themselves via the Internet to the world as providers of all financial and insurance services.

This issue of CyberTalk examines some of the highlights of these companies’ annual reports as they relate to Internet expansion.

Zurich

Zurich, a Swiss-British-U.S. conglomerate, reports that it is establishing a global e-business exchange, which is a common Internet platform serving all units. The exchange relies on technology from IBM and ChannelPoint. Zurich hopes to use the exchange to take products from any Zurich entity or third-party supplier, customize them, re-brand them, and distribute them in any market where Zurich does business.

Some Internet-based Zurich units have achieved significant success. In the U.S., Zurich Kemper Life generates 20 percent of its total sales of term life insurance through the Internet. Zurich’s Scudder mutual funds handle an impressive 47 percent of their customer transactions via the Internet. Zurich’s U.K. unit, Eagle Star Direct, generates 11 percent of its sales via the Internet. In Japan, the conglomerate operates a Zurich Direct auto insurance site. This site binds a new insurance policy every 90 minutes. It grew 200 percent in 1999 and now generates $85 million in annual premiums. One out of 10 of Zurich’s Japanese auto insurance customers deals with Zurich via the Internet. The company provides more than 300 Internet price quotations per day. One reason for Zurich’s success in Japan is that it operates an Internet-based online auto sales market, Zurich Automart, for the purchase and sale of second-hand cars. Customers in 17 different markets can now communicate with Zurich via the Internet.

Zurich, which has never previously pursued a bancassurance strategy, is now using the Internet to diversify into banking and securities brokerage. It plans to roll out Internet banks and securities brokers in partnership with local banks and specialist providers in a number of countries where it does business. In addition, it will allow its customers to build personal Web pages, personalized to their needs. Zurich hopes to become the preferred financial portal of its customers.

Zurich launched Switzerland’s first branchless bank in 1999 and took in $170 million in deposits in the first nine months. These activities suggest that Zurich could rapidly acquire a banking presence in a wide range of countries—essentially by buying the technology and allowing local partners to create the links to the country’s banking system. It is a fascinating strategy.

ING

ING, the Dutch bancassurance conglomerate, is also making a major investment in Internet-based services. It plans e-commerce investments worth two billion euros or about 1.8 billion U.S. dollars between 2000 and 2002. In the U.S., ING plans to start E-insurance, a virtual insurer with fewer than 20 employees. The unit, which is applying for licenses in all 50 U.S. states, will sell term life insurance on the Internet beginning in the third quarter of 2000. ING performed a major restructuring in its U.S. life insurance operations during 1999. ING also plans to bring ING Direct, its direct bank, to the U.S. The U.S. represents the sixth market in which ING will offer its direct bank.

ING has enjoyed significant success with ING Direct, which was initially offered in Canada three years ago. It now has 250,000 Canadian customers. ING Direct Spain was launched in 1999. By the end of that year, it had 30,000 customers and was growing at the rate of 10,000 customers and 50 million euros per month. ING Direct Australia started in August 1999 and had 8,500 customers at year end. Since the beginning of 2000, it has been growing at a rate of 5,000-6,000 customers per month. ING Direct also operates in France. In Germany, ING Direct (including its recently acquired Allgemeine Deutsche Directbank) has 820,000 customers.

ING has also begun an online securities brokerage operation, which presumably could be added to its direct banking and insurance distribution services.

AXA

AXA, the French conglomerate, is also making major Internet investments. It conducts online auto insurance sales in France, the U.K., Germany, and Spain. It started online auto sales in Germany in October 1999. By the end of the year, it had sold 9,600 policies via the Internet, 14 percent of its total direct sales. It offers online P&C claim filing in France, Germany, and the U.K. It plans to equip its claims adjusters with remote appraisal tools that transmit digital photos on the Internet.

In Japan, AXA began selling property & casualty insurance directly over the Internet in January 2000. By March, it had sold 1,000 policies, 26 percent of its total direct sales.

AXA owns DLJDirect, a very successful online securities broker in the U.S. This service currently has 750,000 accounts. AXA made an initial public offering (IPO) of 18 percent of DLJDirect’s stock in 1999. It introduced the service in the U.K. in September 1999. By year end, it had opened 14,000 U.K. accounts. AXA introduced DLJDirect in Japan through a joint venture with Sumitomo in June 1999; by year end, the service had acquired 128,000 accounts.

Like ING and Zurich, AXA is also taking steps to position itself as a virtual diversified financial services conglomerate. It plans to operate integrated banking, securities, and insurance portals in the U.K., France, Germany, and Belgium.

Prudential U.K.

Prudential U.K., which operates a very successful U.K. direct bank and insurance operation called "Egg," is bringing Internet banking and bill presentment to the United States during 2000. Prudential U.K. already owned Jackson Federal Bank in the U.S. It recently acquired Highland Bancorp and now has 13 branches in California and almost $1.1 billion in assets.

Prudential U.K. plans to conduct an initial public offering for Egg this year. Deloitte Research reports that Egg attracted $13 billion U.S. in deposits and 600,000 customers in its first 18 months of operation in the U.K. Egg has acquired more than 20 percent of net new deposits in the U.K. market.

Fortis and Skandia

Fortis is investing in e-commerce for securities trading, savings accounts, funds transfer, and investment funds management. It plans to offer a consolidated Internet statement. In addition, it plans to use the Internet for procurement.

Skandia operates a direct and Internet bank in the Nordic countries. That bank now has 320,000 customers.

Moving Aggressively

These developments show that these European conglomerates are moving aggressively to implement Internet services on an international scale. It is possible that they are moving more rapidly than their U.S. counterparts in this regard. In some respects, the European conglomerates have been fortunate to be based in countries that developed Internet infrastructures after the U.S. did.

Five years ago, when the Internet first attracted consumer interest in the U.S., no major insurance company and very few major banks and securities firms took it seriously. Thus, they moved very slowly to develop Internet services. By the time, they realized that the Internet was important and began developing services for it, outsiders such as E*Trade, had captured important shares of their traditional markets.

The European groups used their large U.S. operations to monitor Internet developments. They began to take the Internet seriously at about the same time as their U.S. counterparts did. However, because of the delayed growth of Internet access in some European countries, they were able to offer their services to consumers who had high levels of unmet, pent-up demand for them. Because the groups enjoyed high levels of name recognition, new Internet users gravitated readily to their sites. It was easier for the groups to have a major impact in European countries than most traditional competitors could have in the U.S.

Because the European conglomerates now have considerable experience in taking Internet-based services from one national market to another, they will be powerful competitors to both local organizations and to other conglomerates with less diverse international operations.