What's New in Cybertalk?

by Jean Gora
November 1998

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.

Direct to the Consumer

Slowly but surely, more insurance companies are beginning to use the Internet to offer online price quotations, applications, and credit card payments of initial premiums. These findings are the results of a survey conducted by LOMA of 41 North American member companies that participate in LOMA's systems committees. These members include many of the top 25 U.S. and top five Canadian companies as well as assorted smaller carriers.

The questionnaire was submitted to committee members in the summer of 1998. It asked them whether they offer any of the following at their own Internet sites or at the sites of any Internet malls (e.g., AOL, InsWeb, InsureMarket, Auto-by-Tel): an agent locator, direct e-mail access to agents, online price quotations, online insurance applications, and acceptance of credit card numbers in payment of initial premiums.

All but one of the companies are doing at least one of these functions on their own sites. One-quarter of the companies are doing at least one of the above functions through the sites of third parties. The results of this survey reveal a significant increase in direct sales activities compared to the results of a survey of 40 insurers conducted by Booz-Allen & Hamilton at the end of 1997.

Of 12 companies that accept online applications either through their own sites or those of third parties, six do so for term insurance, two do so for annuities, and one does so for each of the following products: auto, assault recovery, travel and short-term medical insurance.

The Debate over Internet Distribution

Significant debate has occurred in many companies regarding the sale of insurance on the Internet. As the survey results suggest, up to now, the majority of companies have resisted direct Internet distribution. A primary reason appears to be fear that direct sales via the Internet will antagonize agents. Here are some comments by survey participants regarding the debate in their companies over Internet distribution:

*"The biggest debate is regarding the alienation of our exclusive agents and/or broker/dealers. By selling directly on the Web, we would bypass these producers. This is not being well received and is a cause for rethinking direct sales."

*"The debate revolved around the role of the human agent and how we might jeopardize our large human operations by appearing to replace them with electronics. This cannot happen since expected revenues from the Internet would be significantly lower than our human revenues. We might lose our viability."

*"There is concern over the impact on other distribution channels. The consensus is that if we were to take this step, it would likely apply only to simpler products. It is not in the plans for the immediate future."

In some companies, the commitment to agent distribution is so strong that there has been little debate regarding use of the Internet.

*"Selling insurance over the Internet would be in direct conflict with our corporate strategy, which focuses on needs-based selling through agents. We have been focusing on the agent value commitment for several years now, and this strategy is unlikely to change in the near future."

Another company will begin Internet distribution only if the competition forces it to do so.

*"The idea of Internet distribution has been tossed about without a formal debate being initiated. It seems that the concern for channel conflict has cooled much interest in exploring the Internet as a new channel for product distribution. The prediction is that the will to act depends on the competition. If they start, we will not be far behind. However, no one wants to lead off and risk antagonizing the agency force."

Some companies believe the Internet will be an important customer service delivery vehicle.

*"The consensus as of today is that the greatest benefit to our company is in agent and customer service, not selling via the Internet. It appears that people do want to serve themselves, have access to policy values, and make simple policy changes. The agents want to have access to policy values and commission information."

Another company views product complexity and market conduct issues as barriers to Internet sales.

*"Our product is so complex that the end customer requires expert advice in order to select the right product or mix of products. We have concerns with product definitions (IMSA) and consumer knowledge of differences between annuities and mutual funds. Do they know what they are getting, and will they remember years from now?

In some companies, the Internet is viewed more optimistically.

*"Selling insurance on the Internet is a key part of our company’s strategy."

*"For certain distribution channels, this is seen as something we have to do. The issues are mainly cost and security."

*"Use of the Internet for sale of products is discussed openly and with optimism. However, proof of success is yet to be determined. Some discussions have occurred regarding the types of products most likely to be sold through this market access route."

Among companies that are using the Internet for distribution, the conversation focuses on making the channel successful.

*"Here are questions we’ve discussed: Who will buy insurance on the Net? How should you contact customers who may prefer to have little direct contact? How can you keep the site interesting enough to have people return? How does this type of distribution channel intersect with the necessary home office work flows?"

*"The debate has occurred around customer definition, market scope, role, pricing, and product offerings."

Addressing Agent Concerns

Many companies address agent concerns with Internet distribution by using the Internet solely to generate leads for agents.

*"We will be offering our agents and managers a real presence on our Web site with personal, customized home pages. Our intention is to provide these at a relatively nominal cost over the next several months. We anticipate featuring all of our general offices and several thousand agents. Currently we have an office locator at the site but nothing pointing to individual agents."

*"We are developing a process to aid the sales force in establishing their own Web sites. We will allow links from the sales force’s sites to others sites (such as those of the Chamber of Commerce). If our Internet back office receives referrals, we will route these leads to the sales force. All current Internet policyholder customer service inquiries are routed the same way normal service requests are routed."

*"We are doing lead generation through InsWeb for one product. Obviously our agents are not complaining about the possibility of getting quality leads using a Web mall."

Companies that are using the Internet to sell directly (by offering online price quotations, applications, and/or credit card payments) have had more complex issues to address with their agents. Here is what some of them are doing:

*"We have addressed agent concerns mostly through forums. We have a group of 50 agents who represent the entire exclusive sales force. We have similar groups that speak for the independent and/or proprietary firms."

*"Agents have to be involved in some discussions regarding sale of products through the Internet. We keep our agent force informed of all alternative distribution opportunities being considered and underway."

*"We have targeted markets that are separate from those of our agents. We have developed lead generation capabilities in partnership with our agent channels for those markets not fitting the only profile. We direct market only those products that do not require financial planning."

*"We have a communication plan that emphasizes that the Internet is a safe, secure way to do business. We have used outside speakers to discuss trends in the marketplace with respect to direct sales. Most agents see themselves as offering a value-added service that the Internet cannot provide on its own."

*"Our agents benefit from all of our efforts either directly or indirectly. Knowledge gained from the direct Internet sales project has provided many agent-oriented support capabilities, including online applications, credit card processing, personalization, and enhanced security."

*"We take agent concerns very seriously and proactively manage channel conflict."

Plans for Moving More Aggressively into Internet Distribution

Although life insurance companies continue to have widely divergent points of view regarding Internet distribution, the activity now underway shows that the industry has come a long way. This progress is also evident in the widely held plans to move more aggressively in the future.

Of the 36 companies that responded to a question regarding future plans, more than half (53 percent) said they would move more aggressively regarding Internet distribution in the future. Nevertheless, two out of five companies (39 percent) still do not plan to do so, or if they do anything, they will move only in ways that support the agency distribution system. The remaining companies (8 percent) were unsure of the direction they would take.

The following companies participated in this survey: Aetna Canada, Allmerica, American National, American Medical Security, Berkshire, Canassurance, Chubb, Conseco, Empire, Fortis, GE Capital (Life of Virginia), Great-West, Guarantee Life, Guardian, Horace Mann, John Hancock, Keyport, Lafayette, Liberty, Liberty Mutual, Lincoln National, ManuLife, Modern Woodmen of America, MONY, Mutual of Omaha, National Guardian, National Life of Canada, Nationwide, New England Financial, New York Life, Northwestern Mutual Life, Penn Mutual, Phoenix Home, Principal, SAFECO, Security Benefit, Standard (Montreal), Standard (Oregon), SunLife of Canada, Travelers, and Western-Southern.

Author’s Note: This month’s CyberTalk column is co-authored by Lynn Ganim, Ph.D., FLMI, ACS, AIAA, PAHM, Senior Associate, LOMA Information Management Division.