Insurers are taking a second look at the value of the Internet. These days, their strategies
are more likely to focus on distributors rather than customers.

By Terri Goveia: March issue Canadian Insurance Magazine

Last summer, while eager vacationers were logging onto
Priceline.com for cut-rate airfare and hotel stays, the Internet travel, personal finance
and automotive service made an announcement: it was getting into the insurance business.
The move seemed to represent the ultimate Internet-insurance alliance, and a new age of
name-your-own-price auto policies. But by winter, all plans were off. In January,
Priceline.com shut down the venture before selling one policy.

The seasons had changed in more ways than one. “Market
conditions were not conducive to creating the new business,” read the joint news
release from Priceline.com and its partner in the venture, W.R. Berkley Corporation.

Priceline.com and W.R. Berkley aren’t the only ones
having second thoughts when it comes to selling insurance online. With other industries
falling victim to dot-com distress, “insurance companies are starting to take a much
more thoughtful approach” to the Web, says Michael Riley, vice president of financial
services at Mercer Management Consulting. Whether companies are taking a second stab at
online ventures, or taking their first measured steps into the fray, they’re more
likely to focus on making current operations more efficient, rather than building new
online empires, he says.

What happened to the dot-com dream? For one, the online
revolution never took place, says Robert Hartwig, vice president and chief economist at
the Insurance Information Institute in New York. “There was a view that because pure
dot com insurers didn’t have to maintain an agency structure or physical offices all
over, they could offer the product cheaper, faster and better than anyone else,” he
says. “None of this has turned out to be true.”

It’s not that the Internet hasn’t delivered on
any of its promises, says Hartwig. Last spring, analysts at Forrester Research predicted
that total online sales of auto, home and term life insurance in the U.S. would reach $500
million by 2001. “I believe that number was achieved, just not in the way it was
originally contemplated,” Hartwig says, noting that most of those sales were made
through existing insurance companies with online capabilities. “There was an
assumption that dot-coms would gobble up that market share.”

Consumers had a lot to do with the results. A recent Mercer
study revealed that while people are comfortable buying books, plane tickets or music on
the Internet, only 5 per cent went online for insurance products. Fear is a big factor in
their reluctance, points out Hartwig. “Most people want to speak to a human, they
want to know there will be adjusters on the scene within hours. These fears have worked to
the advantage of bricks and mortar companies.”

Insurance dot-coms aren’t extinct yet. Some, like San
Francisco-based Esurance, are still part of the insurance landscape. Esurance now offers
complete quote-to-claims personal auto insurance services in 26 U.S. states. Canadian
online marketplace kanetix.com recently added RBC Insurance to its online quote comparison
service, which offers consumers up to eight auto insurance quotes.

But staying afloat will be a challenge, predicts
Mercer’s Riley. The numbers at the remaining dot-coms support this view. Although
InsWeb, another quotation service, recently projected $5 million in fourth quarter 2000
revenue, the company has had difficult times. Last year, it lost 37 per cent of its
revenue when State Farm Insurance ended its partnership with the service. Esurance was
recently purchased “for pennies,” Riley says, and Ecoverage, another aggregator,
is showing signs of distress.

“Business models that are purely online, that only offer one channel
and one product will be hard pressed to survive. We’re seeing it right now,” Riley says.

Online Internet sales and one-sided b2c (business to
consumer) approaches may be treading water, but the Web still represents a valuable
resource for insurers, says Hartwig. “What is viable, what seems to work, is
integrating online sales and service capabilities into an existing distribution system.”

Some insurers have already figured this out. In Canada,
companies like Royal and Sun Alliance, Federation Insurance and Lombard Canada have
managed to sidestep Internet pitfalls by focusing efforts on their business, not consumer, channels.

“It’s always been our belief that the biggest
benefit of the Internet is the b2b channel. That’s where the opportunity to
streamline the insurance transaction is,” says Grace Webster, vice president of
strategic business solutions for Royal & SunAlliance.

To date, the company has invested $7 million on its
streamlining efforts. The result, Broker Avenue Online (BRAVO), is helping over 3,000
brokers manage policy information in real time. When BRAVO went online in August 1999, it
offered brokers a real time billing inquiry service. Today, it offers several inquiry
services, including coverage and claims, and an analytical service that lets brokers call
up their own experience reports to monitor office volume or loss ratios.

Before BRAVO, brokers got monthly printed reports, but access to business
numbers “wasn’t available in a cohesive or easy-to-use way,” says Webster.

And there’s more in store for BRAVO. This spring,
Royal and SunAlliance and 20 brokers will pilot Web Business, a transaction service that
will let brokers process new business real time. The company also plans to add customized
information resources to the service, linking brokers to ratings manuals, industry news
sources and sales tips for staff.

BRAVO’s instant access will help streamline insurance transactions for everyone
involved, says Webster, noting that it will save the company a “significant” amount.

“Until we roll everything out, we won’t know for
sure, but we believe it has great potential. The whole channel can be more productive and
more profitable, and in turn, you can give the rate advantage back to customers.”

Federation Insurance, part of the Economical Insurance
Group, is another insurer that has mapped out an aggressive b2b strategy for its approximately 350
brokers across Canada. After more than a year in planning, it is rolling out its e-fedweb portal.

Using its own self-developed system (ASP program and Java
script), Federation’s Web site now allows about 10-15 test brokers using simple Web
browsers and sign-on security (128-bit encryption) to access information on billing
inquiry, claims status and policy change for auto insurance. Changes can be made real-time
with set screens and no overnight batch processing. In addition, brokers can quickly
access various statistics about their performance – loss ratios, line of business, profitability.

Federation’s director of information services Alain
Parent says policy change for habitational and new business for both auto and habitational
are the next steps for e-fedweb.

One of the noteworthy things about Federation’s b2b
business plan is that it did most of its infrastructure work in-house, with limited staff
and resources, according to the company’s chief operating officer, Ron Pavelack. The
question now is whether brokers will use it. “If brokers use it, we figure we can cut
the costs in our claims department alone, in terms of time and resources spent on
inquiries, in half,” Pavelack notes.

To many Net watchers, Lombard Canada could be considered an
online late bloomer. In the early days of the Internet, other companies rushed to put up
Web sites, while Lombard opted to wait. It was putting the Web to work behind the scenes.

“We were always reluctant to go straight to the
customer,” says Brian Moses, the company’s information systems manager,
commercial lines. “We wanted to find a way to increase efficiencies.”

The company seems to have found a way. It has adopted the
Web as the main communications medium for its Business Choice program, which accounts for
80 per cent of Lombard’s commercial transactions. Communication costs for the
four-year-old program used to run between $30-35,000 a month, explains Moses. Using other
networks, the costs only increased as the volume went up, but by shifting to the web as
its medium, the company has saved roughly $500,000 a year, he says.

While the online communication is just between the company
and its brokers at present, Lombard plans to add consumer access as it forges ahead with
its strategy. “We intend to continue using the Internet to push information out to
brokers and consumers. We know consumers need access to billing information, claims
inquiry and servicing, and we are moving forward,” Moses says. “Anything they
call Lombard for right now, we want to put that on the Internet.”

Companies like Lombard appear to be on the right track, according to Riley. “I think
the companies that will fare the best are those that can manage the complexity (of the Net and the
industry),” he says. “The successful companies will understand the value of
different offerings and they will rationalize their investments based on that.”

Some companies, like Allstate, have gone a step further and
adopted an integrated b2c approach. In new Allstate TV commercials, a driver worries
whether the auto policy she bought online will give her the same kind of service as one
bought through an agent. It does, the commercial reveals, since Allstate customers –
whether they’ve come to the company through one of the company’s 450 agents, a
call centre, or the Web, can get help through any one of these channels.

This multi-access approach is aimed at gaining customers
who normally wouldn’t have gone to one of the company’s captive agents, says
Michael Haskell, Allstate Insurance Company of Canada president and CEO. Haskell says the
company thought about taking a totally online approach, but shied away. “We
considered all our options, but what we’d be giving up (with a separate online
venture) would be all the brand awareness.” With multi-access, which launched in
November 2000, Haskell estimates that roughly five to 10 per cent of the company’s
premium volume will stem from the Internet or the call centre within the next five years.

The company is also relying more heavily on the Web for
customer self-service. Since last spring, thousands of clients have made premium payments
online, and later this year, they’ll be able to make small policy changes themselves.

Insurance companies aren’t the only ones with a new
Net mindset. In mid-January, the Los Angeles Times reported a significant career move for
Heidi Miller, Priceline.com’s chief financial officer. Miller, a former executive at
insurance powerhouse Citigroup Inc., left the dot com to join Marsh & McLennan Co. as
vice chairman of its insurance brokerage division. The move, noted the paper, “marks
the end of a foray into online commerce by one of Wall Street’s most powerful female executives.”

Terri Goveia is a freelance writer and former associate editor of CI Magazine.