E-business suitability myths and strategies for the insurance industry

15 December 2011

By Randy Croce CPCU,
Tata Consultancy Services

The insurance industry is cautious by nature; after all, it is a business based on managing risk. Slower to embrace e-business strategies compared to securities, brokers and investment companies, this industry has made circumspective steps in progressing towards an online presence; primarily, by offering online applications and quotations for a relatively small sampling of insurance products. A slow, evolutionary migration to e-business suits the insurance industry fine as there are monumental challenges to consider, and adopting a fast-paced revolutionary approach could prove to be counterproductive.

Two key considerations are the disruption to the agency/brokerage force and the suitability of the products to e-commerce. With a broader view and by recognising that e-business and current distribution channels are co-dependent and by dispelling some of the suitability myths, savvy insurance carriers are more aggressively implementing e-business strategies in order to gain market share.

Catering to ‘Generation C’

Not only is the insurance industry cautious by nature, it also needs to be predictive. E-business is expected to be the preferred form of exchange for the future generations. As the Baby Boomers retire and Generation X matures, the future of business lies with emerging Generation Y - one that values flexibility, mobility, immediacy and demands instant gratification. One that chooses a good offer ‘now’ over a great offer ‘tomorrow’. Naturally, an emerging mindset such as this predicates the essence of time, and secondly, ease as well as the convenience of conducting any king of business transaction. Booz and company cites a new demographic.

Generation C “is the first generation that has never known any reality other than that defined and enabled by the Internet, mobile devices, and social networking. We call them Generation C – connected, communicating, content-centric, computerised, community-oriented, always clicking. By 2020 they will make up 40 per cent of the population of the US, Europe, and the BRIC countries, and ten per cent of the rest of the world - and by then they will constitute the largest single cohort of consumers worldwide” (1).

In light of this, e-business is paramount to every enterprise’s future and the insurance industry is no exception.

Broader view

Often e-commerce and e-business are terms used synonymously. IE-business is the use of computer technology, hardware, software, internal and external networks to facilitate business processes, and contains within its broad spectrum:

• E-commerce - products and services are sold via the web
• Extranets that connect and facilitate an organisation to customers and suppliers
• Intranets and other uses of technology that facilitate internal communication, information dissemination, process effectiveness and process efficiency

E-commerce is merely one aspect of e-business. E-business is more expansive than buying and selling over the Internet as it penetrates deeper into the processes and cultures of an enterprise. It is the dynamic business landscape that is established by connecting critical business systems directly to associates, customers, vendors, and business partners using intranets, extranets, collaborative applications, mobile technologies and the web. When insurance carriers consider their online strategy, they should take a broader view and include not only e-commerce but e-business in its entirety in order to capitalise on all of the benefits.

E-business and suitability

When thinking strictly about e-commerce, buying and selling insurance online, insurance products differ in their suitability. There are two reasons that people purchase insurance; they are required by law, or they want the insurance. Products that are required by law are more likely to be a commodity, usually requiring lesser professional advice and, as a result, are better candidates for online services. Following are general criteria used to determine suitability for online offerings:

1) Level of standardisation
2) Frequency of activity
3) Complexity
4) Financial scale – transaction volume and per policy premium
5) Pricing fluctuation
6) Amount of third-party information required
7) Regulatory restrictions

Most insurance products currently offered online fit into the criteria above such as personal automobile, private liability, homeowners and term life insurance. With new cutting-edge technologies, almost any product could be offered online; however, that does not mean that they should be. Cost benefits and customer acceptance must be carefully assessed and the above criteria take both of those critical aspects into consideration. However, products that are deemed not suitable for e-commerce can still benefit from a broader e-business solution through improvements to quality and service, for example:

1) The Internet can be used as a marketing tool to assist in the consulting and negotiation process.
2) Online processing of insurance policies and/or claims settlement can provide efficiency benefits and minimise the workflow.
3) Agents or brokers can handle administration services more effectively.
4) Products can be personalised and have greater flexibility.
5) Response times and data quality improve.

When considering a broader view, the benefits extend to all steps of the value chain and cross all business functions. Following is a list of some of the most common e-business models utilised to realise these benefits:

- Interactive websites - online sale of traditional products
- Financial portals - portals for financial services and insurance
- Point-of-sale portals - websites linked to specific transactions and activities
- Aggregators - independent price comparisons
- Online risk markets - online capability to exchange risk portfolios
- E-auctions - insurance customers list needs and receive bids
- Third-party , marketplaces - websites offering access to a number of “related” companies

Since insurance is so complex and the different segments and products so diverse, it is not a question of which single business model to implement but which model to select for each specific insurance offering. The e-business solution cannot be holistic across all segments, lines of business and products as the nuances of each unique offering require consideration. By recognising that the solution cannot be painted with a broad brush and, yet, by looking at the online opportunities with the broad e-business view, insurance carriers can expand their online presence and prepare to conduct business with the upcoming Generation C. Equally important is the ability for insurance carriers to promote that e-business is not a replacement distribution channel. Instead it is a complement to existing distribution channels.

E-business and distribution channels

Again by viewing the e-business strategy as much more than buying and selling insurance online, insurance carriers can realise the co-dependent existence of e-business and traditional distribution channels of agents, brokers and other partners. E-business has incorrectly been viewed as a replacement distribution channel. While this may be true of the more commoditised insurance offerings, for the most part, insurance is complex, highly varied and requires professional expertise throughout the exchange. Providing a broad e-business strategy will complement existing distribution channels by:

- Removing mundane tasks and activities from the professional insurance expert’s workflow, to allow them to focus their time and attention on more value-added efforts.
- Providing real-time data and information necessary to conduct business more efficiently and with improved quality.
- Increasing revenue through extended business potential.

New technology such as mobile applications and voice recognition provides insurance carriers with the opportunity to provide benefits to their employees, direct consumers and professional customers. The broad spectrum of e-business enables insurance carriers to craft the business models and solutions that strengthen their existing distribution channels and grow their customer base without upheaval.


Through the core competencies inherent in the insurance industry, risk management, risk taking, predictive analysis, the insurance industry is continuing to expand its online operations. An incremental approach to additional e-business strategies is recommended along with awareness that the solutions cannot all be treated as “black and white”. Realising that e-business is broad and that the benefits permeate through all functions, and to all parties, will serve to expand products and distributions channels considered for inclusion within an e-business strategy. Generation C is soon arriving and the insurance industry will need to rely on new technology, innovation and fresh business models to offer insurance products and related services in the preferred method, of online.

1. Rise of Generation C document

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