Internet Shakeup for Insurance

SAN MATEO (02/18/2000) - The slow-moving insurance industry has woken up to the Web, according to industry analysts and insiders, but the dawning of the e-commerce era means headaches as well as opportunities for the IT professionals supporting insurance companies.

"[Until now], there had not been a lot of incentives for insurance companies to make their businesses more efficient," says Keith Lippiattt, senior vice president of technology at InsWeb Corp., an online insurance marketplace, in Redwood City, Calif.

What's changed for this traditional industry is the emerging pressure from hot dot-com competitors who are coming into the game with new systems built from the ground up to support e-commerce.

For established insurance companies to leverage Internet technologies, their IT professionals face the challenge of updating sometimes archaic and incompatible computer systems and processes. If they want to take advantage of the Web, experts say they'll need to tie together those disparate systems so that all the details concerning each customer can be instantly pooled. And they'll have to ensure that the data is available around-the-clock -- issues that their emerging Internet competitors can offer right out of the starting gate.

All the while, IT leaders must accommodate products governed by complex rules and stiff regulations that vary by state, according to analysts and industry insiders. They must also avoid alienating sales agents who feel threatened by technology, as well as fight inertia within corporations accustomed to the cumbersome, although familiar, paper-based way of doing business.

In addition, the virtual world isn't impervious to physical-world restrictions.

For instance, state regulations require customers to sign their policies, and some products, such as life insurance, require physical examinations -- not to mention the difficulties in creating user-friendly systems that appeal to insurance buyers who are used to dealing directly with human beings.

"The insurance industry is one of the hardest financial services to put on the Web," says Steven J. Kroll, senior vice president of marketing at Answer Financial, which provides online insurance policy comparisons and quotes to employers and affinity groups through its Insurance Answer Center subsidiary.

To exchange information with 75 insurance carriers, the Canoga Park, Calif.-based company has to deal with everything from legacy systems to "people we have to send faxes [to]," Kroll says. And like other Internet insurance services, Answer Center backs up its Web site with a call center.

Those who succeed have much to gain. Web-savvy companies use efficiencies gained via Internet technology as a competitive weapon. For example, through its online offering InsurePoint, Atlantic Mutual, in Madison, N.J., took a cumbersome paper-based application process that typically was taking a month to complete and turned it into an electronic process that churns out quotes in as fast as two business days. And by adopting a Web-based system, eCoverage, an online-only insurance player in San Francisco, has empowered its in-house users to update the computerized systems that oversee the processing of applications, rather than forcing them to depend on IT to make the changes. The upshot: quick response in a notoriously slow-reacting industry.

By connecting to their insurance companies online, Web fans say that consumers can obtain information that was once held out of reach in agents' file cabinets and insurance companies' proprietary computer systems. And as competitors leverage the Web, consumers will more readily be able to compare insurance offerings, shop around-the-clock, and request services, observers predict.

Forrester Research, in Cambridge, Mass., estimates that $4 billion in auto, homeowner's, and simple life insurance products will be sold via the Internet by 2003. Although small relative to an industry whose total revenues reach into the hundreds of billions, the figure is impressive considering that today's Internet sales only reach the hundreds of millions of dollars, says Todd Eyler, an analyst at Forrester.

As a result, Eyler says, it's likely that pricing will become more competitive and new products will be introduced. Like similar upheavals in the banking and brokerage industries, new players will arise and old players will stumble.

Old dog, new tricks

In terms of embracing e-commerce, the insurance industry has been the slow-moving child of the financial services world, says Gil Irwin, a partner at Booz-Allen & Hamilton, a technology consulting company in New York.

In a study Booz-Allen released last year, just 37 percent of the insurance companies said they believed that their Internet strategy is directly linked to their corporate strategy. Now Irwin says, "You can't talk to an insurance executive today without them saying 'I'm going to be out there selling on the Internet'," although it may not be their main sales channel.

But with good reason, insurance companies haven't made the quick leap into the deep end because of organizational and implementation hurdles inherent in this industry.

Three obstacle stand between Web dreams and reality: channel conflict, or concerns that companies that sell insurance via the Internet will alienate their agents; regulation, meaning the state-by-state restrictions on products that add to their complexity; and systems, or building or updating an infrastructure capable of supporting these efforts.

Much of the insurance industry relies on agents: the so-called captive sales agents who are committed to one insurance company, or independent agents who sell products from several insurance companies. Determining their role in e-commerce can be a major organizational hurdle.

"The insurance carriers are held hostage by the brokers and agent channels because they are the ones that own the customer relationship," says Mitch Bishop, vice president of corporate marketing at ChannelPoint, an insurance technology providers.

Dealing with the insurance industry's existing technology is another formidable hurdle to clear. The industry's technical woes are connected, ironically, to its history as an innovator: Some of the first big users of workhorse computers were insurance companies. But as insurance companies added new products, they simply added new and often incompatible proprietary systems, explains Irwin, and many use data structures that are obsolete.

"It's very difficult for these companies to get a unified customer view," Irwin says.

And Web customers expect a unified view, such as an up-to-date record of all the products and services they've purchased or claims they've made.

Shifting landscape

So it's not surprising that major insurance companies are just now taking their Web sites a few tentative steps beyond brochureware. A few are even making inroads and leading the way for the industry.

Consider the efforts of New York Life Insurance. A "vision committee" representing the company's key business areas last year suggested a "defend-and-enhance" approach to the Internet. The idea is to use the Internet to help communicate with and train agents, plus make it easier for them to serve customers, says Mike Mazzariello, the company's chief technology officer.

"We have one primary distribution channel, and it's our agent channel," Mazzariello says. "We can't afford to jeopardize that sales force in any way."

So far the plan has translated into providing Web pages for agents at a cost of $100 for site design and $20 per month for maintenance, and costs can be covered by the agents' marketing allowance.

Another major move was Allstate Insurance's November announcement that it would turn to call centers and the Internet to "leverage the local presence of its more than 15,200-strong captive agency sales force," and plans to reduce current expenses by $600 million annually to fund these efforts, according to company officials.

Several business models are emerging. Some carriers already sell directly to customers via call centers, such as Progressive Casualty Insurance, in Mayfield Village, Ohio. There are also financial services companies such as Citigroup, in New York, that include insurance in the portfolio of products they sell online.

Alongside these more established efforts are emerging marketplaces or portals, such as InsWeb; Insuremarket from Intuit, in Mountain View, Calif.; and Quotesmith.com, in Darien, Ill. These insurance portals let buyers do comparison shopping, and they accept applications online and forward them to the carriers. In addition, there are pure Internet players, such as eCoverage.

Several different models may succeed, analysts say. But one thing seems clear, Irwin says: The old way of doing business won't survive untouched.

"Selling vertically, [such as] a MetLife agent selling only MetLife products [face-to-face] is dead," Irwin says.

To succeed in the Web game, Irwin adds, insurance companies have to "recognize that they have no choice and be willing to spend money." Then they must tailor a specific value-proposition for their customers that is different from what they do in the physical world.

Although the Web-savvy start-ups that have heated up the Internet race in the insurance industry may have the upper hand initially, the traditional big names in the business that learn to leverage the Internet may come out on top. That's because they come to the market with two powerful advantages: treasure troves of customer data and a well-accepted brand name, Eyler says.

"The big losers will be the companies that can't overcome channel conflict, and sit on their hands," Elyer says.

Susan E. Fisher (susan_fisher@infoworld.com) is a senior editor for the InfoWorld features team, who covers e-business trends in various industries.

CENTURY-OLD BUSINESS MAKES TECHNICAL, CULTURAL TRANSITION TO THE WEBAtlantic Mutual Insurance had a void in its product line: Company leaders wanted to sell business policies to high-tech start-ups, but realized it would be cost-prohibitive to develop quotes and issue policies at rates that would appeal to young companies with tight budgets.

So this 150-plus-year-old company turned to the Web to find a new way of doing business. But before it could make the transition, e-commerce leaders within the company had to convince co-workers to take the Internet seriously and adopt a very different approach.

Atlantic Mutual, in Madison, N.J., and business partner Bolton & Company Insurance Brokers, in South Pasadena, Calif., developed InsurePoint, a Web site designed to help growing technology companies buy property, general liability, errors and omissions, and workers' compensation insurance.

Launched in 1997, InsurePoint was more than a change of venue for this established institution. The approach was to "take out routine redundant steps in the process and automate them," says Jeffrey Behm, the Atlantic Mutual e-commerce manager who founded InsurePoint with Robert Davidson, executive vice president of Bolton.

InsurePoint lets prospective customers apply for coverage and pay online using credit cards or CyberCash. As they fill out the Web forms, it populates a SQL Server database. Through their browsers, customers can see when their check has cleared and when the next payment is due.

Giving customers the power to follow their accounts helps both the customer and the insurance providers.

"You wouldn't believe how many people are devoted to those simple questions, [like] 'hey, did you receive my check?' " Behm says.

But empowering the customer doesn't translate into eliminating agents.

"We involve the agent in everything we do online," Behm says.

InsurePoint assigns each customer a local insurance agent. The system keeps agents, underwriters, and the rating staff in the loop through a workflow system and a virtual back-office developed with Allaire's ColdFusion running on Windows NT, explains Tom Winn, Atlantic Mutual's Webmaster.

Clerical delays and errors are reduced because information on the customer is entered only once -- electronically by the customer -- and all involved agents share the information.

Behm says the companies were able to take a cumbersome, paper-based application process that typically took a month to complete and turn it into an electronic process that promises customers a quote in two business days. The savings enabled Atlantic Mutual to create lower-cost products suitable to a small business market that they otherwise would have had to pass by.

More importantly, the company is now attracting business it may never have received. Behm says 40 percent of transactions are now completed after normal business hours.

So Atlantic Mutual is taking on other slices of the small business market. With an approach similar to InsurePoint, the company is focusing on small law practices, retailers, and printers with Insurance4lawyers.com, Insurance4retailers.com, and Insurance4printers.com. It's also turning attention to tackling the difficult and critical job of integrating data generated by the Web systems into the propriety agent management systems.

Still, the most important hurdle has been cleared: getting everyone -- from company insiders to agents -- to buy into the e-commerce philosophy. Although there was a small group of influential fans when the concept was first conceived in the pre-dot-com mania days of 1995, "there was a much larger group that said 'you guys are nuts -- go back to work and forget about the Internet'," Behm recalls. "It took a long time to convince all the necessary people that this would be an important change in the company and the industry."

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