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Its value for today and tomorrow
When Celent first examined the Internet's role in the insurance industry several years ago, fewer than half of US insurers had any significant e-business systems. With the exception of a few brave early adopters, the industry was just emerging from its cautious avoidance of the dot-com boom and just starting to evaluate the potential of e-business systems. But over the past several years, the Internet has become so integral to the way the insurance industry conducts business that it is starting to fade as a distinct category and merge into the overall IT environment as a general enabling technology.
Indeed, the Web is now at the center of how most insurers communicate with agents, and is becoming increasingly important in interactions with policyholders. And while the 100 percent online sale of insurance policies is still very limited, online information and quoting for consumer lines has become a competitive necessity. There is also a role for e-business systems in facilitating communications with business partners like claims service providers and reinsurers.
The value of e-business in insurance (and in any industry) is directly proportional to the frequency and complexity of interactions. Thus, the value is highest among agents, who interact with insurers several times per day, and lowest among prospects, who may be shopping annually or even less frequently.
For both life/health and property/casualty, e-business primarily means agent e-business. e-business budgets are primarily devoted to supporting agents, and the majority of insurers overwhelmingly report positive returns on investment in both transactional and informational agent-facing systems.
Insurers also see their agent portals as key competitive differentiators. In an industry in which price and product moves are quickly copied by close competitors, service offerings like rich and easy-to-use agent portals can make the difference in attracting top wallet share from independent distributors. A recent Celent survey of independent agents showed that service, support and technology narrowly edged out price, product and commission as the dominant factors in agents' choices of generally preferred carriers.
Agents that perform at the highest levels are active e-business users. According to a Celent survey of insurers, the majority of respondents classified more than half of their agents as "active" e-business users. And the vast majority said that active users were higher-value agents than non-active users.
The value of agent e-business to insurers is primarily in increasing speed and creating cost savings, through reducing cycle times and eliminating the re-keying burden and its associated errors. Reduced call center volumes and print-and-mail costs are also important benefits of a well-executed agent e-business strategy.
In policyholder e-business, there is a big difference in perception and focus between life/health and property/casualty.
Life/health insurers have long-term relationships with their policyholders. While holders of a straight term life policy may hope never to interact with their insurer except to pay bills, many life/health insurance products involve more frequent interactions for loans, asset allocation, payouts, and, in the case of health benefits, claims. Life/health insurers also find that their active e-business users are their higher-value customers.
Not surprisingly, the majority of life/health insurers consider transactional policyholder portals ¡ª which enable policyholders to accomplish some of these interactions more smoothly and conveniently ¡ª to be a key differentiator against competitors or an important element of their overall business strategies
In property/casualty, the focus is more on parity rather than competitive advantage. While the lack of a decent policyholder portal may be a reason not to buy from an insurer, a great e-business system rarely provides a compelling differentiator. Property/casualty insurers are more likely to focus on adequacy rather than excellence in policyholder portals.
In both sectors, the primary value of policyholder portals is in reputation and its effects on customer retention, as well as cost-savings elements like reduced call center volume.
Essentially, insurers are being forced to offer the same level of online transparency that consumers and business buyers expect from the rest of their transactions. Whether it's booking flights, buying books, or buying computers, people are becoming used to instant access to information and transactional capabilities. While this does not necessarily extend to initial purchases, people expect to be able to manage relationships with service providers online if they want to.
As mentioned, this does not necessarily translate to completing the initial transaction of initiating coverage online. 100 percent online insurance sales are still a tiny fraction of even the most commoditized lines like personal auto and term life.
However, what has expanded dramatically, is the importance of online marketing and product information. The vast majority of insurers do some kind of marketing through their Web sites, and at least half of major insurers do online quoting for at least one line of business.
For business partners, e-business systems can replace proprietary EDI connections at a fraction of the price. e-business is a critical tool for insurers to exchange information with third-parties like underwriting data providers, claims services providers and reinsurers. The state of e-business
According to recent Celent research, e-business consumes between 5 and 15 percent of an average insurer's IT budget. Overall, Celent estimates US insurers will spend over US$1.6 billion on e-business systems in 2005. Between 55 to 70 percent is on agent-facing systems, 12 to 20 percent is on policyholder-facing systems, and slightly less than 10 percent each is on prospect and partner-facing systems.
Most insurer e-business systems have been developed internally rather than having been based on packaged solutions. In Celent's last e-business survey, only around 1 in 10 respondents reported using a packaged e-business solution. However, e-business systems are likely to incorporate various vendor-supplied components or frameworks ¨C only one in three respondents reported that their systems were 100 percent homegrown.
For most insurers, e-business has ceased to be an independent category. The various IT units responsible for serving agents, policyholders, prospects and partners all have e-business responsibilities related to their own areas. While this dispersing of e-business functionality and capabilities is a good thing, insurers need to make sure these units maintain common standards in architecture, data and security methods if they are to avoid re-creating a siloed infrastructure at a higher level.
To that end, Celent advises insurers maintain a small group of e-business experts to provide guidance, consistency and best practices across all of these areas. This expert team should focus on the five key areas of strategy, education, usability, security and standardization.
By centralizing these areas, insurers can reduce the risks of:
Re-inventing the wheel for each new initiative
Supporting cross-purpose initiatives
Lack of training, which leads to lack of adoption and user frustration
Divergent interfaces, which increases training expense, and reduces adoption
Expensive, unnecessary integration of divergent systems
Lack of interoperability
Expensive and time-consuming post facto integration
The Web is now an integral part of insurers' communications and transactions systems. While it did not "kill the dinosaurs" the way some brash start-ups in the late '90s predicted it would, it did force them to evolve in a way that makes the entire industry more effective. Over the next few years, Celent expects this trend to continue.
In the coming years, we expect to see:
The ubiquity of agent e-business in both life/health and property/casualty. A top-notch agent portal will become even more of a competitive necessity, and agent demands for speed and access to deep information and easy transactions will increase.
An increase in the amount of business submitted electronically, across business lines.
An increased importance on online quoting and information for policyholders.
More use of e-business platforms for exchanging information with other stakeholders in the insurance value chain, including both portals and Web services.
About the author
Matthew Josefowicz is manager of the Insurance Group at Celent Communications, LLC. This article is based on his research reports: Top 10 Trends in Insurance e-business Today and Tomorrow and The Future of Insurance e-Business Groups.
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