Although the technology is in place to sell insurance via the Net, consumers are not giving up the one night a year when they sit in their living rooms and listen to their insurance agent pontificate about the advantages of “Plan A” versus “Plan B.”
Now that dynamic may be changing, albeit not right away. One big hurdle for online insurance sales to date, a need for a customer signature, has been cleared with the use of a credit card to bind the agreement until papers can be issued. Still, despite that advancement, less than one percent of insurance transactions are being initiated online.
Consumers Shopping Online, But Not Buying
Even though insurance buying has barely found a foothold online, insurance shopping certainly has. A number of companies have emerged as technological hand-holders in the consumer’s quest for an online insurance quote.
The most prominent of these companies is InsWeb, a service that searches for competitive prices in health, life, auto, home and renter’s insurance. InsWeb provides links to some of America’s most established insurers, including State Farm and Nationwide, which owns about 10 percent of InsWeb. The insurers pay a fee to InsWeb in exchange for steering consumers their way.
For a company that is only about six months old, its market value of about $1 billion (US$) says something positive about investors’ views of the future of insurance sales online.
Already, online powerhouses like Intuit are getting in on the action with QuickenInsurance. Working in conjunction with Progressive Insurance Online, QuickenInsurance offers Quotesmith, an online insurance quote service.
The Insurance Mouse That Roars?
A tivny San Francisco, California-based startup may prove to be the mouse that roared in the online insurance game. The company, eCoverage P&C Insurance Services, has relied exclusively on e-commerce to sell insurance since its inception in 1999. eCoverage is a broker for Pacific Specialty Insurance Company, which provides the underwriting and claims adjusting.
eCoverage sells by giving online quotes and by taking credit cards for the transactions. It also takes the additional step of authenticating the customer’s credit and signature through VeriSign, a company that allows users to digitally sign and encrypt e-mail to ensure confidential messages and attachments.
Why Sell Insurance Online?
The driving force behind eCoverage and other potential online insurance sales operations is the potential for lower sales overhead and increased convenience. Just as online banks are finding their operating costs are reduced by not having brick-and-mortar locations, Internet insurance firms should also have streamlined sales operations and an economy that allows cost-savings to be passed along to consumers.
At a time when consumers are finally expressing a greater comfort level in online credit card usage, Internet insurance companies are well positioned to not only reap the benefits of that new trust, but also save handsomely in the elimination of costly paper handling.
What About The Regulators?
Regulation is an interesting wild card in the online insurance sales equation. Unlike consumer goods shopping sites, insurance is a highly regulated industry on a state-by-state level. Not only are all insurance companies licensed in each state in which they do business, but agents and brokers who sell insurance also must be licensed.
There are loopholes in the regulations, however, that could make online insurance sales a virtual world unto itself. Consumers, for example, are allowed to buy insurance from anyone they want in their own homes. States require that agents be properly licensed to make the sales.
If the company that sold the insurance were headquartered in one state or outside the U.S., could the regulators in another state prevent consumers from buying insurance online from that company? It is a question that will undoubtedly keep regulators busy for months and years to come.
eCoverage, however, does not plan to squeeze through the loopholes or to test any innovative licensing theories. Instead, it says it will receive proper licenses to operate in various states. Already, the company is licensed to operate in California.
Where Is It Headed?
Online insurance sales is a trickle today. If eCoverage succeeds in selling directly, however, one can expect online competition to virtually explode. One company that is likely to be a big benficiary is GEICO Direct, which has a very successful direct marketing operation via 800 telephone calling, and can be expected to move online as part of any trend. Geico’s Web site currently just gives out the 800 number.
One can also expect a huge marketing backlash from companies with traditional agents, who will not be excited by the prospect of losing sales to online brokerages. We can almost see the television ads attacking faceless, nameless carriers who supposedly will not be there when they are really needed.
In the final analysis, consumers are likely to remain in “good hands” for their insurance. Many of those hands, however, could well be electronic in the near future.