Life and health insurers to date have been slow to sell policies online. But within the next four years, carriers will sell $12.8 billion in life and health products on the Internet-up from $1.1 billion last year.That's the conclusion of a forecast released by IDC, a Framingham, Mass.-based technology research firm. The growth in online life and health insurance sales will be spurred by several factors, according to IDC.

Key among them is the increase in Internet access and shopping that will occur during the forecast period, as well as demographic changes that will stimulate both online and offline life and health insurance sales.

By 2005, the number of online U.S. households will reach 81.3 million, IDC predicts. And 60 million people will shop online for life and health insurance.

The fastest-growing income category-households earning $35,000 or less-is a key market segment for health insurance sales, according to IDC, especially if the government provides tax incentives for individual health insurance coverage. Households in this income bracket will account for nearly half of all new online households by 2005, IDC predicts.

The second-fastest growing income category-households earning $100,000 or more-is a key market segment for life product sales, IDC research shows.

"The emerging affluent-people who may not have a financial advisor-are more likely to turn to the Web for financial advice and products than those with 'old' money who have a network of financial advisors," says Karen O'Brien, research manager in IDC's Online Financial Services Group.

Also, as retirees become more prominent and savvy at managing wealth and retirement assets online, they too will use the Internet to buy life and health insurance products, such as annuities and supplemental health insurance, O'Brien says. Internet users over age 55 will increase from 59% this year to 82% in 2005, IDC predicts.

In addition to products targeted at these specific demographic groups, those sold at a discount over the Internet will have stronger online sales, according to IDC.

Partnerships pay off

Life and health insurers are legally required to keep health information strictly confidential-a condition which has hampered the growth of the online life and health insurance market, the report states.

Internet intermediaries, such as InsWeb and Quotesmith, which accept liability for protecting consumers' privacy from Internet security risks, appeal to carriers and will contribute to the growth of online life and health insurance sales over the next four years, IDC predicts.

Banks increasingly are looking to add insurance products to their portfolios as a means of gaining a larger share of customers' wallet. This, too, will drive online life and health insurance sales, according to IDC.

"We expect that within two years, most leading insurance carriers will have developed strong relationships with other financial services providers with online capabilities," the report states.

The forecast includes medical, dental, vision and individual health insurance, variable life products, and term and whole life products. It does not include fixed annuity products, permanent life insurance or universal life insurance.

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