Insurance Sales—Is It an Online World?

London — Insurers’ customers (agents/brokers and consumers) increasingly turn to the Web to research and purchase insurance. A competitive marketplace and changing customer habits are driving insurers in the United States to invest in online sales strategies, says a new report by independent market analyst Datamonitor.

comScore Inc., a global Internet information provider that monitors consumer behavior used in developing marketing, sales and trading strategies, would agree that consumer behaviors are changing. Consumers are increasingly reliant on the Internet as a channel to research and learn more about auto insurance, according to a report from comScore. Two-thirds of all Internet users, as stated in the company's recently released "2008 comScore Online Automobile Insurance Report," and more than 80% of those who have been with their auto insurer less than a year, have used the Internet to find information about auto insurance.

But, this behavior doesn’t stop at auto insurance customers. A study performed by Norvax Inc. says that consumers seeking health insurance will use the Web to research their purchase.

“Because of the market conditions, insurers need a way to efficiently deliver their product and increase per-customer profitability, which is possible with an online sales strategy,” says Jonathan Steiman, a financial services technology analyst with Datamonitor and the report’s author. “But perhaps even more importantly, insurers need to move online to meet the needs of an increasingly Internet-centric consumer.”

Developing an online sales strategy, insurers are able to lower customer acquisition costs, as well as gain control of the customer relationship, according to the Datamonitor report. The fragmented regulatory regime and the powerful agent forces in the United States, however, will temper wide-scale adoption. The report, “Catching Up: Online Direct Sales in US Personal Lines Insurance,” highlights several ways that U.S. insurers with existing agent channels can develop a direct sales strategy.

Steiman warns, however, that an online sales strategy can be fraught with risk. “For insurers with agent forces, which are the majority of insurers, there is a real threat of agent backlash. Also, as more U.S. insurers move, online aggregators will begin swarming like sharks, threatening the very customer relationship insurers hoped to own with a direct online strategy,” Steiman says, referring to the broker-like Web sites that collect insurance quotes from a number of insurers.

Insurers are facing a soft pricing environment, as well as poor investment income. The combination of these two factors is placing great pressure on the bottom line. To bolster their competitive position insurers need to adopt cost efficient sales and servicing strategies, as well as improve the customer relationship—both of which are possible with an online strategy.

Online direct sales require massive amounts of advertising; Datamonitor lists GEICO and Progressive as prime examples. A successful online direct sales strategy enables insurers to own the customer relationship. Under the typical agent model, the agent owns the customer relationship, in that they manage nearly all interactions, while the insurer simply carries the risk. As a result, many insurers have struggled to manage their brand, drive cross- and up-sales and capture pertinent data. By selling direct to the consumer, insurers can conquer the policyholder relationship, leading to improved profitability, Datamonitor says.

Datamonitor outlines ways insurers can closely replicate the consultative nature of agents with their online offering:

• Web sites should be designed dynamically so that only the pertinent questions are asked. If, for example, an auto applicant indicates they will be the only person on the policy, then the section for “additional drivers” should not be presented. “It seems simple enough, but insurers have had the bad habit of simply digitizing existing paper forms,” says Steiman.

• Insurers, who oftentimes possess financial as well as personal health information, must do their best to ensure data safety. For this reason, it is imperative that carriers with online strategies invest in verification and encryption technologies.