The insurance industry received repeated criticism for failing to develop e-business capabilities quickly enough during the dot-com frenzy. Now, it appears that insurance companies are catching up with competitors in other sectors of the financial services industry.That's a conclusion of a recent survey of 150 North American financial services organizations conducted by Chicago-based research and consulting firm Andersen (formerly Arthur Andersen).

In a similar survey conducted last year, Andersen found that the insurance sector ranked lowest in the financial services arena for e-business effectiveness. This year, however, insurers pulled ahead of asset management firms-which includes companies such as Invesco, Janus, and Fidelity-to achieve a favorable ranking with the banking and lending segments (see chart, pg. 8).

"Insurance companies have come a long way," says David B. Holtzman, partner and national insurance practice leader at Andersen Business Consulting. "A lot of people wondered with our first study why (insurance companies) were so far behind." The reasons: They were stepping back to get a broader perspective on how e-business could meet their customers' needs, and they were building solutions that just hadn't come to market yet, he says.

A natural progression

The insurance industry has moved beyond the first generation of e-business, which is launching a Web site with brochureware, to the second and third stages, which involves providing online transactional capabilities and self-service, Holtzman says.

Some insurance Web sites, for example, now provide claims initiation and tracking, approval of new policy requests, submission of initial premiums and proof-of-coverage cards. In addition, insurers are investing in online tools for agents, he says.

Consumers are demanding the low cost, speed and convenience of the Internet, but they also want a proven brand or local presence and a choice of channels, the report states.

As a result, the most effective Internet strategies include combining a physical presence with the Web-an approach known as "bricks and clicks."

"A lot of the dot-coms and virtual companies jumped out very quickly, and we have seen the demise of those companies," Holtzman says. "It has been helpful that insurance companies didn't jump (on the Internet) so quickly. They stood back to really understand what was most important, and based on that, they're prioritizing what technologies to implement."

Not surprisingly, fewer purely "virtual" firms ranked among the leaders in each market segment in Andersen's current survey than they did a year ago. Last year, eCoverage ranked among the insurance leaders for e-business strategy. But eCoverage closed its doors in March when it licensed its technology to GMAC Insurance Group after running out of cash (see "eCoverage Is History," May 2001, pg. 10).

The online insurers who have been most successful have had an agent channel or home office that handles some of the processing, Holtzman says. The only "virtual" insurer in Andersen's top five listing this year is San Francisco-based Esurance Inc. The other four leaders are traditional insurers: Progressive Insurance, Electric Insurance, Nationwide Insurance, and GE Financial.

The business model of many virtual insurance companies didn't work because they didn't consider the industry's typical distribution channel, which includes agents, Holtzman says. "Insurance is still a business that needs some type of touch."

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