INTRODUCTION TO E-INSURANCE

E-insurance can be broadly defined as the application of Internet and related information

technologies (IT) to the production and distribution of insurance services. In a narrower

sense, it can be defined as the provision of an insurance cover whereby an insurance

policy is solicited, offered, negotiated and contracted online. While payment, policy

delivery and claims processing may all be done online as well, technical and regulatory

constraints may not allow these elements to be subjected to full e-commerce application

in certain countries.

However, insurance legislation worldwide is being continuously modified to

accommodate online payment and policy delivery, and outside the discussion of e-

insurance metrics, these elements should be included in the narrow definition. The

anticipated efficiency effect of e-insurance is twofold:-

E-insurance should reduce internal administration and management costs by

automating business processes, permitting real-time networking of company

departments, and improving management information.

It should reduce the commissions paid to intermediaries since it can be sold

directly to clients. For insurance sold to individuals, agents typically receive a

commission of 10 to 15 percent for non-life policy sales and renewals and from

35 to 100 percent for life insurance policies in the first policy year, but much less

on renewal.

However, some of the income gained in commissions that are not paid to intermediaries

must be spent on online customer acquisition and marketing. Assuming cost savings do

materialize in a competitive market, they would be passed on to consumers thereby

allowing them to buy more insurance, or other products or services.

Since insurance penetration (Premiums as a percentage of GDP) in developing countries

is only of that in developed countries, the efficiency gains created by e-insurance may

contribute substantially to growth in insurance spending and thus intensify its

indisputable role in promoting trade and development.

Of the $2.5 trillion worth of global insurance premiums, about 1 percent could

qualify as e-insurance, according to the broad definition. Little, if any of the premiums

earned in developing countries, could be described as e-insurance according to the

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narrow definition. In stark contrast, the majority of the $100 billion global reinsurance

business is traded using some form of electronic medium. Considered along with initial

reports indicating that online premium rates are more competitive, this could point to

acceleration in online distribution of insurance covers measured by the overall value of

insured assets. Considered along with initial reports indicating that online premium rates

are more competitive, this could point to acceleration in online distribution of insurance

covers measured by the overall value of insured assets.

During the height of the dot.com euphoria, expectations for e-insurance growth were very

strong, and many insurance and reinsurance companies and intermediaries have

continued to invest in their e-commerce capabilities. Swiss Re’s research arm

SIGMA estimates that by 2007 e-insurance will have 5 to 10 percent market share in

standardized personal lines insurance

Figure 1 indicates forecasts that 7 percent of global premiums will qualify as e-insurance

by 2007.

Figure 1.

NEED OF E-INSURANCE:-

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Recent developments in information technology (IT) and web-enabled systems have

made it easier for insurers to run global operations in a way that would not have been

possible even two years ago. Insurers are already reaping advantages from IT

improvements in internal efficiencies in areas as diverse as underwriting, claims, policy

administration, financial reporting and human resources. But efficiencies go beyond these

internal ones. In the coming years, the internet will have at least two major effects on the

insurance industry: cost efficiencies and broader distribution. These efficiencies will

come as insurers experience a greater availability of data from the internet and the

transfer of business processes from manual-related or computer-related systems to newer

communication related systems.

Such internet-style technology will reduce cost, reduce the level of effort and improve

accessibility to large-scale data. Data accumulation becomes much easier under the

internet approach and thus affects costs and value of insurance. The internet will bring

insurers to a whole new audience, and will allow them to sample new markets that would

have been too expensive to enter. Making information available to potential customers

and the ability to market products to the new audience will have a tremendous impact.

THE WEBSITE:-COMPARISON OF INSURANCE INDUSTRIES OFFERING V/S CUSTOMER EXPECTATION

Today’s customers have certain basic expectations about their insurer’s website without

which they will turn to other more interactive sites. As the website is a touch point for

consumers and insurers; it should have the following basic features:

• Functionality:

Many insurers have made plans to add capabilities to their sites such as problem

resolution. But such functions as claims handling, self-administration of policies, online

billing and bill payment may have not yet been executed to the satisfaction of the site

visitor.

• Timely response:

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Today’s sophisticated web surfers do not complain when they get a lack of response from

an insurer’s website – they just take their business someplace else.

The Customer Respect Group discovered this gaffe in its “Summer 2004 Online

Customer Respect Study”. 27% of carriers surveyed do not reply at all to online inquiries

and another 25% answer only about half of their inquiries. As a result online users will

abandon a visit to a site and go to a competitor’s site to make a purchase if they have a

less than satisfying experience. Response time should therefore be addressed more

seriously.

• Financial products and services features:

Customers will visit an insurance site more often if it has a wider breadth of financial

products and service features. For example, Nationwide, Usaa and Prudential insurance

companies (all of which offer an extensive array of products that can be bought online)

average three visits per customer each month, as opposed to one monthly visit per user to

sites with narrower offerings.

Moreover, in another survey supporting this point of view, it appeared that 45% of

consumers are less likely to use their insurance sites if products and services such as

financial aggregation are provided elsewhere.

• Connectivity and easy site navigation:

Insurers need to ensure that the consumer’s online experience is as convenient as

possible. In “Policyholder Self Service” report by Gomez Inc. it was established that

currently the average visit to insurance sites lasts about 10 minutes, which means that

insurers have a very short time in which to impress the consumer with the value of their

site before they move on. In that same report it was also found that more than half of

those who were unsuccessful at performing self service say that they are unlikely to try

again, while successful self service will likely draw people back (74.7%)

It can be concluded from the above that the basics of an attractive website is still not

perfected by established insurers, which sheds some light on why the number of online

customers are not yet up to expectation.

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ADOPTION OF E-COMMERCE TO INSURANCE:-

Certain industries, such as travel, banking, and retail, have embraced the emerging

technologies that make electronic commerce possible. Some firms have gone as far as

completely revamping their business processes. The insurance industry has made real

progress in implementing some of the technologies of e-commerce, but the industry has

been slow to adopt others. This is because insurers must carefully select which

applications to implement, weighing the costs and benefits. Some applications of e-

commerce used in other industries do not easily fit the business of insurance. Many

others, however, present insurers with interesting possibilities .

A typical e-commerce transaction can be divided into the following five phases

1. Search

2. Valuation

3. Logistics

4. Transaction

5. After-sales services

The first four stages of e-commerce described above directly lend themselves to

analogous steps for purchasing an insurance product online. Consumers search from

different insurance companies for products that they are willing to purchase. They

evaluate the products from different companies to determine the one which best suits

their needs. The insurance company then conveys the terms of the insurance policy to the

customer and the customer responds with details including a description of the entity

being insured, the terms and the duration of the insurance policy. When both the

customer and insurance company agree to go ahead with the transaction, the buyer pays

the initial premium to the insurance company and the policy certificate is sent to the

buyer.

The after sales phase of e-insurance is however considerably different from e-commerce.

In e-commerce, human intervention is required for activities in the post-sales phase such

as repair or replacement of parts. However, a major interaction between an insurer and

the insurance company occurs in the post-sales phase if the insurer submits a claim for

the amount insured. Online claim settlement involves complex interactions between the

insurer, the insurance company and possibly legal and judicial authorities and, in an

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automated environment, requires close interactions between humans and automated

agents. This phase is therefore the most difficult to implement over the Internet and

online insurance sites mostly rely on human intervention for this phase.

Insurance companies offering proper services through Internet can be classified into the

following categories:

Web Sites: Almost every insurance company has homepage providing

information about the company and products. However, these homepages are little

more than passive online versions of the company’s brochures.

Product Portals: Portals are sites that provide a collection of links to sites of

interest.

Point-of-Sale Portals: Unlike most other commodities, the sale of insurance

products is initiated by the sellers. Certain sits exploit this approach by offering

insurance products while selling insurable goods such as cars or while providing

information on health or college education.

Intermediate Brokers: Brokers are intermediate sites that do not sell insurance

products directly but assist clients in matching their requirements with the policies

offered by insurance companies.

Reverse Auction: In this case, the client is usually an organization interested in

group insurance. The client announces its requirements and selects the best offer

made by an insurance company.

Aggregators: Aggregators are sites that compare quotes from different insurance

companies. The service is often supplemented with general information on

products as well.

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THE INTERNET AND INSURANCE: IMPACT AND IMPLICATIONS :-

The Internet and life insurance: impact and implications

Current position of Internet usage by life insurance companies

Stages of incorporation of Internet into existing businesses can be broadly categorized

into four main stages.

Web Presence Stage

To obtain on-line quotes on a contract that they may be interested in and the activities

of the company are largely targeted activities. However there is no processing of the

information past this stage and a customer must obtain an application form to process the

transaction any further.

Interaction Stage

This is where a company uses web pages to provide information about their products and

services i.e. corporate information, to include financial statements and balance sheets.

This stage is very basic and apart from raising brand awareness, there is no real

significant impact and incorporation into existing businesses.

Transaction stage

This is where the company has enhanced information technology and may even have

facilities for customers to place orders and transactions

Enaction stage

Here the company has used the net and IT, to redefine their business and are known as

e-enabled businesses. The emphasis is on interactive customer relationship management

and full integration of Internet facilities into the company. An example of such a

company might be Cisco systems.

Currently most companies are in the interaction stage and thus need to upgrade their

business value by making the Internet an integral part of their business value and despite

the insurance industry’s hesitancy to embrace the Internet as a channel for distribution,

the outlook over the next five years is very positive.

“While the online insurance marketplace represented only about $1.9 billion in premiums

($1.6 billion net-influenced sales and $0.3 billion online sales) in 1999, this market is

expected to grow to $11.1 billion in premiums ($7 billion net-influenced sales and $4.1

billion online sales) by 2003.”

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Implications for life companies

Survival of the fittest

One possible impact of the Internet in the future will be the position whereby only a small

number of companies shall exist owing to economies of scale in commoditization.

Having established a strong brand, their support services for their products will be diverse

and be innovative and technological. Inclusion a mutichannel distribution strategy along

with bundling a variety of secondary related products will help them to provide insurance

products for both the long and the short term.

These companies will be the result of the merger and acquisition of several existing

financial companies and may be a global venture. Profit margins although deliberately

kept low will exist and the emphasis shall be on high volume, minimum unit cost sales,

with heavy investment of capital in advanced technology. The target sector will be the

average person who has relatively simple insurance needs.

Customers may find that loyalty discounts exists and they shall be quite happy to

purchase other products from these big market players.

Specialisation

Here each company will choose to concentrate on their core business competencies

outsourcing non-critical components and leaving the distribution of their products to

independent firms, such as supermarkets, who have a wider consumer base. There shall

be a trend towards a virtual office environment.

Communication between manufacturers and distributors (B2B) would be by using

extranet facilities and allow one to one marketing. It will be imperative, from a

competitive point of view, for insurers, to offer online transactive services and to

participate in B2B online exchanges. On the positive side, the expansion of this B2B e-

commerce should result in cost-savings for policy administration.

The industry would see a deregulation with branding and diversity of the distributor’s

customer base becoming key sources of competitive advantage. ‘White label’ products

would become increasingly common as competition increases and new players emerge.

The resulting effects will be the demise of many small and medium sized companies and

a reduction in the number of Independent Financial Advisors.

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Team as well as self-education support in the form of information available to the

customer on the Internet. As innovative products and quality of service become

overriding issues, administration becomes complex and expensive and indeed customers

may choose to forms C2C alliances to sell second hand endowments, for example.

A Niche scenario

As the number of people surfing on-line increases every day and wealthier and more

educated customers display sophistication about them a niche market might develop in

the future to meet the complex financial requirements of such customers, who have

complex financial needs. These needs will include continual personal expert advice

through channels such as Independent Financial Advisors or a Direct Sales Force

Team as well as self-education support in the form of information available to the

customer on the Internet. As innovative products and quality of service become

overriding issues, administration becomes complex and expensive and indeed customers

may choose to forms C2C alliances to sell second hand endowments, for example.

The Internet and other markets: impact and implications

Impact on insurance brokers

The market in which insurance brokers operate is very diverse. Consequently, the

potential of e-commerce is also diverse. An investment broker will advise on which type

of investment product or investment fund matches a customer’s risk tolerances and

personal circumstances, including tax issues. These factors are variable and hence the

broker is, from a business point of view, in a good position.

Moreover, customers are aware that insurance is a necessity and not a luxury and hence

are prepared to take time to seek advice in relation to a lower-cost best value approach.

Within the corporate market, brokers are aware of the importance of a best value

approach in terms of cost and creditworthiness. Brokers also advise on corporate pension

issues in terms of selection of investment managers and assessment of solvency risk.

Direct dealing insurers however, who promote cutting out the middleman, are replacing

the role of the non-life broker.

Moreover, the position of the smaller retail insurance broker is very different to their

larger competitors.

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By a combination of web-based marketing sites and the facility of transmission of data

between systems using a standard interchange facility may facilitate low cost electronic

trading for brokers which may be paramount to the survival of the smaller broker. Web-

enabled TVs would increase the potential market and thus provide even greater savings.

Also Internet usage allows an alternative to the traditional manned claims desk by

allowing free exchange of information on claims procedures. All, however, face the

threat of disintermediation and broker commission rates are under threat. This has been

partially due to the Internet, as customers “go direct” with the underwriters.

Brokers have responded to this by increasing the range of risk management services that

they offer. However, this still does not deal with the issue of the Internet being

responsible for edging them out of the market altogether, as the development of a

Universal Electronic Data Interchange allows communication between customers and

insurers that is more direct.

Not all is bad news. Indeed the Internet can be advantageous for the broker in terms

of providing them with a faster more cost efficient method of transferring information

globally and hence enabling them to pass on the savings to their customers and hence

attract more business.

The Internet is also changing the role of the broker from an intermediary to an

“infomediary” who conveys information to the customer. As markets become

increasingly dependent on standardised information such as the FTSE indices, the

broker becomes the supplier of information that affects these indices.

In essence, the Internet could speed up trends that are already present in the market.

If this is the case then only those brokers, who are continually re-evaluating their role

and its changes due to the Internet, will be able to reap the full benefits. Indeed

ignorance of this technology may result in significant consequences.

Implications for reinsurers

This topic is somewhat difficult to address, as reinsurers have minimal Internet based

activity. The problems they face are different to brokers as they are not involved so much

in the transfer of information and they are more the risk bearers. The ease of information

sharing allows customers accounts to be continually monitored by reinsurers. It will also

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mean that they are up to date, thus making renewal simpler. Moreover, this data is easily

manipulated and stored thus decreasing administrative costs.

Within the London market this advantage is readily apparent with organisations such as

Lloyd’s enjoying the increased efficiency gain. However, the Internet facilitates

competitors in the reinsurance industry such as the Bermuda reinsurance centre.

These centers have benefited greatly from the impact of the Internet as distance and

location has been a traditional barrier to entry. Furthermore, such centres are in anideal

situation to postulate legislation for newer forms of e-commerce that would

complement their existing tax position and hence generate even further business.

These competitors have undoubtedly affected the traditional market share that Lloyd’s

enjoys and thus it is imperative that such points should be considered.

POTENTIAL EFFECT OF E-INSURANCE ON INSURANCE INSDUSTRY

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Insurance and the broader area of financial services are industries where electronic

commerce will play a significant role. These information-intensive industries are fertile

ground for the play of forces that have spawned e-commerce. The evolution of the use of

ecommerce by insurance companies and intermediaries raises a number of issues with

respect to the impact of this technology on the industry and its regulation. Any discussion

of the impact of e-commerce on insurance must address some of the issues affecting the

major players in the insurance electronic marketplace1: Insurance company (Insurers),

Consumers, Insurance agents, Other service providers, and Government /Society (through

the supervisory authority).

Each group has a direct interest in the evolution of the electronic market. Each is affected

to some extent by the technological change that is revamping electronic commerce. The

interests and roles of these different stakeholders must be addressed so that change is

promoted and managed effectively, rather than impeded by those that feel threatened by

it.

Effect of E-commerce On Insurance Companies

Insurance companies have regarded the Internet mainly as another channel of distribution

for their products. Compared to online stock brokerage and online banking, development

of the Internet in the insurance industry has been somewhat cautious.

Websites mainly serve to provide information about the company and its products. Many

insurers especially in developing economies have not seized the opportunities created by

ecommerce for making all business processes more efficient, beginning with the online

sale of policies. But the growing number of those who have embraced the technology is

most encouraging .

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There are some factors, which make the online selling of insurance products difficult:-

1. The complexity of some products, e.g., tax-efficient life insurance policies, increases

the consumer’s need for specific advice. It has not yet been possible to automate the

provision of information; although it can be assumed that continuing advances in

technology will create new opportunities for automated solutions. The complexity of

many insurance products can often be reduced by design modifications.

2. In many cases, it is difficult to standardize claims settlement for example, as this

involves a large amount of investigation and decision-making. This process often

involves people and companies who are not in a contractual relation with the insurer.

3. The Internet is particularly suitable for products where contact with the company is

more frequent. Insurance is usually taken out infrequently, every couple of years or even

once in a lifetime. Once a policy has been concluded, with some types of insurance the

insurer and the policyholder have barely any contact, unless an insured event occurs.

Also, existing insurance policies can often only be cancelled with a certain amount of

effort. This makes the switch to an Internet insurer more difficult.

4. Many consumers still view the Internet as an insecure medium. This prevents large

transactions being concluded via the Internet, and it deters the transmission of

confidential information, both of which are essential aspects of insurance policies.

5. In personal line especially, regulatory hurdles make Internet distribution difficult. For

example, as e-commerce increases the number of cross border transactions, licensing

requirements in all jurisdictions where such transactions occur also apply.

Competition and Market Penetration

The Internet enables new entrants to the market to avoid the expensive and lengthy

process of setting up traditional distribution networks. E-commerce lowers market entry

barriers and increasing competitive pressure in the insurance industry.

In the past, many insurance products have been distributed mainly through captive agents

or independent brokers. Since enormous investments are needed to build up such a

distribution network, established insurers were generally well protected against new

competitors. Now the Internet provides new companies with instant access to the

insurance market at an affordable cost. Market transparency is improving, since product

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and price information is more readily available through the Internet. Lower market entry

barriers and higher market transparency are combining to intensify competition and force

prices down. This also makes it increasingly difficult for insurers to pass the

comparatively high costs of traditional distribution onto the prices it charges for its

products.

In life insurance especially, online distribution may change the nature of the

competition. Acquisition costs traditionally play a key role here. They often come to

more than 100% of the new premiums, and are only amortized over the course of a long

policy term. For new entrants to the market, such a big cost burden at the start of the

insurance contract is a major barrier to entry, as they are unable to draw on a constant

premium flow to finance new clients’ acquisition costs. If Internet insurers manage to

reduce these acquisition costs significantly, it would become far easier for them to break

into the market. On the other hand, Internet insurers need to attract clients through

advertising, and this entails substantial costs as well. Furthermore, a certain amount of

advice is normally required for many life insurance products, because of their transaction

volume and complexity.

Even if e-commerce lowers market entry barriers, start-up companies in particular need

to become sufficiently well known if they want to win significant market share. Another

important factor, particularly in the insurance industry, is that the client must have

confidence in the insurance company. Online sales still carry an element of uncertainty

for many clients. This is mainly because of unresolved legal aspects of online policy

conclusion and premium payment, as well as concerns about data protection. Therefore,

insurers with an established brand name have a competitive advantage, as they naturally

command a greater degree of confidence. New companies need to build up this goodwill

from scratch, and this usually involves high advertising and marketing expenses.

The current disadvantage experienced by new Internet insurers should gradually become

less important over time. First, confidence in the Internet as a distribution channel will

improve as its penetration increases. Second, newcomers will be able to build up their

weak reputations through secure ratings or alliances with well-known Internet brand

names. Successful alliances for Internet insurers are feasible with online banks or online

brokers, as well as with quality portals such as AOL, Yahoo or Microsoft.

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E-commerce enables established companies in other sectors to cross over into insurance.

Lateral entrants from other sectors can break into the insurance business with the help of

the Internet. The most likely candidates are companies who already have a well-known

brand name and strong customer loyalty. These companies, such as banks or internet

providers, could set up new, efficient e-commerce systems, without the burden of legacy

systems or conflicts with other distribution channels. They could also transfer their brand

name to the insurance industry and utilize existing sources of finance.

Benefits for Insurance Companies

The new e-commerce capabilities bring significant efficiency improvements in

distribution, administration and claims settlement. The biggest cost block for a non-life

insurer is usually claims payments. Online distribution brings a direct reduction in

distribution costs. Additional savings potential comes from using e-commerce to

automate business processes. This in turn brings reductions in administration and claims

settlement costs. Modern information technologies also bring cost savings for claims

payments. For example, better data analysis may improve risk selection, while the

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detection of insurance fraud and tighter control by partner companies can help to reduce

claims costs.

In life insurance, claims costs are much less than in non-life insurance, because of the

high savings component. Distribution costs represent the biggest cost block, which means

that the bulk of the cost savings can be achieved in distribution. However, many life

insurance products require a lot of advice, and are therefore only partly suited to pure

Internet distribution.

For traditional insurers, the need to adapt to the new e-commerce opportunities not only

entails direct cost, in the form of substantial investments in the new information and

communication technologies, but also the indirect costs of having to change their existing

business models. Companies have to revamp their business processes and corporate

structures, which leads to many different internal conflicts. Internet marketing threatens

traditional distribution channels and therefore tends to meet with strong resistance within

the company. Many insurers avoid this problem in the short term by not passing on to the

customer the efficiency gains created by electronic distribution. In some cases, the

salesperson even receives a commission if a client in his or her area takes out a contract

online. Some insurers pursue a dual strategy and try to establish a foothold in countries

where they have no significant market share by offering e-commerce solutions while still

maintaining the traditional distribution channels in their home market. This is not a

strategy for long-term success; however, as the potential efficiency gains in the home

market are abandoned.

Insurers selling over the Internet will have a substantial cost advantage over the lifetime

of a customer, relative to non-internet based insurers these efficiencies are primarily

driven by reduced sales costs, lower customer service costs, and cheaper and better

information gathering about the customer. At the same time, the use of e-commerce will

demand the progression and integration of various components of insurers’ information

systems, many of which are still wedded to legacy mainframe platforms that are

becoming increasingly inefficient.

According to Ernst and Young (1999), the average traditional transaction costs is $90,

while the average transaction cost through a web enabled customer portal is $4.44.

Figure shows the costs of traditional vs. online purchasing processes.

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The structure of many insurance markets and the role of intermediaries (e.g., insurance

agents) will change dramatically. Currently, there are insurance malls that allow one to

obtain quotes from a number of companies almost instantaneously. If the major functions

of insurance agents have been information transmission and facilitating transactions,

ecommerce will make these functions much easier and less expensive for insurers and

consumers. Certain agent functions will be disinter-mediated1 or replaced by an

electronic market. The traditional agent role will likely be diminished for standardized,

commodity like products such as term-life, homeowners, renters, and auto insurance.

Electronic commerce will further the decreasing use of the independent agency system

relative to exclusive agent and direct-response distribution systems. At the same time, the

insurance agent’s role may be enhanced in advising consumers on how to optimize their

insurance purchases and in dealing with insurers in areas such as claims settlement,

potentially valuable services for consumers.

Another interesting aspect of the economics of the Internet is the existence of so-called

network externalities. That is, the network becomes more valuable the more people are

connected to it. With the increased value of connection comes the decreased cost of

distribution. Products with relatively high fixed costs and low value (such as travel,

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credit, or burial insurance) are relatively expensive to produce. Those customers pay a

high price per dollar of coverage for these products. The Internet allows the disinter-

mediation of this relatively high overhead for these low face-value products. This means

that prices can be lowered and more insurance sold by reducing the transaction costs of

the exchange. Increased access through e-commerce also may prompt some consumers to

purchase broader, high-value insurance products to manage their risk

Top Obstacles And Concerns For Insurance Companies

In view of trends concerning the growth of e-commerce in the general economy, it is

interesting to consider what the impact has been and is likely to be for the insurance

industry in particular. Although other online financial services have already taken off

quite vigorously, the insurance industry’s involvement with and commitment to

electronic commerce lags far behind competitors in the banking and brokerage industries.

Top obstacles for the insurance industry:

• Resistance to change

• Threat of agent/broker disintermediation

• Lack of technology/regulatory hindrances

• Threat of insurance company disintermediation

• Lack of industry vendor solutions

Top e–commerce concerns:

• Costs/impacts of moving off legacy systems

• Impact of legacy channel investments

• Lack of skilled information technology personnel

• Lack of e-business strategy

• Lack of enterprise technology architecture

It is widely recognized that e-commerce will enable insurers to significantly lower costs,

realize business process efficiencies, improve customer service and brand loyalty, and

enable insurers to better position themselves competitively.

However, insurers cite as top obstacles factors such as resistance to change, threat of

agent/broker/company disintermediation, lack of technology infrastructure, regulatory

hindrances, and lack of industry vendor solutions.

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Insurance Products Suitable For E-Commerce

Not all insurance products are equally suited to Internet distribution. Their suitability

depends chiefly on how much advice is required. The more complex the product and the

bigger its financial scale or transaction volume, the greater the client’s willingness to pay

for advice. Products that are particularly suitable for marketing on the Internet are those

that can be described and rated using a small number of parameters, such as motor,

private liability, homeowners, household contents and term life insurance. These types of

cover are also suitable for online price comparisons, which make the Internet even more

attractive for potential clients.

E-commerce also will have implications for the sale of more unique and complex

insurance and reinsurance products particularly those purchased by commercial

enterprises. These transactions rely heavily on information and communication and e-

commerce can make this process more efficient. At the same time, the sale and servicing

of complex insurance products will require different kinds of networks appropriate for

individualized transactions. Security will be an important consideration here given the

large amounts of insurance and proprietary information at stake.

Products that are not necessarily suitable for online marketing include most life and

pension products, health insurance and many commercial lines. But even these products

can benefit from the huge opportunities for quality and service improvements presented

by ecommerce:

If clients already have extensive product and risk expertise, the Internet can still

be used as a marketing tool, despite the high complexity and transaction volume.

“Internet team room”, for example, could support the consulting and negotiation

process.

Even if the conclusion of the policy and the associated advisory services occur

with little or no online support, policy administration or claims settlement can still

benefit from such support. For example, a client may seek independent advice

when choosing a private health insurer, but is prepared to use online facilities to

process and settle doctors’ bills.

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Brokers can use e-commerce solutions to bundle together the needs of a large

number of clients, handle the administration themselves, and then forward the

data to the insurer.

Modern communication technologies allow more personalized products, faster

response times, greater flexibility in covers and better support for risk

management.

However, there are ongoing debates about the suitability of individual insurance product

for e-commerce. The conventional wisdom is that obligatory, very simple or low-price

products do not require a seller’s push and thus can be distributed through e-commerce.

The greatest demand is for motor vehicle insurance, followed by health, homeowner’s

and term life insurance. The very desired product to be sold on the net is shown in the

Figure, whereas insurers selling online directly to clients are offering a very restricted

portfolio of products.

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New Value Creation for Insurers

The use of Internet technologies in the insurance industry is not just limited to

distribution, but also has a fundamental impact on almost all other production areas. The

integration of all business processes in a unified information flow significantly reduces

the cost of gathering and analyzing information. Since the efficient processing of

information is a key factor for insurers in the creation of value, the use of new

information and communication technologies enables them to revamp and rationalize key

links in the value chain.

Newly established insurers are not burdened by legacy business systems and are able to

exploit modern information and communication technologies in order to set “best

practice” benchmarks for the entire industry. This will exert significant pressure on

established insurers to adapt their business model to the changing requirements for

greater efficiency, speed and quality of service.

In the past, the value creation of insurers has centered on the aspects of distribution,

administration and claims settlement. In these areas there are many routine tasks that

could be automated through the efficient use of information and communication

technologies. The task would therefore embody less value creation. In the future, insurers

will have to create a greater proportion of their added value through a higher standard of

service.

Pre-Internet and Internet-enabled Insurance

Internet and e-commerce technologies are already changing the structure of the insurance

industry. The magnitude of the change can be best appreciated by comparing Figure 2.10

and Figure 2.11. As shown in Figure 2.10, the pre-Internet insurance world is largely

linear, with individuals (personal lines) or businesses (commercial lines) moving risk to

insurers, sometimes directly, but more often through the intermediation of brokers and

agents. Intermediaries are responsible for processing more than 90 per cent of all

premiums collected. The application of information technology increases diagonally

down the chart and is most prevalent in the reinsurance sector.

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Figure 2.11 visualizes an Internet-enabled insurance industry and market. Its main

characteristics are that technology can be evenly distributed and information

intermediation is no longer a necessity but a preference. Gone is the linear travel of

payments and risk information from client to (re)insurer. Buyers of personal and

commercial insurance and reinsurance can choose to pursue multiple paths to acquire

price and policy information. Insurers and reinsures have extended their reach through

their online incarnations. Brokers and agents may do so as well. Using data standards can

positively facilitate the resulting increase in communication and data exchange.

22

Agents and brokers were an irreplaceable link in the pre-Internet insurance industry.

Agents intermediated sales of policies to non-businesses, such as personal life insurance,

motor vehicle insurance, and homeowners insurance and various savings and investment

schemes. They also intermediated insurance for small and dismissed business. Brokers

intermediated insurance between large organizations, or businesses, and insurers, as well

as between insurers and reinsures. Their economic role was to enhance market efficiency

by diminishing information asymmetries between buyers and sellers caused by any of the

following situations :

The insurer is not fully informed of the scope of the demand, or the insured is not

knowledgeable about the selection of insurance policies and prices available; or

The insurer has not fully mastered the technical and economic details of the

proposed risk, or the insured does not clearly understand the insurance policy’s

proposed terms and conditions.

In practice, agents are generally authorized to sell policies from only one or a few

insurers. Further, the terms and policy wordings of different insurers, even if distributed

23

by the same agent, often do not match. To clarify these differences and enable cross-

comparisons is perhaps the most important role of the agent.

Outsourcing of Insurance Functions

New information and communication technologies are making it easier for insurers to

break up the value chain. Individual functions, such as underwriting, policy

administration, claims management, investment or risk management can be optimized

within the business divisions or outsourced to a rapidly growing number of specialized

external providers. Claims management, underwriting and some parts of risk

management are particularly suitable for outsourcing to specialized providers. Rising cost

pressure will force traditional providers to review their fully integrated business model.

Traditional insurers perform almost all stages of the value creation process themselves.

However, a number of functions in the value creation process may be outsourced or

assigned to specialized service providers at greater efficiency and lower costs. Examples

are listed in Figure 2.12.

It, also, shows the value chain of a typical insurer. Traditional insurers perform almost all

stages of the value creation process themselves. The bottom half of the figure provides a

list of specialized providers that handle individual functions in the disintegrated business

model.

This would allow insurers to concentrate on those links in the value chain they enjoy a

competitive advantage(s) .

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Effects of E-commerce On Customers

E-commerce opens up new ways of reducing costs. Simultaneously hardening

competition will ensure that these benefits are passed on to the consumer. The Internet

offers a number of possibilities for increasing the value creation for consumers by means

of increased transparency and improved services, not just in the area of sales.

Consumers might believe that they can get different and better service though the

Internet. This can be seen today in a number of limited examples. The Internet user,

usually an above-average earner, well informed and price conscious, likes to have several

quotes to compare. Consumers can obtain quotes for a number of companies. This is the

idea behind the strategy of aggregators, also known as navigators, supermarket sites or

malls. In some cases, consumers can see rating agencies’ evaluations of insurers. The

Internet and outsourcing can provide additional cost savings to the consumer. By

removing layers of inefficiencies, technology can bring the customer closer to the

insurance contract.

Consumers will also obtain price comparisons for relatively generic contracts. For

example, for many online insurers, they can compare prices for annual renewable-term

life insurance. Or, they can compare insurers’ rates for a standard set of auto insurance

coverage for a given vehicle and driver characteristics.

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Consumers also could have access to internal records to see where their claims are in

terms of payment, when their next annuity payment is due, and how their mutual fund is

performing. This can be done without calling a burdensome voice-mail system, being put

on hold, or finding a person who can give them the desired information efficiently.

In addition to personal lines, commercial lines are also likely to benefit from innovations

over the Internet. Large consumers of insurance could build or participate in outsourcing

market auctions. Certain relatively standardized blocks of business (fleet auto or workers’

compensation) could be put up for bid. This would disinter-mediate the broker or agent

from a number of transactions unless they were the real market makers. At the same time,

intermediaries (i.e., brokers and agents) could provide additional risk management advice

to commercial buyers and qualitative information about different insurers.

E-commerce can bring a substantial improvement to service quality.).Advantage are:-

Continuous service (24 hours/7 days)

Depth of available information, such as price comparisons, product information

No restrictions imposed by national borders

Faster response times

Anonymity

More transparency and speed of claims management

. These advantages virtually constitute a catalog of requirements for insurers’ successful

Internet presence. At present many websites are cluttered and difficult to navigate. Many

insurance websites do not allow price comparisons. If a client wants to compare quotes

from several companies, the client still has to fill in a questionnaire with each insurer.

Insurance clients may use the Internet to place a large risk themselves. These “reverse

auctions” are particularly suited to big corporate clients who put their insurance

requirements out to tender and then select the most competitive offer. A purchasing group

could also use this facility; an automobile association, for example, looking for the

cheapest insurance cover for its members. Although individual policies could be put out

to tender in personal lines, this would however require very efficient search engines or

aggregators on the part of the insurer, in order to keep the search costs for such small

risks within reasonable limits.

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INTERNET AND CURRENT ISSUEE IN THE INSURANCE INDUSTRY

The Internet is acting as a catalyst to accelerate change in many of the areas is identified

in the section before. In the following, role and effect of Internet on these issues are given

Globalization

The Internet is a global medium and increases the transparency of all products including

financial services products. The key and most difficult aspect, of entering a foreign

market is securing distribution channels. The Internet provides global distribution

potential, though there are still a number of barriers including tax regimes, regulatory

requirements, brand and cultural issues.

New Entrants

Low barriers to entry on the Internet facilitate new entrants. In the financial services

industry the major entry barrier is distribution, which the Internet can overcome. The

internet emphasizes the importance of competency in direct marketing techniques and

branding which encourages retailers to enter the market.

Regulation and Deregulation

The Internet acts as a ‘push’ mechanism for the government to pressurize the industry

into providing alternative cheaper solutions such as stakeholder pensions. At the same

time the Net ‘pulls’ regulatory change, as consumers become more demanding due to its

transparency. The Internet may lead to products becoming more customer-centric, with

few boundaries between say banking and insurance, which will influence the regulatory

environment.

Socio-cultural Changes

The Internet itself may have profound changes on working and living patterns, making

working lives even more flexible. This will influence the financial products people want

to buy, and when they want to buy it. For example long-term regular premium products

may no longer meet customer needs.

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CHALLENGES

Due to the complexities involved in insurance processes, many companies fear that the

upfront costs of implementing an e-business solution may be too significant to warrant

the return on investment. The highly complex, detailed and multi-faceted nature of the

insurance business may also make the execution of these services appear overwhelming:

• The insurance cycle consists of numerous, detailed steps requiring extensive personal

data to complete many processes. The work consists of the generation of printed policies,

priced by compiling and analyzing reams of data, and then serviced with monthly paper

invoices for the lifetime of the customer or until a claim must be processed – on paper.

• The multiple variances and unique requirements among states and jurisdictions require

additional workarounds.

• Operational challenges are compounded by the ongoing struggle for compliance with

numerous, ever-changing regulations.

• After attempting to apply hardware and software packages that were cumbersome to

integrate and delivered minimal cost savings upon execution, many companies have been

left with a negative perception of paperless solution providers.

Attempting to attain the cost savings of paperless processing, many companies

subscribed to new technological solutions for core processes such as underwriting, claims

payment, policy administration and correspondent support. However, now these

companies are realizing that these technologies are on disparate systems supporting

segmented business sectors. Without connectivity between the information, companies

still rely on paper trails, data re-entry and costly courier/mailing services to bridge the

gaps. Because each unique database must be updated when information changes, even the

most basic policy transaction can take weeks to be processed.

Many proponents of e-business services are touting expensive new technologies and

difficult alterations to time-honored processing workflows. This has led to the perception

that, to eliminate paper, businesses must first buy in to something even more expensive

and difficult to implement. Fortunately, this is not the case when companies consider

these requirements before moving to an e-business services solution.1

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REGULATORY AND SUPERVISORY ISSUES AND INSURANCE ON THE

INTERNET

The development of e-commerce, particularly on the Internet, presents new challenges

and concerns for insurance regulators and supervisors from developed, as well as

developing countries.

1. Background

The establishment of Internet-based insurance businesses offers both individual insurance

consumers and insurers and intermediaries potential efficiency and cost benefits. E-

insurance improves information symmetry and market transparency conditions and may

enhance competition that can lead to reduced prices.

For insurance regulators from developing countries, Internet-based supervisory tools may

increase efficiency by streamlining and speeding up reporting from insurance enterprises.

The possibilities offered by Internet communication can also greatly improve the delivery

of information to the public, insurers and local and international investors regarding

market conditions, rights and obligations. Also, secure Internet communication could be a

major tool for fostering international cooperation among regulators to improve the

security of insurance markets.

From the perspective of a supervisory authority in a developing country, major concerns

pertaining to e-insurance relate to cross-border activities and how to safeguard the

interests of consumers if they contract policies in other jurisdictions. However, as most

countries continue to require local licensing for insurers offering products in the domestic

market and prohibit cross-border activity, cross-border trade in personal lines and mass

insurance products has not expanded. Also, the cost of establishing e-insurance platforms,

along with related marketing costs, has deterred financially unsound operators from

establishing a significant web presence. E-insurance provides a new channel for

distributing insurance products that accelerates transaction processes, creating more

opportunities for fraud. It imposes on supervisors the burden of developing supervision

methods that permit quick responses to threats to the interests of insurance consumers.

However, the emergence of e-insurance does not fundamentally alter the principles on

which today’s insurance supervision is based. For regulators, the essential question

relating to e-insurance, as well as to other distribution methods, is how to protect

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insurance consumers. Supervisors have therefore approached e-insurance operations in

the same way they supervise business and market of traditional insurance operations,

including rate monitoring, surveying the marketing of insurance products, responding to

public complaints, conducting consumer education and fraud monitoring. To tackle the

particularities of e-insurance supervision, the International Association of Insurance

Supervisors (IAIS) established a working group on e-commerceand the Internet. This

working group has issued “The Principles on the Supervision of Insurance Activities on

the Internet” that were approved by the IAIS at its annual conference in Cape Town on 10

October 2000. More generally, insurance supervisory authorities have the same concerns

as those regulating other e-businesses, particularly e-finance businesses: business

continuity, personal data privacy, payment procedures and security, electronic signatures

and IT platforms.

2. Supervision_of_established E-insurance_operations

E-insurance was once perceived as a distribution channel that would erase national

boundaries, since a single e-insurance platform established in one jurisdiction could offer

insurance services globally. This has not occurred, since in most countries the

establishment of a locally licensed business is required before insurance services can be

offered to domestic consumers. E-insurance platforms thus fall under the laws and

regulations of the respective jurisdictions where services are offered. More precisely,

existing regulations relating to market conduct determine how insurance providers may

conduct their business online. Competition rules and transparency and information

requirements form the core of market conduct regulations. Monitoring of rates, marketing

of insurance products, handling of public complaints, consumer education and fraud are

areas included under this aspect of supervision.

3. Approval_of_rates,_terms,_conditions and_contractual_documentation

In many developing countries, insurers are required to file rates, terms; conditions and

contractual documentation for approval by supervisory authorities before the underlying

product is offered to the public .E-insurance offerings too, are governed by such

Requirements. Often minimum and maximum rates are established for compulsory

individual insurance products such as motor vehicle insurance, workmen’s compensation

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and some fire exposures. This is making it difficult for e-insurance operators to undercut

prices offered by traditional competitors. Supervisory authorities should pay particular

attention to the terms, conditions and contractual documentation that are presented on

insurance providers’ websites. The supervisory authority should ensure that the

contractual relationships have a legal basis that is not prejudicial to the interests of the

insured, since the insured does not generally participate in the negotiations relating to

policy clauses.

In the case of life insurance, supervisors should require that certain clauses be contained

in the policies published on websites. This includes clauses such as incontestability,

under which the insurer, after a certain period, can no longer contest statements made by

applicants. Also, a clause on no forfeiture should be shown. Such a clause protects the

cash value of the policy and provides for a grace period after the premium is due, during

which the policy cannot lapse. Such a clause is particularly pertinent for Internet

transactions where contracting and payment cannot occur at the same time. In the

developing country context, because of a general lack of insurance education and in order

to allow consumers to make informed decisions, a large degree of comparability between

contracts offered over the web should be maintained during the initial phase of

establishing e-insurance operations. Two other problems to be addressed are that

(a) Because of different hardware and software configurations, information presented on

the web may look different to different viewers, and

(b) Computer proficiency may lead to an unintended contractual result. Certain

guidelines regulating basic website content may be needed: for example, companies

could be required to inform who is the supervising body and who are the final risk

carriers in the cases where purchases are made from an agent’s or broker’s website.

Electronic signatures are important not only to confirm the existence of a contract but

also for specifying the starting date of the purchased insurance coverage. The validity and

effectiveness of a contract may be influenced by failures in data transmission. A

consumer may be under the impression that a contract is in place, while the insurer may

have received corrupted data that does not allow a policy to be issued. The existence of a

problem may not be obvious until the insured attempts to make claim under the non-

existent policy. Also, after a policy takes effect, it may be necessary to cancel, change or

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complement it. Possible reasons for such an intervention include the discovery of an error

or a fundamental change in the insured’s risk profile. In such a case, it may be prudent to

ask whether online insurance products should carry a “return or exchange of goods

policy” and what kind of security is needed to prevent accidental or unauthorized

cancellation.

Also, supervisors should determine whether an insurer posting offerings on the Internet is

discriminating against certain categories of consumers. The traditional roles of

supervisors - to ensure that compulsory mass products or personal lines are affordable

and available, and to ensure the fair treatment of consumers - should be maintained with

regard to products offered on the Internet.

4. Marketing_of_E-insurance_products_

Supervisory bodies should preserve the fairness of information presented to consumers

and should attentively monitor the marketing of e-insurance products. Advertisements

should not be misleading, past experience should not be used to predict future results, and

products should not misrepresent benefits. Often insurers differentiate their products from

those of competitors by inaccurately describing or overstating advantages and benefits.

When an intermediary (an agent or broker) offers insurance products over the Internet,

such a seller should be required to obtain a license before establishing a presence on the

web. The licensing procedure should require the intermediary to undergo competence

tests, and the its e-insurance platform and website should be screened in the same way as

those established by insurers.

5. Combating_fraud_

Supervisors and regulators typically maintain that sales over the Internet increase

opportunities for insurance fraud, money laundering and the mis-selling of insurance

products. Some criminal groups engage in mass subscription of single policies under

false or given identities, redeeming the policies quickly thereafter in order to launder

money. As no direct contact is established between parties to an insurance contract

established via the Internet, e-insurance is an obvious target for money laundering

operations. Supervisors should ensure that e-insurance providers have sound mechanisms

in place for authenticating the identity of policyholders.

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Also, to trace unsound or fraudulent operators and consumers, it is paramount that

supervisory authorities establish communication networks among themselves to share

information on such perpetrators. E-insurance, like other e-finance businesses, is at risk

from both internal and external security threats (infiltration, corruption and theft of

customer data files). Increased connectivity, in particular the connection of internal

networks with the Internet, introduces new vulnerabilities that require the deployment of

more advanced and effective security tools. Regulators should take steps to ensure that e-

insurance providers have the necessary security in place to protect the integrity of

information and the privacy and confidentiality of policyholders’ data, whether the data

storage is performed by the e-insurance provider or outsourced to Internet service

providers.

6. Public_Complaints

Internet-based reporting and monitoring of public complaints could prove an

indispensable tool for insurance supervisors. In a number of countries, formal offices

within the supervisory authority have been established to respond to insurance customers'

complaints. Their purpose is to streamline administrative procedures and sometimes to

serve as an alternative to judiciary proceedings. For supervisors, the monitoring of

complaints provides a very useful source of information for holding insurers responsible

for their offered services. To resolve complaints, supervisors should facilitate

communication between insurers and complaining customers. They should make sure

that companies have complied with the law and have responded promptly and fairly, and

they should inform insurers of problems that customers experience with contract

language, customer service or technical aspects of the website. Also, websites posting

insurance offerings should give contact information for the official authority dealing with

consumer complaints, and the site should clearly describe the mechanism for dispute

settlement. One of the simplest and most useful Internet tools is the FAQ (frequently

asked questions) page. A well-structured, comprehensive and easily navigable FAQ page

can satisfy the vast majority of public queries.

7. Consumer_education

To build consumer’s awareness and understanding of insurance and to improve market

efficiency, consumer education is paramount. E-insurance offerings should include

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educational material to help consumers understand the products they buy. Also,

supervisory authorities should provide guidance and educational material on their

websites for consumers interested in purchasing insurance online. Insurance laws,

regulations and statistics can be made more easily and widely accessible through the

Internet. Most Latin American and Asian as well as many African and Central and

Eastern European insurance supervisory authorities have already established websites

designed to inform the public.

8. Supervisory_efficiency

The advantages that the electronic format offers for compiling and processing data allow

supervisors to devote more time and resources to analyzing periodic financial reporting

by insurers. Many supervisors in developing and emerging markets have dedicated web

sites for the submission and processing of reporting from insurance companies, and

several have developed Internet-based solutions. The Egyptian Insurance Supervisory

Authority is offering a financial reporting application, on a cooperative basis to its

counterparts in other African countries. Whenever an insurance provider establishes an e-

insurance operation in a country, a continuous dialogue should be established between

the e-insurer and the regulatory body to resolve areas of uncertainty before the operation

is launched, and to contribute to regulatory development. Authorities should continually

adapt their insurance legislation to the needs of their insurance consumers, taking into

account shifting consumer interests.

9. Supervising_cross-border E-insurance_activities

Among factors that have inhibited the development of cross-border e-insurance are the

wide variations regulatory and supervisory requirements between national and state

jurisdictions. If an e-insurance operator wants to offer services in several jurisdictions, it

needs to undergo obtain licenses and comply with the respective jurisdictions’

supervisory, tax and other authorities. It may be difficult to incorporate all the different

and sometimes contradictory requirements into a single e-insurance platform.

Recent studies have concluded that the actual differences between national approaches

are so extensive that e-insurers are unlikely to do business on a multicountry basis in the

near future. A more likely development would be increased targeted penetration of

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national markets, with whose regulatory and supervisory requirements e-insurers are

familiar.

To avoid being indicted by a national supervisory authority for unlawfully offering

insurance services in that national market, e-insurers should clearly indicate on their

website their identity (address, home country) and the jurisdictions in which they are

legally permitted to provide insurance services. Also, e-insurance providers should post

strong specific disclaimers and risk warnings directed to citizens of countries where the

e-insurer is not authorized to operate. The home country supervisory authority should

oblige e-insurers to post such disclaimers and warnings.

The growth of cross-border e-insurance will necessitate a harmonization of regulatory

and supervisory frameworks, the recognition by insurers of home country regulators and

of home country complaints and dispute settlement mechanisms. Thus it will require

extensive cooperation between regulatory bodies around the world. Such developments

could be part of international negotiations on the opening of national financial markets

such as those conducted under the aegis of the World Trade Organization.

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CONCLUSION

It is evident that the insurance industry is gearing up for e-insurance. Insurers,

intermediaries and reinsurers are investing in IT and trying to determine the proper

business model to follow. The fundamentally information heavy nature of the insurance

product will eventually make full e-business treatment a workable option provided that

efficiencies do materialise and are passed on to consumers. To succeed as einsurance, it

has to be cheaper and better than the traditional offline option. Today IT is widely used to

handle communication with intermediaries, policy processing, premium notices, market

analysis, sales forecast and accounting. Clearly, insurance is an information-intensive

enterprise and is thus suitable for ecommerce. Many insurers and intermediaries have

realised that e-insurance is not just about distributing insurance products on the internet

and have incorporated their e-business plans into their overall business strategy.Adopting

e-insurance and introducing change in IT systems is an incremental process, not an event,

and should stem from a fundamental need to re-engineer and modernise business

processes in order to better respond to client demand, as well as to the client’s own

adoption of internet technology. Substantial investments may be required and open

communication with stakeholders and policyholders should be a given. Insurers should

focus on growth as well as on cost reduction. Efficiencies may materialise, but forecasts

and calculations must not undermine the costs of online client acquisition, retention and

marketing, in particular if the insurer is of the internet pure-play type.

Website functionality is an issue in its own right, requiring a proper definition of

customer and product profiles. It also needs precise interlocking with powerful back-

office IT. Insurers and intermediaries need to examine how they can achieve the most

possible value added through an online presence. A fundamental problem of all insurance

websites is the low rate of repeat visits by existing customers. Increasing repeat visits, as

well as new traffic to the insurer’s website is essential.

Unfortunately, there is no clear recipe for success and e-insurers may have to look

very closely at the internet habits, demographics and lifestyles of their clients to find

answers. Once improvements are achieved, the existing e-insurance infrastructure must

be used to market financial products related to a customer’s insured assets, within the

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limitations set by insurance and financial regulations of the market. Regular updates are a

requisite feature. Online traffic should be analyses from the point of view of how it can

be converted to income and whether the website and the general IT infrastructure are well

matched.

The same applies to insurance supervisors and regulators. The power of the internet

should be harnessed to improve consumer protection and education and awareness

building. It can also be used to receive and process periodic financial reports, thereby

freeing up resources for supervising management and insurance practices. Also, national

insurance supervisors can use internet technologies to communicate among themselves

and co-ordinate activities related to preventing fraud and money laundering.

E-insurance faces three serious challenges. The first is to redefine the relationships

between insurers and their agents and brokers. The second is to bring existing pre-internet

computerised data systems out of the back office and online, onto the World Wide Web.

The third challenge is to interface the business process of insurance to a fully functional

website given the fact that most existing customers are unlikely to make frequent repeat

visits to a site.

While ecommerce has not changed insurance products greatly, insurance companies

and brokers need to be innovative in their use of ecommerce channels to ensure that they

continue to meet public need and also to address public concerns (especially regarding

security). They also need to ensure that their ecommerce strategies meet the commercial

threats that may arise from new the “e-insurance”. There is a great need to ensure that

ecommerce channels are integrated properly with more conventional trading methods and

the online customer relationship is managed appropriately.

Ecommerce is here to stay and it is already the preferred mode of doing business

around the world. Proactive steps should be taken as there is no place for laggards in this

cyber world. Insurers need to realise that online insurance should not be taken lightly.

These endeavors require real commitment and leadership to reap the rewards of smarter,

more robust business processes.

Meanwhile, it appears that insurers are unfortunately not making the best out of the web.

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REFERENCE:-

Dasgupta, Prithviraj And Sengupta, Kasturi, (2002), “E-Commerce In The

Indian Insurance Industry: Prospects And Future,” Journal Of Electronic

Commerce Research

IAIS, (2000), “Principles On The Supervision Of Insurance Activities On

The Internet,” International Association Of Insurance Supervisors.

(www.iaisweb.org).

SwissRe, (2000), “The Impact Of E-Business On The Insurance Industry:

Pressure To Adapt – Chance To Reinvent,” Sigma Series No. 5, Zurich.

UNCTAD, (2002), “E-Commerce And Development Report 2002,” Chapter

8, United Nations Conference On Trade And Development, United Nations,

New York. (http://r0.unctad.org/ecommerce/ecommerce_en/edr02_en.htm

Swiss Re: “The impact of e-business on the insurance industry: Pressure to adapt

– chance to reinvent”, sigma No. 5/2000.

Schmitz, Stefan, W., (2000), “The Effects Of Electronic Commerce On The

Structure Of Intermediation,” Journal Of Computer-Mediated

Communication, 5 (3). (http://www.ascusc.org/jcmc/vol5/issue3/schmitz.htmrl).

Iran E-Commerce:

(http://www.iranecommerce.net/articles/insurance_managemen.htm)

E-Business W@Tch, (2002), “ICT & E-Business In The Insurance And

Pension Funding Services Sector,” The European E-Business Market Watch,

Sector Report, No.5.

(http://www.empirica.biz/empirica/themen/ebusiness/documents/no05-ii_insurance.pdf).

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