e Insurance Project

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

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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 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.

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Figure 1.

NEED OF E-INSURANCE:-

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

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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:

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.

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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%)

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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.

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

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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 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

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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

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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.”

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

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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.

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.

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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.

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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.

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

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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

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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 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.

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POTENTIAL EFFECT OF E-INSURANCE ON INSURANCE

INSDUSTRY

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.

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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 .

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

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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 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

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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

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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.

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.

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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

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example, better data analysis may improve risk selection, while the 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

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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.

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.

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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, 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

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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.

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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.

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.

27

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.

28

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.

29

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.

30

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

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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 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

32

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) .

33

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.

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.

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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.

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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.

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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.

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.

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• 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.

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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

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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 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

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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 & 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 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.

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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-

42

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

cancel, change or 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.

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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.

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

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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 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.

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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

46

increased targeted penetration of 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.

47

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.

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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 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

49

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.

REFERENCE:-

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

The

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

Commerce Research

50

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)

51

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

And

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

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Sector Report, No.5.

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

ii_insurance.pdf).

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