Commentary: E-Signature Law Should Expedite Insurers’ Interest With Internet

What effect will President Clinton’s signing of the Electronic Signatures in Global and National Commerce Act (S. 761) have on the insurance industry?

For openers, it should now persuade even the most skeptical insurance executives about possibly investing some company resources in doing business over the Internet.

The bill establishes the legal principle that an electronic signature or record has the same legal effect as paper transactions. Any fear that an insurance executive might have had about those legal uncertainties in the past have now been put to rest.

The beauty of S. 761 is its simplicity. Not only does it create a legal framework, but it also lets the parties decide on their own rules for engaging in electronic commerce. The bill gives state insurance regulators the ability to promulgate regulations on how records are retained, but the bill also makes it clear that any rules cannot bind the parties to a specific technology or technical specifications.

Probably the first place where insurance companies are likely to focus their attention is in developing stronger Internet relationships with their agents. Some pundits have predicted that the Internet will make insurance agents extinct because companies can deal directly with consumers. Some dot-com insurance entities are staking their entire future and the capital of their investors on this business model.

What these upstarts fail to appreciate is that the insurance business is often built around the strong relationship that develops over time between the customer and the agent. This is why some traditional insurance companies (also referred to as “bricks and mortar” companies) are today leveraging the strengths of the Internet to improve their relations with their agent forces. They provide secure Web pages where agents can obtain the company’s latest forms and instructions for placing certain business. Agents appreciate the speed with which they can access the company’s information, and company underwriters like the fact that they end up with “cleaner” applications to process. A win-win situation.

Beyond the agent force, S. 761 also should encourage insurers to begin developing business-to-business relationships with their various vendors. Over time, these relationships should help insurers reduce their administrative costs and help them to become even more efficient operations.

S. 761 also should make consumers more comfortable about using the Internet to purchase products, although privacy concerns are likely to linger for awhile. Perhaps the most successful insurance companies on the Internet will be those first companies who develop interfaces where consumers can submit applications or file claims knowing that the information is secure. This actually may end up creating a marketing advantage for the companies who organize the most secure systems.

Much of the focus on S. 761 and the Uniform Electronic Transactions Act (UETA) has been on letting businesses develop their own Internet practices, with little or no regulatory oversight.

For a heavily regulated industry like insurance, this is welcome news.

Topics Carriers Agencies