Online sales in personal lines insurance will have cornered a market share of 5-10 percent in the U.S. and 3-5 percent in Europe by 2005; e-business will enable U.S. personal lines insurers to cut costs by up to 12 percent; growing transparency and easier access to the market via the internet will increase competition globally in the insurance markets.
These are the conclusions drawn in the latest sigma study entitled “The impact of e-business on the insurance industry: Pressure to adapt – chance to reinvent”. In standardized personal lines insurance, sigma expects online channels to have gained a market share of 5-10 percent in the U.S. and 3-5 percent in Europe by 2005, while most life and pension products, health insurance and commercial insurance have only a limited suitability for sale via the internet.
E-business facilitates better-tailored products, shorter response times, greater flexibility in cover structures and better risk management support. U.S. personal lines insurers will, in the long term, decrease their expenditure on sales, administration, claims settlement and claims payments by up to $15 billion, or 12 percent. Given the high level of advisory services and tailor-made products in commercial insurance, the potential cost cuts are $11 billion, or 9 percent of total expenditure.
The Internet enables new entrants to enter into the market without the expensive and lengthy process of setting up traditional sales networks. In addition, “lateral” entrants from other sectors are benefiting from easier access to the insurance market: natural candidates are, in particular, financial services and internet companies such as banks, online brokers and internet service providers.
These companies take advantage of their Internet presence and brand name to add insurance products to their existing product range. The new breed of Internet insurers is able to exploit to the full the potential which e-business offers for increasing efficiency, without having to be concerned about legacy business systems. Established insurers are thus facing growing competitive pressure.
E-business makes it possible to disseminate information quickly and in large volumes. This allows insurers to deconstruct the traditional value chain and outsource certain links to specialist providers. Some new companies already consistently outsource to partner companies. Insurance brokers in the area of standard products, where there is little need for advice, are finding themselves faced with considerable competition on account of falling information costs in the Internet.
In contrast, where products require a large amount of advice, and benefits and prices are difficult to compare, brokers will use e-business to offer more finance management and risk consulting services. This is particularly the case for complex pension products in life insurance, commercial lines insurance and the strong growth market of integrated risk management (IRM) products.
E-business opens up new ways of reducing costs. Simultaneously hardening competition will ensure that these benefits are passed on to the consumer. Developments in e-business also bring new risks, and with them, changing insurance needs. The growing division of labor within the economy will boost demand for liability, marine and credit risk insurance. An additional insurance need is also to be expected in the area of specialized niche providers and start-ups.
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