Levels of e-business development
Despite the desire to deepen customer relationships, reduce costs and develop new sources of revenue, few have gone far in terms of creating distinctive web-enabled services. To date, only the dot-com insurers and the most advanced of the carriers and agents/brokers do more than allow customers to access and update policy information over the Internet. Few provide online rating, quoting and policy issuance, and a mere handful use the web for claims reporting and settlement or back-end processing. The same is true for most financial-services companies offering insurance.
This is changing. Though many of the more aggressive start-ups may not survive, the rest of the industry is embracing their emphasis on low-cost customer service. Carriers, agents/brokers and financial-services companies are beginning to use the Internet to deliver faster, simpler and more transparent customer experience, more cheaply. Despite the challenges posed by legacy operations and systems, a majority of the responding carriers and agents indicate that within three years they will have web-enabled most of their major administrative processes, including new-business acquisition, renewals, billing, collections, claims, and salvage and subrogation processing.
The survey also suggests that these changes are coming just in time. A higher proportion of financial-services companies than insurers have as top priorities developing new sources of revenue and increasing market share. Although financial-services firms now see themselves as being slightly ahead of insurers in the degree of web enablement, insurers expect to surpass them within three years. As their web-enabled capabilities grow, e-business revenues will rise, according to respondents’ estimates. However, online sales will not eclipse other sales channels soon–less than 25 percent of revenues will come through e-business.
Not surprisingly, dot-com insurers derive a higher proportion of their revenues online than other players in the industry. Insurance carriers and agents/brokers currently garner relatively small online revenues, 4.5% and 6% on average, respectively. Financial-services companies derive, on average, 10% of their revenues from e-business.
Roadblocks: Top barriers
Of course, establishing online sales and service and integrating business processes with the web are not easy tasks. The industry is encountering the most difficulty from four enduring e-business challenges: security and privacy concerns; the difficulty of selling complex products online; limitations of existing processes; and channel conflict.
· Security and privacy concerns. Customers’ security and privacy concerns are the most frequently cited obstacles to implementing e-business across all categories of respondents–traditional insurers, agents, brokers, financial-services companies and Internet start-ups. Among the regions surveyed, Latin America has the highest proportion of respondents who say this is a major barrier.
· Complexity of products. Forty-eight per cent of respondents say that a major barrier to selling insurance online is that their products are too complex. Overall, few respondents (14%) indicate they are offering online what they consider to be complex products and services. Moreover, insurance providers do not predict a material increase in online sales of complex products over the next three years.
· Inadequate business processes. A high percentage of respondents cite limitations in their existing administrative processes and technology as critical barriers. This prevents insurance providers from offering advanced features online such as claims settlement, billing and interactive customer service. Of those who say their business processes are inadequate to support online activities, only 19% have web-enabled back-end application processing and 14% have web-enabled claims administration. In most cases, web enablement must come in conjunction with a redesign of business processes to eliminate inefficiencies, remove manual steps and take advantage of the interactive nature of the Internet.
· Potential channel conflict. Another major obstacle is channel conflict. About half of the respondents believe that friction with existing channels is a significant challenge to implementing e-business initiatives. However, this conflict will not prevent carriers and others from selling directly online. As we will discuss later, the prevailing strategy is to offer customers access to traditional salesforces alongside other channels, including the Internet and call centers. Of respondents who say that friction with existing salesforces is a significant barrier to implementing e-business strategies, 39% have nevertheless web-enabled their sales processes.
Deploying e-business strategies
To deploy e-business successfully, insurance providers need strategic e-business leadership at the senior level, technological skills and infrastructure that can support web-based activities. Our research indicates that insurance providers are inadequately prepared in these areas today, but they will be making major investments.
A need for leadership
For e-business to succeed, insurance providers need strategic direction from the top. Yet more than half of survey respondents indicate their companies do not have sufficient e-business leadership capabilities. This is a common problem for most of the respondents, other than Internet start-ups, which understandably regard e-business as a core competence. Many traditional insurance providers (35%) plan to develop e-business leadership capabilities from within their own ranks, while 20% will recruit new talent.
Although many factors contribute to the degree to which companies leverage the web, our research suggests that those with ready access to in-house e- business leadership may be more aggressive in embracing the Internet and developing e-business capabilities. Of those reporting sufficient e- business strategy leadership within their companies, about one-half say that they have already web-enabled administrative, organizational and customer-service processes.
Of those expecting to develop such leadership from within their own ranks, about one-third have undertaken such web enablement. That figure drops again, to less than one-fifth, among those expecting to recruit e-business strategy leadership.
Availability of skilled staff
While most insurance providers have taken steps towards e-business by web-enabling basic functions and implementing individual initiatives, many indicate that they are not in a position to deliver fully web-enabled business processes and customer-service features. Few insurance providers- -with the exception of dot-coms–believe they currently have sufficient in- house technological skills for e-business. This is true for companies of all sizes, and in every region surveyed.
Some insurance providers, carriers in particular, will look externally for employees with the necessary technical skills. One-half of independent agents/brokers plan to develop IT capabilities from within. However, training takes time. It is unlikely that companies can train employees quickly enough to stay ahead of the competition. Insurers need to make increased investment in IT training a top priority or engage in alliances or outsourcing in order to deploy e-business strategies quickly.
Investing in technology
Companies also need a technological infrastructure that can support web-based activities. Respondents estimate that their spending on e-business technology will rise by 89% per company (from $12.3m today to $23.2m per company, on average). As a percentage of total IT spending, respondents say e-business technology comprises 31% on average today, a proportion that will rise to 42% in three years. The largest companies (those with more than $10bn in revenues) predict the most dramatic growth in e-business IT spending as a percentage of overall IT spending–from 18% today to 53% in three years’ time.
However, insurance providers will need to invest in more than IT for their e-business strategies to succeed. They also must direct significant resources towards re-engineering processes around the Internet and training staff. Companies must target investments to areas that will deliver the greatest value.
In addition, companies must determine how they will pay for this spending. One option is to share costs through alliances or outsourcing. Another option is to take costs out of existing operations.
Allstate, a US-based insurer, has adopted this approach. Last year the company restructured its workforce to support a move towards a multi-channel sales strategy encompassing the Internet, call centers and agents. It eliminated thousands of non-agent positions and converted captive agents into independent contractors. These changes reportedly will save the company $600m. Allstate has also reportedly reorganized and consolidated some of its operations to save costs. Such measures may be necessary to make a successful transition to e-business and fund the massive investments that are needed.
2001 The Economist Intelligence Unit and PricewaterhouseCoopers. All rights reserved.
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