What factors are holding back e-commerce in the insuranceindustry? Is it user-unfriendly technology? Or is it the reluctanceof shoppers to purchase a policy online? The debate has raged foryears and is unlikely to be resolved anytime soon. Theres littledoubt some customer reluctance exists, but industry insiders suchas consultant Gil Irwin point out: Part of it is the technology isjust now coming together in terms of really being able to integratewith the customer.

Maximizing sales online is a noble goal, says Irwin, managingpartner for U.S. IT practice for technology consultant Booz AllenHamilton, but not entirely realistic. What [the customerexperience] should be is to explore online, price online, maybelearn online, he says of insurance Web sites.

Phil Swift, CIO of online insurer Esurance, asserts the toughestpart of online selling is the speed. People want rates quickly.Esurance has business rules that call for a user to get rateswithin two seconds. People arent going to hang around, he says. Aswe get more complex programs, we are constantly running themthrough our load [testing] labs to see how long its taking. We areconstantly stress testing to see how we are performing.

Irwin feels there are innovative insurance Web sites sellingpolicies, and one thing those carriers have in common is theability to move the customer seamlessly back and forth between theWeb and the offline world. He believes smart insurers have theability to mine the data they are collecting from the Web site tolearn more about both the customers and the customers onlineexperience. It is an advantage usually enjoyed by largercarriers.

First of all, these tools are expensive, Irwin says. Putting thetools in place and the people in place to know how to mine the datais not easy. Very few companies have found a way to pull all thedata together around all the interactions they have, put it in oneplace, and then mine it. Thats a very expensive proposition becausemost of the systems theyve built were not geared to do that.

Still, Margaret Munroe, senior assistant vice presidentcorporate communications for Amica Insurance, feels the tools areavailable for Web sites to make e-commerce a solid function. Websites are moving that way, she says. Amica has two ways customerscan ask questions and discuss options as they proceed through thequoting pages. We have an instant messaging option and the call mebutton so that customers never feel they are alone when they are atamica.com. There is a customer service person ready to help whetherthey are on the Web site or calling from a remote location.

Currently, most policies being sold online are either personal,auto or term life. These coverages have fewer underwritingquestions and can be rated and bound in one online visit. A studyby the Internet rating service Gomez, Inc., The State of OnlineInsurance, shows that 72 percent of online shoppers are lookingstrictly for automobile coverage when searching the Web for P&Cproducts. Term life holds a similarly strong position in the lifeinsurance market. While assistance is sometimes needed even forterm life, Wendy Benson, second vice president of e-business andretail partnership for John Hancock Financial Services, sayslong-term care, variable products, and annuities more often requirehuman interaction.

Easy Does It

Easing the customer through the process is imperative if acarrier intends to attract more business through the Web site.Munroe says carrier Web sites need more explanatory informationavailable than would be available through click-through words andphrases. Customers need faster, easier-to-use Web sites with menusthat make sense to a consumer. And this needs to be a totallyself-serving process so that even if they forget their password,they can retrieve it without brick and mortar being involved.

Swift believes the ease of doing business makes the Internet awonderful tool for selling insurance policies. It makes it so mucheasier to comparison shop, he says. You are not forced to make adecision because the store is about to close. Esurance likes totrack when customers made an initial contact for a quote and whenthey followed through with it.

The buying process, particularly for personal auto policies, isrelatively simple. The customer can enter the Esurance site, put ina limited amount of information, and get an anonymous quote.Esurance also offers comparison quotes. When you get your quote,you press a button and get two or three companies in your state andwhat they would charge, Swift says.

Once the customer decides to buy, more details are needed. Youcant remain anonymous if you want to buy car insurance, Swift says.The customer is rated and then given an accurate quote on thepremium. If they choose, they can print their insurance card outimmediately, and thats it. Theyre bound. Theyre done.

While this may be an easy process to complete, Todd Eyler,senior analyst for Forrester Research, doesnt believe every Website offers that ease of use. Insurers need to have an onlinedemonstration of how the application process works so customers canfind out what theyre up against, he says. Most sites need betterinstant messaging systems, he adds, to walk the potential customerthrough a sometimes complicated process.

Sales Not There Yet

Judging the productivity of a carriers e-commerce initiativestrictly by how many policies are sold online makes analystsquestion the value of such initiatives, but insurers are taking abroader view of e-commerce, and what they see, they like. Im seeinga lot more people coming into the Web site, says Swift. They aredoing some comparison shopping, and they are coming in and buyingpolicies from us. Consultant Irwin wont argue. We are definitelyseeing some movement there, he says.

Esurance is part of a traditional insurance family (WhiteMountains Insurance Group), but it does most of its businesselectronically, offering personal auto policies over its Internetsite (www.esurance.com). Amica Mutual Insurance isa more traditional carrier, and Munroe believes the slow pace ofe-commerce growth results from reluctance to get away fromtraditionbuying insurance from an agentrather than fear oftechnology.

Consumers are not ready to buy online, she says. They willresearch and compare prices, but when they are ready to purchasethey want to speak to a person. The reason for this appears to bethat the dollar commitment is too high to make withoutunderstanding exactly what is being purchased. Amica takes the timeto educate customers about the insurance they are purchasing. Thatis why the final purchase is made with a person.

Even though customers are becoming more technologicallysophisticated, Munroe believes insurance remains one of the areasin e-commerce that calls for human interaction. You would thinkthat 20-something young people would be eager to buy online, but intalking with this age group, they are not comfortable at all, shesays. They say there is a big difference in buying a $12 CD onlineand buying an insurance policy. They want to talk with someone.

Online sales have been growing ever so gradually. Booz AllenHamilton published a report last year, 2001 eInsurance Study,tracing sales growth in the preceding two years and projecting itover the following three years. In 2000, online sales totaled $1.5billion out of the industrys total of $667 billion. The number grewto $3.1 billion last year and is expected to reach $5.1 billionthis year. By 2005, the number is expected to be $12.3 billion,approximately 1.5 percent of total written premiums of $793billion.

There comes a point in time customers want to close the deal bytalking with somebody, Irwin says. It could be the agent across thetable or a customer rep out of a telemarketing center. What mattersless is what is sold online. What matters more is the contributiononline makes to the whole relationship.

Theres no question about the weak numbers, Forresters Eylersays, but he believes growth will come when the major insurersoffer full coverage online in all 50 states. Its a build and theywill come scenario, he asserts.

Swift believes that already is happening. Were starting to seebigger people play on the Internet, he says. Now they are taking itseriously. Thats good and bad. More competition is tough, but onthe other hand, it shows were doing the right thing; that the bigboys are really serious and getting involved.

What Time Is It?

To run a potentially successful e-commerce site, insurers mustleap several hurdles. Finding time to work on the system is oneproblem insurers face in a 24/7 world. Swift says that the slowesttime period for the Esurance site is between 3 a.m. and 4 a.m.Pacific time. Knowing when to work on the site is important becauseof the time lost. Were pretty good on that now, he says. Even themost complicated changes we get done within an hour. Every now andagain you get a glitch, and it goes to two or three hours, butthats why you do it in the middle of the night so it doesnt impactyour customers.

Working on the Web servers individually allows continuousservice, too. We have six Web servers, so well bring down one anddo maintenance on it, put it back up and bring the next one down,Swift says. Well do the same with the rating engines.

The relationship between carriers and agents also willcomplicate e-commerce for some time, says Munroe. Many factors haveheld the insurance industry back from e-commerce, but I think themain reason is most insurance companies are agent based and havenot been able to bridge the electronic world with the agent brickand mortar, she asserts. For Amica, it is making sure that the Website provides the same quality service to the customer as ouremployees do, since we are a direct writer. We had to connect ourWeb to our legacy systems to provide the most accurate quote andpolicyholder information.

Another issue is security. Munroe says a Web sites vulnerabilityis as important as that of the carriers data base. They need to doeverything [for the Web site] they do on the inside of theircompany to protect their data, she says. As the data comes in, itgoes inside the firewall and is protected just like all of theother data that has been protected all along. All companies, I amsure, have good security policies. They, of course, should beextended to the Internet. Amica not only adheres to our ownsecurity policy but passes the very stringent reviews of BBBOnlineand Trust-E.

So what can insurers do if they dont currently have ane-commerce function on their Web site? They need to direct thecustomer to an 800 [phone line] or their office until they canquote, bind and then sell online, Munroe says. They also need toposition themselves with search engines.

And when should this all happen? Says Munroe: Yesterday.

Anatomy of an Online Insurer

Three years may be a blink in the eye of a century-old insurancecompany, but in the world of e-commerce, its like Rip Van Winklewaking up from his nap. Things change quickly, especially for anonline insurer such as Esurance, which was born on the Web in1999.

Youve got to remember, [online insurance] was developed atInternet speed, says Phil Swift, CIO of Esurance, so there was alot of manual process going on behind the scenes. A lot ofback-office stuff was either manual or done by IT. When rates werechanged, the IT department had to do the work on the Web site.

Over a period of time, weve taken those processes and given themto business, he says. There arent significant changes in theoverall architecture [since 1999], but there are changes inback-office functionality.

Esurance operates on the Microsoft platform, and Swift says thecompany is switching from Windows NT to Windows 2000 this month.The company has upgraded its SQL database. We also have an AS/400,Swift says. We have a policy management system we run in thebackground on that.

Front-end functionality was written by Esurance. The Web-basedsoftware and functionality were developed in-house, along with allthe customer interfaces, Swift says. The company bought a policymanagement package from Fiserv and a rating engine from QuadrantInformation Services.

You could basically split our system into two, Swift says. Thepre-sale is all homegrown, and the post-sale uses a package.

Esurance always looks outside the company first for upgrades.Sometimes the stuffs there, sometimes it isnt, Swift says.Operating in real time, Esurance cant afford batch-based oragency-based systems. Thats not a good fit for what we try to do,he says.

Cost is always important, but Swift says he looks at risks andexposures as well: We look outside all the time because if someonehas done it, theres no need to reinvent the wheel.