Suppose the questions involved with insuring your car were the same as those you get when applying for life insurance? Do you use premium gasoline or the lowest octane available? Do you change the oil every 3,000 miles? (Or is it 5,000?) How often do you rotate your tires? Has your car ever had its brakes replaced? Do you ever take your car underwater?
There are lots of questions auto insurers could ask their customers about the condition of their carsquestions that would probably be helpful for underwriting a policy, just as there are serious questions about personal health that dictate the premiums carriers will charge on a life insurance policy.
Property and casualty insurers have found a way to make their system of questions and responses work for them electronically. The result: There isnt much in the way of P&C insurance that you cant purchase online today. But the same cant be said of life insurance. Some policies (mainly term life) are available online, but the great majority of life insurance products are still sold across the kitchen table in the privacy of a customers home.
Term life policies will likely grow online over the next decade, but even that line of products has its online problems. Respond yes to questions about members of your family having a history of heart disease, and you can see the lights blinking furiously on the carriers Web server. Underwriting life insurance is more of a science than any other kind of policy, as long as the insured is in good health. Once smoking, skydiving, or a family history of cancer gets into the mix, you end up with the kind of multi-variable problem that programmers havent coded a response for. The humansunderwriter, nurse, lab techhave to step in. Until that problem gets solved, things arent likely to change. As Robert Bland, president of Quotesmith.com (www.quotesmith.com) said, You cant get blood and fluid through a modem.
Net Effects
So, while the Internet will likely never replace the life insurance agent, there is no doubt that the people who buy life insurance will be using the Web to find out more about the companies selling those policies, figure out the type of policy that best fits their financial needs, and, of course, to compare prices. While agents may be kept up at night with niggling doubts about the future of their line of work, few people believe that their jobs will disappear.
The future of agents is very bright, particularly those with consulting abilities, Bland said. What I tell agents, though, is that this is not their fathers business anymore. They need to get off the golf course.
And Gary Gaspar, CIO of North American Company for Life and Health (www.nacolah.com), made it clear where his company stands on the issue of agents. We are committed to the agent marketplace for the future, he said.
Jean Gora, manager of research for Life Office Management Association (LOMA; www.loma.org), believes insurers will use whichever distribution channels works best for them. As long as people are buying [coverage] through agents, insurers will keep selling it that way, she said. The combination of underwriting and explaining policies is what keeps life insurers from selling their products on the Internet. If [underwriters] call for any type of medical examination at all, it is going to slow things down, she said. Online applications take a while to fill out, and often it takes an agent to explain things.
But that doesnt apply to every kind of policy. Unlike whole- or universal-life policies, which are considered as much investments as insurance, term life is designed to be simple. The math is clear-cut: This much coverage for this much a month. The questions carriers ask are also straightforward, along the lines of Do you use any tobacco products? Some companies are even getting away from the blood test and nurses visitagain, simplicity is the name of the game.
Bland points out that some companies and products still beg for research. Insurance is a highly fragmented industry that is not like other businesses, he said. The automobile industry has advanced from Detroits Big Three to a dozen or so manufacturers, but that still doesnt compare with the hundreds of life insurance companies operating in the United States alone. There are a lot of sellers out there, he said.
The sheer number of companies selling life policies has spawned the likes of aggregators such as Quotesmith.com. (Thats what theyre calling us this year, Bland joked. I come home from work and announce, The aggregators home!) Quotesmith and its kin provide quotes, but dont do much selling of life products. Bland describes his Web site as a panorama of information. The company serves, in essence, as a managing general agent for 25 carriers of term life policies. We are picky about who we put up there, Bland said. Ninety-eight percent of our carriers are rated A or better by A.M. Best. Its the cream of the crop.
Picky, Picky, Picky
Western-Southern Life Assurance is one of the companies on Quotesmith.com. Bob DalSanto, vice president of e-business for the carriers parent corporation, Western & Southern Financial Group, said the pickiness runs both ways. We could be on 50 sites if we wanted to, he said. Weve decided to consolidate. We were on 10 to 12 sites last year, and we wanted to get closer to the demographics of our customers. It is easier to manage four or five relationships [with quoting services] instead of 20 to 25. Western & Southern is now affiliated with Quotesmith, InsWeb, ReliaQuote, and Schwab.com.
Gora said that the influx of aggregators in the life insurance business mirrors whats happening elsewhere in business circles. Many dot-coms are surviving solely on whats left of their IPOs and few are making any money. The IPO generates revenue, but they are not really profitable, she said. Theyre all looking to be the insurance version of Amazon.com, but that is not whats happening. They have to make money to stay in business. Before, they had all this venture capital available to them, but thats drying up.
Bland doesnt deny the importance of the IPO to his company, but he insists that its on target for profitability. An enormous amount of money was spent on marketing, but we never lost sight that we were spending other peoples money, Bland said. He added that Quotesmith established itself before going the IPO routethe company built a customer base of over 100,000 before seeking outside investors. We had deep experience in direct response marketing, he said.
DalSanto is pleased with Western & Southerns association with Quotesmith. Our relationship is very strong, he said. Between 80 and 85 percent of our online inquiries come through them, and we have a high closing rate with those customers.
The Not-So-Silent E
According to Bland, one area of e-commerce that will improve business is the development of electronic signatures. Once insurers become comfortable with the risk, two things will be eliminated from the logjam, Bland said, Paper and the U.S. Postal Service. Without those two things, everything will move better and faster. I think it will be a watershed moment for this industry.
He also believes that sales on the Internet will grow accordingly. Currently, about 1 percent of all insurance sales are conducted on the Internet. Bland expects that to grow to 10 percent over the next five years. Considering that insurance is a $1.1 trillion business, each percentage point represents a heck of a lot of money.
But the insurance industry needs to catch up with the other financial services for that to happen. Online insurance is five years behind online banking and brokerages, Bland said. And people are already comfortable using the Net for many services. He pointed out that 48 percent of airline tickets are now purchased online. It is a consumer behavior change, he said. Consumers want selection and service.
DalSanto said that Western & Southern breaks its e-business segment into three components. The first is Web siteswith 27 units in the enterprise, the company has a Web site for each of them. We want to make sure theres commonality, DelSanto said. They all need to have the same look and feel so we can share things across all the sites.
The second component is e-commerce: Our online sales doubled in 200,1 and we hope to triple that number in 2002, he said, adding that online sales are still not a major percentage of the companys business.
His third charge since joining Western & Southern last June is to streamline the back office process and reduce cycle time. The Internet is a long-term strategy for us, DalSanto said. Life insurers have a complex array of products, and some lend themselves more to the Internet than others.
Some insurers operate their e-commerce unit out of the IT department, while others consider it strictly a business function, albeit one with more computers involved. From what Ive seen, its about half and half, DalSanto said. For us, its a separate organizational unit. We are not a subset of IT, but we work in cooperation with the IT area, so we can map out our strategy.
Gora agrees that Internet sales are a drop in the bucket, for most life insurers. She pointed to John Hancock as an example of an insurer increasing its presence online with term life policies. She think insurers need to look at the banking industry to increase their competitiveness across the Internet. Insurers need to embrace the Internet for the business processes. Its an attractive way to run many aspects of their business, she said. It isnt just for online sales, either. It can be used to support sales through agents or online, she said.
She looks at broadband Internet access as something that will be helpful to e-commerceshe foresees the time when agents can conduct a face-to-face meeting with clients over the Internet without leaving the office. You can see your agent actually talking to you, even if its over the Internet, Gora said. Youll still get that human interaction. That interaction is important because life insurance policies will always be difficult for consumers to understand. I loathe reading insurance policies, and the vast portion of the general public reads far less of them than I do, she said. The industry needs to simplify the process, but until they do, the agents are going to be needed.
Information Needs
Online information has become a cornerstone of the underwriting and claims process for the property and casualty industry and Gora thinks that it will be increasingly helpful to life insurers. One problem life insurers face is the inability to get the amount of medical data theyd like because of federal and state privacy laws.
The Medical Information Bureau (MIB; www.mib.org), an association of North American life insurers, provides its members with a variety of information, including whether a potential policyholder applied for or received insurance from another carrier. Credit reports are also a valuable tool to check up on the honesty of potential customers.
Bland points out the importance of these tools. No life insurance underwriter is in a hurry, nor are they going to relax underwriting standards, he said. The challenge is to speed up record collections.
The incontestable clause in life insurance policies limits a life insurers ability to deny a claim after the policy has been in force for two years (one year in some states). There are come exceptions, such as if a policyholder concealed his true identity. So, as Bland puts it, Youd better know who youre insuring.
While online life insurance sales may lag behind their P&C cousins, the push will continue to supply information, both to the consumer and to the carrier. That is one reason Quotesmith purchased Insurance.com last year. At Quotesmith, we always downplayed information and were high on quotes, Bland said. We decided we needed more content on our site. Insurance.com offered massive traffic. It gives us 800,000 unique visitors and a searchable, indexed information center.
There are certain to be people working on getting blood and fluid through a modem as Bland puts it. Too much has changed in the last dozen years to believe a successful online sales model for life insurers cant be found. But informationwhether it be agent locators, policy information, or rateswill drive the e-commerce presence of life insurers until then.
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