An Insurance E-Commerce Tale of Two Worlds

Traditional and direct insurance carriers have approached the online world from two different angles. The one thing they have in common is that they have both built online presences and strategies that are too rigid and promote one channel at the expense of another.

Since the online channel pushed its way onto the scene and became a topic of interest in the acquisition and servicing of policy owners, there has been an ongoing debate regarding what role the Internet plays in the overall industry infrastructure model. In the excitement surrounding the delivery of new services, coupled with a surge in Internet adoption, many industry watchers theorized that the online channel could and would act as an independent channel and would be capable of delivering upon all core insurance services completely separate from traditional channels (e.g., phone, agency branch, mail, call-center).

When progress toward this end slowed significantly, many began to re-define the Internet as a complementary channel, incapable of delivering services on its own and designed only to serve as a storefront for services delivered offline. The reality lies somewhere in between. The Web is capable of delivering all but a few services in their entirety, for a particular segment of policy owners. At the same time, the Internet will not be replacing a call center or physical agent presence any time soon. It occupies a status of co-dependency with traditional channels.

What is unique in the insurance world (particularly auto insurance) is that there remains a wide divergence of opinion across the industry regarding the role of the Internet. The user that each company's site is designed to support varies more widely than the industry's actual customers do. Direct and agent-based firms are correct in the assumption that different types of customers need different levels of human support. They have done an insufficient job segmenting their own customer types, however, and have envisioned an overly simplified and rather extreme picture of who their online user is.

As a result, insurance companies have designed overly rigid by-channel service distribution roadmaps. While direct carriers certainly have customers that won't be found at the agent-based carriers, and vice versa, the market is becoming less and less divided each year. In other financial services industries, firms are essentially on the same page; the model is flexible and channels work to support each other and encourage appropriate client use. On both the agent and direct sides of the insurance business, rigid visions of the Internet's role are resulting in channel confusion. At both ends of the spectrum, one channel is stepping on the toes of another channel, ultimately at the cost of the customer experience.

For example, direct firms such as Progressive and Geico have designed online presences built to provide highly detailed and accurate online quotes and support online purchase capabilities. However, they are hesitant to introduce quick-quoting functionality that shortens the online quote process from about 20 minutes to 4 minutes at the cost of quote accuracy. Admittedly, they have complex pricing systems and have built their business models around transparency and low cost and are very cautious not to deliver quotes that could be misleading on either end of the price scale. Still, firms that support both full- and quick-quote capabilities report that more than 65 percent of their completed quotes come from the shorter forms. While direct carriers see a greater percentage of policies sold online compared with traditional carriers, the figure is extremely low for both -- people still purchase policies offline.

Tire-kickers tend neither to devote the time, nor the level of personal information (e.g., credit checks, motor vehicle history checks, etc.) required to obtain a full quote. Knowing this, traditional carriers have designed two paths -- one for prospects who want a highly accurate and actionable quote and one for those who prefer a ballpark estimate, so they can decide whether to proceed offline with appropriate assistance. Because they are hesitant to confuse the path for their unique customer segment, direct carriers ignore the needs of the mass-market segment and, in the process, they lose business.

With traditional agent-based carriers, the scenario is almost the opposite. These firms have identified that online quoting is incredibly influential in driving offline sales. As a result, they have introduced automated agent referral processes into the quoting process and request authorization early in the online quote to contact the prospect. This helps ensure that that quoters who abandon the transaction are not lost business. In short, traditional firms are doing a great job of using the online channel to drive offline business. However, a similar co-dependency of channels is being ignored on the policy servicing side, and other industries have addressed this much better than the insurance industry. Full-service brokers encourage their clients to enroll for online services because it boosts client satisfaction and loyalty, while driving down the amount of time spent providing clients with account balance information.

Insurance agents are more sensitive to their role and don't want to give up what they view as valuable touch points. The result is that traditional firms have put in place restrictions regarding corporate promotion -- including mail, e-mail, call-center, even Web efforts -- and advertising of online servicing capabilities. The particulars are staggering, and such a lack of support seriously undermines the efforts of many trying to successfully drive adoption of online services. While other industries are doing everything they can to boost awareness and usage of online services that will ultimately save them money, many traditional carriers are doing everything in their ability to make these services available only to customers who are actively searching for them.

Ultimately, this is dangerous. Not only does it mean that they are throwing away cost-savings opportunities left and right, but it also means unnecessary confusion for the customer, who could realistically find himself at either a direct or traditional carrier (a fast growing segment within traditional carriers' customer base). This confusion, when compared with the experience at direct firms, will ultimately drive this customer away, frustrated by his carrier's inability to get with the times.

Tim Carpenter is an insurance industry analyst with Watchfire GmezPro in Waltham, Mass. He can be reached at [email protected].