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Online Insurance: Who Needs It?

By Paul A. Greenberg
Aug 17, 2001 4:30 PM PT

Throughout these pioneer days of e-commerce, the greatest challenge facing the industry has been creating and sustaining consumer need.

Online Insurance: Who Needs It?

Do consumers need to buy houses, cars and groceries on the Internet? If not now, will they need to do so in the future? Possibly.

However, we have learned that not every industry does well when moving from brick-and-mortar to the Net. Chief among those that might not make the cut? The insurance industry.

In concept, it seemed like a great idea to sell and manage insurance policies via the Internet. After all, think of the paperwork that could be eliminated, the man-hours saved and the convenience for the customer. How could it fail?

It has not failed yet, but only because it cannot seem to get off the ground. Indications are that consumers are not knocking themselves out to find insurance on the Internet.

How Convenient

It was the convenience factor that insurance companies were counting on to attract consumers to their online operations.

I gave it a try when searching for less expensive car insurance. I had been with the same company for about 15 years and decided to do some comparison shopping. The result? I gave up after being asked way too many questions and being required to offer too much personal information just to get a quote.

If I have to jump through this many hoops just to compare prices, I wondered what more I would have to experience in order to buy a policy. I never got that far.

Slow Going

I am in a clear majority of Americans who have not moved my auto insurance business online. Between customer frustration and regulatory challenges facing the sellers, creating a viable online auto insurance industry is light years away.

Health insurance sellers are not faring any better. In the year 2000, it is estimated that less than 1 percent of small business owners bought insurance policies for their employees via the Internet.

The health insurance market in this country is estimated to be worth about US$440 billion. The need for the product already exists. Creating a need for a new channel through which to buy it appears to be the stumbling block.

Cruise Control

Wisely, a number of online insurance brokers have opted to cozy up to major corporations, hoping the reach of established companies would rub off. For example, one insurance marketplace, eHealthInsurance partnered earlier this year with GE Financial Network. In additon, eHealthInsurance is making headway in striking deals with banking giants such as Bank One.

The goal is to reach small business owners through the financial institutions with which they are already associated. One might say the online insurance industry is riding the coattails of established brick-and-mortar conglomerates, but so be it.

The U.S. government, still skeptical of pure-play Internet insurance sellers, has imposed a number of restrictions on what they can and cannot offer. Chief among the prohibitions stifling the growth of the industry are state regulations that do not allow any type of discounts on policies.

For price-conscious American consumers in a questionable economy, that could be the deal breaker.

Staying Alive

Meanwhile, the online life insurance industry is suffering its own set of woes. Earlier this month the Consumer Federation of America made public its findings that 75 percent of insurance sites it studied were not showing the lowest priced coverage available.

For an already skeptical consumer base, news like this is apt to further discourage online insurance buying. Whether consumers will take the time to study the market, shop around, visit multiple Web sites and then purchase life insurance online is debatable. After all, why not just enlist the services of a real live agent to do all that legwork?

It appears the life insurance industry has yet to create a unique selling proposition worthy of widespread consumer attention.

Bad Timing?

It may be that the insurance industry is trying too hard. With restrictive regulations hampering its ability to compete and a public that can't find a reason to change its method of buying insurance, the timing seems wrong for the industry to make its mark online.

Look for insurance shopping bots to emerge that will search the Internet for best coverage and pricing. That, coupled with more widespread acceptance and use of digital signatures, might give the industry a boost.

Until then, consumers are sending a clear message that they don't really need the Internet to buy insurance.

What do you think? Let's talk about it.

Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.

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