Insurance industry uses Web-enabled DM to stay competitive - the internet is changing the info-intense market

Of all the document management-related technologies that are associated with insurance applications, the Internet harbors the most promise for driving the growth of the insurance industry. Like the Internet itself, insurance products are intangible, information-intensive and organized in document form, by the page. That makes the Internet a superior means of enhancing data transfer and document management for a variety of inter-agency and customer service applications--especially when solving communications that involve document information transfer between remote locations.

Another reason the Internet is gaining so much importance is because it is rapidly becoming a popular way for consumers to make purchases. Although this practice is still in the embryonic stage, survey evidence demonstrates that Americans are showing increased acceptance and interest in shopping online.

The power of electronic commerce

Electronic commerce on the Internet is still relatively small, especially when compared with other forms of direct marketing, such as mail order and telephone sales. Internet studies show that during 1995, only $350 million in online sales was generated, which is obviously insignificant when compared with $1.7 trillion in retail sales and $60 billion in catalog sales for that same year. However, $220 million was spent online by consumers during the Christmas season alone in 1997. Experts predict that by 2006, online sales will total between $5 billion and $14 billion.

One of the most recently concluded Internet studies was a nine-month survey carried out by IBM, called "MarketSpace Directions in the Global Insurance World." The findings were used by IBM to develop software products that address future business strategies for insurance enterprises. The study's findings were based on a global survey of 160 senior insurance executives, in-depth interviews with more than 40 insurance and financial services companies, and consumer focus group sessions and surveys. The findings outline what consumers are saying, what insurance and financial services companies are doing, and what they need to do to remain competitive in a business world that is becoming increasingly dependent on digital technology to survive.

The results reveal the extent to which the Internet has become a dominant force in a few short years:

• 79% of executives surveyed believe the industry will undergo significant change over the next 10 years;

• 79% cite competition from banks as a major change impetus;

• 66% cite changing consumer attitudes as key factors driving change;

• 72% thought that the growth of electronic commerce, enabled by network computing, will ultimately have the most profound impact on reshaping the insurance industry.

At present, the Internet is regarded as one of the major vehicles for insurance companies to expand their customer base. Along those lines, such companies as IBM (www.ibm.com), Computer Sciences Corporation (CSC, www.csc.com), Lotus (www.lotus.com), PC Docs (www.pcdocs.com) and others are working with leading insurers around the world to develop an open technology infrastructure based on industry standards common to all sectors of the insurance business. The objective is to create communities in commercial property and casualty insurance, as well as personal insurance and investments, that will allow insurance companies, agents and brokers to securely, conveniently and reliably offer products and services through electronic distribution channels to their customers.

Facilitating the development of new applications, technologies and inter-company processes will reduce the cost of doing business, offer customers the opportunity to differentiate the members' branded offerings and increase business opportunities for the community members. Indeed, there is ample evidence that strategy is succeeding. A user who logs onto the Web and searches under the word "insurance" will get back, at minimum, between 300,000 and 500,000 Web site references, depending on the search engine that is used. The vast majority of the insurance Web sites belong to individual agencies offering to provide quotes on life/health or property/casualty insurance rates by E-mail, fax or phone within hours (or the next day at the latest for those queries that require manual servicing).

New market for risks created by Internet marketing

With new forms of marketing come new risks. Ironically, while the insurance industry is moving rapidly to maximize the advantages that Web marketing has to offer, it has done little to innovate insurance that covers the exposure of conducting business over the Internet. In fact, the risks created by high technology and modern electronic communications have yet to be fully defined.

What are the risks of doing business over the Internet and World Wide Web? To begin with, like any published information that is publicly distributed, there are risks such as libel and misrepresentation for which the author is responsible. But if a site allows users to interactively place material on a bulletin board forum or a Web page, the publishers also face the risk added by material that others put up at their site, in addition to the risks incurred by their own authorship. There is a precedent that a Web site can be held libel for content that others put there, as in a recent case in which a securities firm brought a $200 million suit against Prodigy Services, an online service, for remarks made about the firm on a Prodigy bulletin board.

Companies may face copyright infringement and privacy exposures from placing excerpted copyrighted material on their Web sites without obtaining clearances. Also, Web site creators may incur any or all of the following risks: copyright risk, patent exposure, electronic data processing risks or liabilities derived from software errors and omissions.

National Underwriter Property & Casualty/Risk & Benefits Management reported that National Union Fire Insurance, an American International Group subsidiary in Pittsburgh, is developing an insurance policy for Web publishers that provides coverage for those exposures through endorsements to its media policy up to a limit of $25 million. It is hard to talk in terms of premiums since it requires dealing with everything from one-person shops to large companies declining to provide a premium range on the endorsements. For those who have WWW addresses--usually a corporation that has established a site--risks include copyright infringement or libel/slander content. Coverage is provided through a multimedia policy form that is tailored to those exposures. The maximum liability limit is $25 million.

Another niche under investigation by National Union involves writing a modified EDP policy for companies that would provide secure communications over the Internet. While certain risks and exposures have been defined in cyberspace, there are still procedural and regulatory concerns. Although the Internet uses telephone lines, it hasn't been established if it's going to be treated like telecommunications or as its own separate world.

The truth about counting your chickens

Earlier, we speculated that Internet-based purchase of insurance products would rob insurance companies of a valuable resource: the personal contact with an agent that creates a bond of trust between the company and the consumer. In fact, the CEO of one of the largest insurance carriers in the world, GEICO, recently predicted that within the next five to 10 years, more than 10% of all consumers will purchase insurance without ever talking to any