A focus on customer oriented business model will encourage insurance companies to embrace emerging technologies. Due to the data-intensive nature of the insurance industry as it mainly involves collection, processing and maintaining of information related to insurance policies, information technology will continue to be a crucial part of it. In the volatile insurance environment where insurers introduce changes from time to time in product design or process model, IT has helped in gaining through web-based, online, front-ending improvements for efficient analysis, selling and decision making.
The E-commerce perspective
Recent surveys indicate that around ........ million people around the world access the Internet and about ..... per cent of them engage in e-commerce activities. In India (add statistics)
E-commerce is usually by business-to-business (B2B) model or by business-to-commerce (B2C) model. The insurance industry provides an appropriate model that combines B2C and B2B models.
E-commerce adopts the principles of traditional business or commerce to support business processes over the Internet. A typical e-commerce transaction can be broken down into these five phases:
1. Search – A consumer searches for his required product from different online sellers.
2. Valuation – He compares offers from different sellers and selects the one which best matches his needs.
3. Logistics – Details of the transaction is exchanged between the seller and the buyer. The seller conveys the details of the product to the buyer who responds with his specific requirements. In this phase, negotiation of price and other parameters relating to the transaction takes place.
4. Transaction – The actual exchange takes place. The buyer pays the monetary consideration to the seller and acquires the good. This phase often involves a third party like a credit card company and the courier service that delivered the product.
5. Post-sale services – Seller provides certain services after the product is sold. It may include setting up of the item in the consumer's house, replacement or repair of a defective product.
The first four stages of e-commerce directly apply to purchasing of an insurance product online. Consumers often search from different insurance companies for policies they are willing to purchase. They then evaluate the policies to determine which one suits their needs the best. The terms of the chosen insurance policy are then conveyed to the customer by the insurance company to which the customer responds with relevant details including the terms and duration of the policy, the description of the entity that would be insured. When a consensus is reached between the customer and insurance company to go ahead with the transaction, the buyer pays the first premium to the insurance company and the company sends the policy certificate to the buyer.
However, the post-sales phase of e-insurance is considerably different from other forms of e-commerce. In other forms of e-commerce, human intervention is necessary to carry out post-sales activities such as repair of an item, but a major interaction between the insurance company and the insured in the post-sales phase occur when the insured submits a claim for the amount insured. Online claim settlement involves a web of complex interactions between the insured, the insurance company and legal authorities.
Insurance companies offering e-services can be classified into these 5 categories:
1. Web-sites – These are official sites of insurance companies that act more like an online brochure than a forum for selling policies. They are used for marketing support and do not provide for interactive dialog with interested clients.
2. Product Portals – They are sites that provide a collection of links to sites of interest to policy buyers. They are equally passive as company web sites.
3. Point-of-Sale Portals – These sites offer insurance policy while selling insurable goods such as cars or providing information on college education or health.
4. Intermediate Brokers – Like brokers in the real world, these sites do not directly sell insurance policies but assist clients in matching their requirements with policies offered by various insurance companies.
5. Reverse Auction – The client in this model is usually an organisation that is interested in group insurance. The client announces its requirement and selects the offer made by an insurance company that is best suited to it.
6. Aggregators – These sites compare quotes from all the different insurance companies and are often supplemented with general information on the products as well. Aggregators are the closest to automated online insurance and have been adopted most widely by online insurance companies.
E-insurance involves a variety of ancillary services such as advertisement, negotiation, recommendation, purchase and claim settlement of insurance policies over the internet.
Stages of e-insurance:
1. Policy Selection and Recommendation:
The success of sale of an insurance policy is gauged by how well the requirements of the insured have matched the terms of the policy. Conventionally, an insurance company informs the customers through advertisements in the initial phase. The objective of this phase is to make the buyer aware of the policy. E-insurance uses the Internet to reach customers more effectively through advertisements as the Internet integrates the existing traditional passive and active channels of advertisement. Advertisement on social media, e-mail notifications and coupons are used to replace passive media while replacing software agents with their human counterparts.
Website of an insurance company reinforces the customer's trust in the company as comprehensive details of the policies offered by them increase the awareness of the buyers about the available policies. Insurance agents and experts can be contacted via e-mail, which is often provided in the website, to answer specific doubts and queries of the buyer. More often than not, websites also contain sales statistics of the company which helps the buyer in making a well-informed decision. Thus, e-insurance reachesthe buyer more effectively through various channels that increases the market penetration of e-insurance over the traditional form of insurance.
2. Policy Purchase and E-certificates
After selecting the policy best suited to him, the buyer fills an online proposal form and sends it to the insurance company. It is then examined by the insurance agents and underwriters of the insurance company. They examine the entity to be insured and determine the premium of the policy after which they send the final terms of the policy back to the buyer who examines the terms of the policies and decides whether to confirm his acceptance or not. If he accepts the policy, he becomes the insured and has to pay the first premium. The premium is paid electronically through a credit card or debit card or though net-banking. Insurer is also provided with the option to select how he would like his claims to be settled.
An insurance certificate for every insurance purchased is a requirement in a traditional insurance transaction. The certificate is important as it binds the insured and the insurer into a simple contract and authenticates the purchase of the policy by the buyer from the insurance company. The conventional paper certificate is now replaced with electronic certificate that can be digitally signed by the insured and the insurer and verified by a certifying authority. The transaction between the insured and the insurer can be secured using online transaction facilitating techniques such as smart cards that authenticates the identity of the buyer prior to any transaction. All transactions are carried through secured channels that ensure privacy of the transferred data. The policy certificate is associated with an unique policy identifier that the insured is to use for all future transactions related to the policy.
Purchasing insurance policy is faster, if not more secure, than the traditional method. It also incurs less cost as fewer resources are required as compared to the traditional method, thereby being more profitable for insurance companies.
3. Online Claim Settlement:
Claim settlement required involvement of third parties to verify the legal aspects of the claim. Thus, it requires co-ordination between different parties which complicates this process online. Moreover, it is a process unique to e-insurance and not a part of other forms of e-commerce. The insured who wishes to submit a claim to the insurer first authenticates his identity with the policy identifier key and e-certificate. The company then verifies that the policy had actually been sold to this insured and it is still valid. After that, the insured submits the claim to the insurance provider with the necessary proof. This proof usually comprises a statement verifying the damage, which has prior been digitally verified and signed by the necessary authorities. The company then verifies the claim and examines the veracity of the damage. After it obtaining the necessary proof and is satisfied with the validity of the claim, the settlement amount is paid to the buyer via the mode he had selected while buying the policy. All the transactions with the policy holder are logged in a database of the insurance company, which is used to construct statistics for the use of both the insurance company and future policy buyers.
Online claim settlement is a complicated process because it requires co-ordination between the parties outside the insurance company as well as physical examination of the evidence of damage. But it does reduce paperwork and the time required to process the claim. Thus, online claim settlement is advantageous to the insurer and the insured.
4. Pre-launch Product Development
Before launching a product, the development of the product is done after examining the its demand in the market and after marketing the product, determine the product ratings. These phases can be performed more easily with e-insurance. Availability of online data makes analysis of data easier and speeds up the product development stage. Web advertisement facilitates marketing of the policy through multiple channels. Finally, customer surveys to determine the satisfaction of the customers and evolve a product/policy rating, can be conducted more rapidly through the Web.
Features of E-insurance
This chapter deals with the different ways in which Internet has changed the traditional method of providing insurance policies.
1. Search Costs and Hidden Charges
With the emergence of Internet, a wide variety of search engines, which can be customized according to individual's choice, are available to the buyers. These search engines have reduced the search cost for customers to zero by providing immediate access to a wide variety of insurance providers. Customers using these search engines can simultaneously search through thousands of websites of insurance companies offering policies they are looking for. The customer is just required to click and select the policy best suited to him and authorize the payment.
Hidden prices in the insurance industry are less than e-commerce as there is no tangible good to be delivered which would have incurred additional charges. With the use of electronic certificates, the hidden cost has further reduced. Claim settlement can also be done electronically with less cost.
Thus, e-insurance reduces both the search cost and hidden prices and is more attractive to the customers.
2. Price Competition
In a traditional market, different sellers charge different at different places with respect to the customer needs and preferences. However, with e-commerce each seller can globally observe the price being charged by his competitors and are aware of the prices available to the customers. So if the price of a policy is not sufficient to attract customers, the company is bound to lose customers to its competitors offering favourable prices. This will inevitably cause the prices of the insurance policies to decrease as a whole. Rapid price wars are a characteristic feature of internet based commerce models but insurance companies won't face losses as it would never be below the base cost and they would have certain niche creations which would make some customers favourable to their services.
3. Niche Creation
Price competition reduces the price of the policy, but rarely does it go below the base cost because every seller usually creates a particular service niche for itself and services customers who still prefer the niche. Niche is something, whether a particular service or feature, of an insurance company that gives it an edge over the other companies.
Niche creates string brand loyalty. Once a strong customer base with brand loyalty is established, the seller receives a steady source of revenue. As long as the value added to the policy due to the niche created exceeds the price offered by the competitors, the customer would remain dedicated to the seller. Insurance Companies such as Life Insurance Corporation and General Insurance Corporation already have a strong, trusted customer base and years of reputation. Thus, these companies have established niche.
4. First Mover Advantage
Often the enthusiasm to try a new product leads to an initial increase of its sales. When this phase fizzles out, the product survives only if the customers feel that is it worth the price paid for. If the product survives, it provides an incentive for competitors to enter the market with same or similar products. The supply of the product increases as more sellers enter the market leading to a decrease in the prices. All these sellers will be said to have an equal share in the total revenue from selling a particular type of good but the seller who introduced the product to the market gains comparatively more revenue as it enjoyed the advantage of the initial surge in sales of the product. This seller is called the first mover. Insurance companies who entered into e-insurance first would have the first mover advantage over the other insurance companies.
5. Online Promotions
New entrants to e-commerce try to attract more buyers by providing huge discounts, additional gifts and, most commonly, free delivery. However, it is not possible for a seller to continue promotions for a long. Initial promotions are detrimental to the seller as once the promotion stops, sales are likely to drop. Thus online promotion should be replaced with suitable service niche after the promotion period is over.
6. Policy Bundling
In e-commerce, sometimes a combination of several options is sold together at a reasonable price. This is to tempt customers to buy their policy as they have a sense of achievement of getting something extra with it. In e-insurance, policy bundling mainly helps in two ways – It leads to an increase in the sales of the insurance company by selling more policies together and it also helps in attracting more business as the clients are provided more policies at a lesser price.
Talk about policybazaar.com
There are no insurance agents anymore
In 29th April 2011, The Insurance Regulatory and Development Authority in India passed Guidelines on Insurance repositories and electronic issuance of insurance policies.
The IRDA has stated that the aim objective behind initiating insurance repository is to help the insurance holders modify, revise or change their plans in a correct and fast manner. According to the given guidelines, the providers of e-insurance policies will need to avail the services of authentic repositories and the e-policies will also be regarded as legitimate contracts.
For an insurance repository to be regarded as a certified insurance repository, it should have a minimum net worth of Rs. 25 crores without any investment from outside India. Further, no single insurance company should own more than 10% of its stakes or enjoy a managerial position in an insurance repository.
The IRDA has made it mandatory for the insurance repositories to take appropriate steps that will make sure that all crucial information would be adequately safeguarded and there would be effective systems that will prevent any misappropriation of deals and records. The guidelines also state that insurers can make deals with more than one insurance repository to make sure that e-insurance policies are properly maintained.
...(download the rest of the essay above)