Race You to the Internet

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Auto insurance companies are waking up to consumers' demands and starting to sell online. But are they too late?

In 1998, Americans spent more than $79 billion on automobile insurance, a 7 percent increase since 1984 (in current-dollars), according to the Bureau of Labor Statistics' Consumer Expenditure Survey. But while total consumer expenditures on car insurance have grown, auto insurance companies have been forced to cut premium prices in the face of aggressive competition, according to a trend report by investment firm Salomon Smith Barney, Inc. In fact, when adjusted for inflation, consumers paid less per auto premium last year compared to the same period in 1998 - the first time that's happened since 1973. Although insurers' costs for repairs and medical claims have remained stable, as have most companies' number of claims, the demand for lower premiums has put the squeeze on revenues. According to the report, price competition has become the single greatest source of margin pressure at this point for insurers.

In such a cutthroat market, how can auto insurance companies gain an edge with consumers and boost their bottom lines? For some, the answer may lie in cyberspace. While banks and brokerage firms have raced to reach customers online, the insurance industry in general has lagged behind, unsure of how to operate in the new channel. The cost and complexity of implementing new technologies and business processes, conflicts with traditional channels such as captive agents (those who offer coverage from only one carrier) and independent agents, as well as an array of regulations that vary from state to state have all slowed the entry of auto insurance companies into the world of e-commerce.

Still, online insurance sales are expected to reach $4.1 billion by 2003, accounting for 2 percent of home, life, and auto premiums, according to Forrester Research, Inc. in Cambridge, Massachusetts. Of that, $3.2 billion will be auto insurance sales, Forrester predicts. The Internet is projected to influence $11.4 billion in insurance sales in 2003, as more and more consumers gather information from the Web, then go offline to seal the deal.

According to the Third Annual Internet Insurance Survey Study, released by McLean, Virginia-based Booz-Allen & Hamilton last year, only one insurance company offers a discount for applying online. Not a single insurance site, the survey finds, promotes Internet-specific branding along the lines of banks such as Net.B@nk and CompuBank, which only exist online. Some auto insurance companies are recognizing the need to meet consumer demands for online service and sales, however. According to the BA&H study, 19 percent of auto insurers sell policies directly through the Internet, compared to 8 percent of companies selling homeowners' insurance. Still, 60 percent of auto insurance firms say they have no plans to sell insurance on the Web.

But huge carriers like Allstate Corp., America's second-largest insurer, understand the inevitability of the Internet's growth. In November, Allstate announced that, in addition to its traditional agents, it will sell policies through the Internet and direct-response call centers. "Changing directions for a company that size is like turning around an aircraft carrier," says Joseph Annotti, assistant vice president of public affairs for the National Association of Independent Insurers. "When you see them making such a dramatic change, that's a real sign...that to serve the next generation and a changing market, you have to operate through multiple distribution channels, and clearly the Internet is one of them."

"Many of our customers and potential customers are telling us they want our products to be easier to buy, easier to service and more competitively priced," said Allstate president, chairman and CEO Edward M. Liddy in a prepared statement when the company's Web strategy was announced. "These changes have been driven by the need to provide a broad array of insurance products when, where and how the customer wants to buy them."

Another newcomer is direct writer American International Group, Inc. (AIG), which launched its e-commerce site, aigdirect.com, in October. Through the site, consumers can learn about policies, receive a quote, and purchase online, as well as access customer-service functions.

Although Allstate and AIG are relatively new to Internet sales, Progressive Insurance has had its Web site up since April 1995, and has been selling policies online since mid-1997, according to Progressive Internet business leader Alan Bauer. In addition to making payments, Progressive customers can access the site's do-it-yourself service center, which allows them to track their claims, amend policies, add or delete vehicles, or change an address.

Progressive also provides policy information, whether customers are purchasing online or offline. "The Internet allows consumers to get information without being embarrassed or without the need to be polite," Bauer says. For instance, visitors to the site can figure out what effect two speeding tickets will have on the cost of their premium. And, as it does for people who call the toll-free number, Progressive offers comparative quotes from other insurance companies on its site.

Indeed, the ability to research and compare companies and policies easily is what the Web is all about for many consumers. "One of the things that the Internet does that shakes up the auto market, whether you buy online or not, is that you get information," says Mary Ann Godbout, vice president of auto insurance analysts Conning & Co. Rather than going to each individual company's site, many consumers are using online aggregators such as InsWeb to get objective information and compare rates. And unlike independent agents, who may represent only five or six different companies, aggregators can have partnerships with hundreds of insurance firms.

InsWeb currently has partnerships with 27 auto insurance carriers, says spokesman Greg Jones. Consumers who visit InsWeb.com fill out a single application, providing information such as their driving history and their VIN number. After the application is completed, the site's rating engines sift through the information, determine if the applicant has met the carriers' criteria, and issue a quote. Once the consumer chooses a carrier, the information is forwarded to the company, and the applicant is either given the names of local agents to choose from or is sent a policy in the mail to sign.

By using an aggregator, companies can avoid territorial conflicts with captive and independent agents. But insurers don't receive any information about an individual consumer until that person asks to have his application forwarded to them - after he's received a quote.

"On the other hand, any time an insurer gets information from a consumer, it's getting a qualified prospect that has already met all of the underwriter guidelines," says Jones. Carriers also obtain aggregate consumer data on InsWeb applicants, such as how many men versus women fill out a form and which age groups are most visiting the site.

Keying in personal data at each site isn't as efficient as going to one centralized location, Godbout points out. But Jones says insurers should maintain their own Web sites anyway. "InsWeb is a strategic part of the distribution mix. [But] we encourage carriers to have their own Web site," he stresses. "Some consumers are very brand loyal."

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