More press coverage for HealthAxis.com:
SNLSecurities
SNL INSURANCE DAILY
TM
Friday, December 17, 1999 321 East Main Street, P.O. Box 2124, Charlottesville, VA 22902 Phone: 804.977.1600 Fax: 804.977.4466 www.snl.com
Insurer Internet Presence to Grow Slowly
By Tim Zawacki
Insurer penetration on the Internet will grow slowly in the short-term
and lag behind other financial services sectors as companies
wrestle with business plans to upgrade disparate technology and
develop creative marketing strategies to lure consumers into a new
marketplace, according to a Cochran, Caronia Securities report
released Dec. 16.
The report, by analysts Adam Klauber, Blair Sanford and Stephan
Petersen, estimates 2% to 10% of premiums and deposits of the
consumer insurance market ? including P&C, individual life, asset
accumulation and health insurance ? will result from Internet-based
transactions by 2003. Currently, consumer insurance trans-actions
conducted through the Internet account for less than 1% of
total premiums and deposits.
While worldwide Internet usage rates have grown exponentially
in recent years ? nearly quadrupling since 1996 ? insurers have
been slow to focus on Web-based operations. With upwards of 500
million Internet users expected by 2003, the report said, companies
must dramatically change the way they do business to reap the
financial benefits of e-commerce. According to the report, the Web
?is a natural fix for a dysfunctional industry.?
Nonetheless, other financial services sectors have beaten insurers
to the punch. Retail stock brokerage Internet penetration has bal-looned
to 22% of the total market for the sector and consumer
banking penetration approaches 10%. The report attributed the
discrepancy to the incompatibility of the business models of tradi-tional
insurance companies to Internet operations, along with sev-eral
key obstacles to attracting customers: disparate technology, a
consumer fear factor, and the myth that ?insurance must be sold.?
Most insurers have maintained essentially vertical operations
that, according to the report, result in systemic pressures on pricing,
margins and profits. In fact, insurers? ROE has declined sharply in
the 1990s, from an average of 10% in the early part of the decade
to between 3% and 5% in 1999 ? a statistic the report attributes
to competitive pressures, demand for higher service levels, excess
capital, and increased technology costs.
?The luxury of the supermarket approach, where all services and
products are provided to all available insurance consumers, is
over,? the report said. ?Insurers and new Internet entrants must
define their core competency and channel their resources towards
growing their business model around that competency. We believe
that companies will eventually gravitate towards specializing in one
or several of the following areas: distribution, product manufactur-ing,
underwriting, processing, claims administration, and/or asset
management.?
Four Business Models
The report profiles four business models currently in use. The
Exchange/Marketplace is a ?central hub with an affiliate orienta-
tion that allows an exponential number of buyers and sellers to act
simultaneously.? The Transaction Processor model ?increase[s] the
efficiency of supply chain interactions ... [to] reduce friction costs
associated with vertical business processes.? The Eyeball Attractor
model is a Web site that refers users to agent and companies and
derives profits based on the volume of hits it achieves. The report
says that ?incremental value will be difficult to achieve [and] cus-tomer
acquisition costs should be an impediment to profitability.?
The Work-Site Marketing model is geared to tap the employee ben-efit
marketplace. In effect, employees who participate in employer-sponsored
insurance programs will have the ability to purchase
additional voluntary coverages through their employer?s intra-net
and have premiums extracted by the company?s payroll system.
?Alignment with the sponsor?s payroll system should foster a high
level of consumer stickiness and low customer acquisition costs.?
Klauber told SNL Securities that the Work-Site Marketing model
provides insurers with an innovative and effective marketing device.
?Some of the companies we?ve come across have the idea that they
have to spend $40M per year on print and portal advertising to get
customers,? he said. ?[With the Work-Site Marketing model], you
are locking in customers. Because you are on the intra-net site and
the payroll system, you?re persistency should be a lot better.?
?Effectiveness of advertising is going to go down as saturation of
traditional advertising increases. Allstate has increased their ad
budget by at least 25%, if not more, and you?re seeing this type of
response across the industry. Companies are going to have to get
smarter if they want to attract customers.?
Incongruent Technology
Before launching e-commerce models, insurers must overcome
the abundance of proprietary and incongruent technology networks
which currently limit the viability of most companies? Internet oper-ations.
According to the report, ?Insurer networks and system plat-forms,
which contain most of the industry?s data, are not geared to
seamlessly connect to the Web or other neutral technology plat-forms.
... Several major e-commerce benefits, such as process reduc-tion
and streamlined product delivery, will be muted until connec-tivity
solutions are developed and adopted.?
?The Internet has significant potential to improve business-to-consumer
and business-to-business transactions by establishing
linkages from insurers to distribution networks, data providers,
reinsurers and claim service operations. These links should dimin-ish
friction costs, reduce paper, lower manpower requirements and
consolidate the supply chain for industry participants.?
Technological incongruities will not be solved in the short-term,
however. ?Solutions will be found and developed over the next
three to five years,? Klauber told SNL. ?As they are found and
developed, then their usage across the industry will spread. But nei-ther
one is going to happen overnight.?
Klauber said that more efficient and effective technology will also
reduce another obstacle to increased penetration ? the consumer
fear factor. In a 1999 survey conducted by the Insurance
Information Institute, 80% of respondents said they are ?extreme-ly
comfortable? purchasing auto insurance from an agent, while
just 8% expressed similar levels of comfort with Internet-based
transactions.
?Better technology and [levels of consumer comfort] go hand-in-hand,?
Klauber said. ?As the systems and the technology processes
get better and it becomes easier for a consumer to purchase insur-ance
over the Internet, they will be more willing to say, ?We don?t
need our agent.? When you go on an Internet site now, you fill out
an application, the application goes to an agent, then the agent
attempts to call you back. Basically, you are back to where you
started from, so it is not really building a lot of consumer confi-dence
in the marketplace. As more consumers become more com-fortable
making a purchase with a credit card over the Internet,
then people will be weaned against having the agents hold their
hands.?
Changing the role of agents in the sale of insurance products ?
especially life and asset accumulation insurance ? will be a gradual
process, the report said. ?Independent and career agents who con-tinue
to utilize aggressive personal sales techniques sell the majori-ty
of individual life insurance. ... The Internet?s ability to enhance
the shopping experience, offer a wide variety of products and dis-seminate
comparative product information will likely erode the
face-to-face sales approach.?
HealthAxis.com
One company profiled in the report, HealthAxis.com, has
already begun its quest to overcome these obstacles. Currently a
unit of Provident American Corp., HealthAxis.com will stand as
the surviving corporate identity pending the completion of
Provident American?s reorganization. HealthAxis.com offers indi-vidual
major medical, student health insurance, short-term medical
and prescription drug coverage through partnerships with 12 carri-ers,
including Provident American Corp., AEGON and Fortis
Health. The Web site recently reached an agreement with Aetna Inc.
unit Aetna U.S. Healthcare to establish the insurer as an ?anchor
tenant? which will offer small business insurance products. On
Dec. 7, HealthAxis.com made strides to overcome technological
barriers with the announcement of its intent to acquire UICI?s
Insurdata health care software unit.
Craig R. Gitlitz, senior vice president for business operations at
HealthAxis.com, said that as a result of the proposed Insurdata
acquisition, ?we now have the bandwidth and the technology know-how
to integrate additional carriers in a much quicker fashion. We
have greater connectivity, allowing consumers to use the Web site to
check their claim status. ... Everything is done in the online environ-ment
short of sending out the plastic membership card.?
?That certainly gives them a nice edge,? Klauber said. ?Most of
the players we looked at are not attempting to specialize within the
health insurance market. From what I?ve seen, HealthAxis could
have a nice edge, one, because they are focused and, two, if the
technology really does work on a fluid basis, that would definitely
give them a leg up as far as processing the business and doing it at
a lower cost than traditional carriers would.?
According to the report, HealthAxis.com can expect to benefit from
its status as a ?first mover? in the industry. ?The organization that hits
the market first, builds presence before competition and executes
ahead of the crowd should be successful,? the report said.? Internet
traffic flow equals critical mass which equals market power. Critical
mass and market power translate into important strategic alliances,
advertising dollars and data-mining potential.? Gitlitz said the ?first
mover advantage? highlighted could yield results fairly quickly. ?We
see profitability coming sooner than your typical Internet company.
There is light at the end of the tunnel. We won?t need to push off our
profitability date to constantly invest in building the business. ... We
are going to build a very robust platform, further than we currently
have, and then we will turn on the marketing machine.?
Whether a company has already established a significant online
presence or not, Klauber said, e-commerce is vital to the long-term
success of most individual companies and the industry as a whole. ?I
think they can survive but the ones that will prosper down the road
will learn to use the Internet as a tool,? he said. ?Certainly if you?re
a commercial insurer involved in medical malpractice lines, selling it
over the Internet is never going to be easy. If you?re an automobile
insurance company, utilization of the Web is a necessity.?
?I think in some small- and mid-size companies, you are going to
see a more dramatic shift [to Internet operations] to an e-commerce
model. Mid- to large-size companies will begin to develop e-com-merce
capabilities and go in either one of two paths - keep it as part
of the company or eventually establish it as a separate subsidiary
and then spin it out. ... I wouldn?t be surprised if some of the larg-er
insurers lean towards the latter model.? |
