INTRODUCTION TO E-INSURANCE

E-insurance can be broadly defined as the application of Internet and related

information technologies (IT) to the production and distribution of insurance
services. In a narrower sense, it can be defined as the provision of an
insurance cover whereby an insurance policy is solicited, offered, negotiated
and contracted online. While payment, policy delivery and claims processing
may all be done online as well, technical and regulatory constraints may not
allow these elements to be subjected to full e-commerce application in
certain countries.
However, insurance legislation worldwide is being continuously
modified to accommodate online payment and policy delivery, and outside
the discussion of e-insurance metrics, these elements should be included in
the narrow definition. The anticipated efficiency effect of e-insurance is
twofold:-
• E-insurance should reduce internal administration and management
costs by automating business processes, permitting real-time
networking of company departments, and improving management
information.
• It should reduce the commissions paid to intermediaries since it can
be sold directly to clients. For insurance sold to individuals, agents
typically receive a commission of 10 to 15 percent for non-life policy
sales and renewals and from 35 to 100 percent for life insurance
policies in the first policy year, but much less on renewal.
However, some of the income gained in commissions that are not paid to
intermediaries must be spent on online customer acquisition and marketing.
Assuming cost savings do materialize in a competitive market, they would

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be passed on to consumers thereby allowing them to buy more insurance, or
other products or services.
Since insurance penetration (Premiums as a percentage of GDP) in
developing countries is only of that in developed countries, the efficiency
gains created by e-insurance may contribute substantially to growth in
insurance spending and thus intensify its indisputable role in promoting
trade and development.
Of the $2.5 trillion worth of global insurance premiums, about 1
percent could qualify as e-insurance, according to the broad definition.
Little, if any of the premiums earned in developing countries, could be
described as e-insurance according to the narrow definition. In stark
contrast, the majority of the $100 billion global reinsurance business is
traded using some form of electronic medium. Considered along with initial
reports indicating that online premium rates are more competitive, this could
point to acceleration in online distribution of insurance covers measured by
the overall value of insured assets. Considered along with initial reports
indicating that online premium rates are more competitive, this could point
to acceleration in online distribution of insurance covers measured by the
overall value of insured assets.
During the height of the dot.com euphoria, expectations for e-insurance
growth were very strong, and many insurance and reinsurance companies
and intermediaries have continued to invest in their e-commerce capabilities.
Swiss Re’s research arm
SIGMA estimates that by 2007 e-insurance will have 5 to 10 percent market
share in standardized personal lines insurance
Figure 1 indicates forecasts that 7 percent of global premiums will qualify as
e-insurance by 2007.

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Figure 1.

NEED OF E-INSURANCE:-

Recent developments in information technology (IT) and web-enabled

systems have made it easier for insurers to run global operations in a way
that would not have been possible even two years ago. Insurers are already
reaping advantages from IT improvements in internal efficiencies in areas as
diverse as underwriting, claims, policy administration, financial reporting
and human resources. But efficiencies go beyond these internal ones. In the
coming years, the internet will have at least two major effects on the
insurance industry: cost efficiencies and broader distribution. These
efficiencies will come as insurers experience a greater availability of data

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from the internet and the transfer of business processes from manual-related
or computer-related systems to newer communication related systems.
Such internet-style technology will reduce cost, reduce the level of effort
and improve accessibility to large-scale data. Data accumulation becomes
much easier under the internet approach and thus affects costs and value of
insurance. The internet will bring insurers to a whole new audience, and will
allow them to sample new markets that would have been too expensive to
enter. Making information available to potential customers and the ability to
market products to the new audience will have a tremendous impact.

THE WEBSITE:-COMPARISON OF INSURANCE INDUSTRIES

OFFERING V/S CUSTOMER EXPECTATION

Today’s customers have certain basic expectations about their insurer’s

website without which they will turn to other more interactive sites. As the
website is a touch point for consumers and insurers; it should have the
following basic features:
• Functionality:
Many insurers have made plans to add capabilities to their sites such as
problem resolution. But such functions as claims handling, self-
administration of policies, online billing and bill payment may have not yet
been executed to the satisfaction of the site visitor.

• Timely response:
Today’s sophisticated web surfers do not complain when they get a lack of
response from an insurer’s website – they just take their business someplace
else.

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 The Customer Respect Group discovered this gaffe in its “Summer
2004 Online Customer Respect Study”. 27% of carriers surveyed do not
reply at all to online inquiries and another 25% answer only about half of
their inquiries. As a result online users will abandon a visit to a site and go
to a competitor’s site to make a purchase if they have a less than satisfying
experience. Response time should therefore be addressed more seriously.

• Financial products and services features:

Customers will visit an insurance site more often if it has a wider breadth of
financial products and service features. For example, Nationwide, Usaa and
Prudential insurance companies (all of which offer an extensive array of
products that can be bought online) average three visits per customer each
month, as opposed to one monthly visit per user to sites with narrower
offerings.
Moreover, in another survey supporting this point of view, it appeared that
45% of consumers are less likely to use their insurance sites if products and
services such as financial aggregation are provided elsewhere.

• Connectivity and easy site navigation:

Insurers need to ensure that the consumer’s online experience is as
convenient as possible. In “Policyholder Self Service” report by Gomez Inc.
it was established that currently the average visit to insurance sites lasts
about 10 minutes, which means that insurers have a very short time in which
to impress the consumer with the value of their site before they move on. In
that same report it was also found that more than half of those who were
unsuccessful at performing self service say that they are unlikely to try
again, while successful self service will likely draw people back (74.7%)

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It can be concluded from the above that the basics of an attractive website is
still not perfected by established insurers, which sheds some light on why
the number of online customers are not yet up to expectation.

ADOPTION OF E-COMMERCE TO INSURANCE:-

Certain industries, such as travel, banking, and retail, have embraced the
emerging technologies that make electronic commerce possible. Some firms
have gone as far as completely revamping their business processes. The
insurance industry has made real progress in implementing some of the
technologies of e-commerce, but the industry has been slow to adopt others.
This is because insurers must carefully select which applications to
implement, weighing the costs and benefits. Some applications of e-
commerce used in other industries do not easily fit the business of insurance.
Many others, however, present insurers with interesting possibilities .
A typical e-commerce transaction can be divided into the following five
phases
1. Search
2. Valuation
3. Logistics
4. Transaction
5. After-sales services
The first four stages of e-commerce described above directly lend
themselves to analogous steps for purchasing an insurance product online.
Consumers search from different insurance companies for products that they
are willing to purchase. They evaluate the products from different companies
to determine the one which best suits their needs. The insurance company
then conveys the terms of the insurance policy to the customer and the

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customer responds with details including a description of the entity being
insured, the terms and the duration of the insurance policy. When both the
customer and insurance company agree to go ahead with the transaction, the
buyer pays the initial premium to the insurance company and the policy
certificate is sent to the buyer.
The after sales phase of e-insurance is however considerably different from
e-commerce.
In e-commerce, human intervention is required for activities in the post-sales
phase such as repair or replacement of parts. However, a major interaction
between an insurer and the insurance company occurs in the post-sales phase
if the insurer submits a claim for the amount insured. Online claim
settlement involves complex interactions between the insurer, the insurance
company and possibly legal and judicial authorities and, in an automated
environment, requires close interactions between humans and automated
agents. This phase is therefore the most difficult to implement over the
Internet and online insurance sites mostly rely on human intervention for
this phase.
Insurance companies offering proper services through Internet can be
classified into the following categories:
• Web Sites: Almost every insurance company has homepage providing
information about the company and products. However, these
homepages are little more than passive online versions of the
company’s brochures.
• Product Portals: Portals are sites that provide a collection of links to
sites of interest.
• Point-of-Sale Portals: Unlike most other commodities, the sale of
insurance products is initiated by the sellers. Certain sits exploit this

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 approach by offering insurance products while selling insurable goods
such as cars or while providing information on health or college
education.
• Intermediate Brokers: Brokers are intermediate sites that do not sell
insurance products directly but assist clients in matching their
requirements with the policies offered by insurance companies.
• Reverse Auction: In this case, the client is usually an organization
interested in group insurance. The client announces its requirements
and selects the best offer made by an insurance company.
• Aggregators: Aggregators are sites that compare quotes from
different insurance companies. The service is often supplemented with
general information on products as well.

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THE INTERNET AND INSURANCE: IMPACT AND
IMPLICATIONS :-

The Internet and life insurance: impact and implications

Current position of Internet usage by life insurance companies

Stages of incorporation of Internet into existing businesses can be broadly
categorized into four main stages.
• Web Presence Stage
To obtain on-line quotes on a contract that they may be interested in and the
activities
of the company are largely targeted activities. However there is no
processing of the information past this stage and a customer must obtain an
application form to process the transaction any further.
• Interaction Stage
This is where a company uses web pages to provide information about their
products and services i.e. corporate information, to include financial
statements and balance sheets. This stage is very basic and apart from raising
brand awareness, there is no real significant impact and incorporation into
existing businesses.
• Transaction stage
This is where the company has enhanced information technology and may
even have facilities for customers to place orders and transactions
• Enaction stage
Here the company has used the net and IT, to redefine their business and are
known as

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e-enabled businesses. The emphasis is on interactive customer relationship
management and full integration of Internet facilities into the company. An
example of such a company might be Cisco systems.
Currently most companies are in the interaction stage and thus need to
upgrade their business value by making the Internet an integral part of their
business value and despite the insurance industry’s hesitancy to embrace the
Internet as a channel for distribution, the outlook over the next five years is
very positive.
“While the online insurance marketplace represented only about $1.9 billion
in premiums ($1.6 billion net-influenced sales and $0.3 billion online sales)
in 1999, this market is expected to grow to $11.1 billion in premiums ($7
billion net-influenced sales and $4.1 billion online sales) by 2003.”

Implications for life companies

Survival of the fittest
One possible impact of the Internet in the future will be the position whereby
only a small number of companies shall exist owing to economies of scale in
commoditization. Having established a strong brand, their support services
for their products will be diverse and be innovative and technological.
Inclusion a mutichannel distribution strategy along with bundling a variety
of secondary related products will help them to provide insurance products
for both the long and the short term.
These companies will be the result of the merger and acquisition of several
existing financial companies and may be a global venture. Profit margins
although deliberately kept low will exist and the emphasis shall be on high
volume, minimum unit cost sales, with heavy investment of capital in

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advanced technology. The target sector will be the average person who has
relatively simple insurance needs.
Customers may find that loyalty discounts exists and they shall be quite
happy to purchase other products from these big market players.
Specialisation
Here each company will choose to concentrate on their core business
competencies outsourcing non-critical components and leaving the
distribution of their products to independent firms, such as supermarkets,
who have a wider consumer base. There shall be a trend towards a virtual
office environment.
Communication between manufacturers and distributors (B2B) would be by
using extranet facilities and allow one to one marketing. It will be
imperative, from a competitive point of view, for insurers, to offer online
transactive services and to participate in B2B online exchanges. On the
positive side, the expansion of this B2B e-commerce should result in cost-
savings for policy administration.
The industry would see a deregulation with branding and diversity of the
distributor’s customer base becoming key sources of competitive advantage.
‘White label’ products would become increasingly common as competition
increases and new players emerge. The resulting effects will be the demise
of many small and medium sized companies and a reduction in the number
of Independent Financial Advisors.
Team as well as self-education support in the form of information available
to the customer on the Internet. As innovative products and quality of
service become overriding issues, administration becomes complex and
expensive and indeed customers may choose to forms C2C alliances to sell
second hand endowments, for example.

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A Niche scenario
As the number of people surfing on-line increases every day and wealthier
and more educated customers display sophistication about them a niche
market might develop in the future to meet the complex financial
requirements of such customers, who have complex financial needs. These
needs will include continual personal expert advice through channels such as
Independent Financial Advisors or a Direct Sales Force
Team as well as self-education support in the form of information available
to the customer on the Internet. As innovative products and quality of
service become overriding issues, administration becomes complex and
expensive and indeed customers may choose to forms C2C alliances to sell
second hand endowments, for example.

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The Internet and other markets: impact and implications
Impact on insurance brokers
The market in which insurance brokers operate is very diverse.
Consequently, the potential of e-commerce is also diverse. An investment
broker will advise on which type of investment product or investment fund
matches a customer’s risk tolerances and personal circumstances, including
tax issues. These factors are variable and hence the broker is, from a
business point of view, in a good position.
Moreover, customers are aware that insurance is a necessity and not a luxury
and hence are prepared to take time to seek advice in relation to a lower-cost
best value approach.
Within the corporate market, brokers are aware of the importance of a best
value approach in terms of cost and creditworthiness. Brokers also advise on
corporate pension issues in terms of selection of investment managers and
assessment of solvency risk. Direct dealing insurers however, who promote
cutting out the middleman, are replacing the role of the non-life broker.
Moreover, the position of the smaller retail insurance broker is very different
to their larger competitors.
By a combination of web-based marketing sites and the facility of
transmission of data between systems using a standard interchange facility
may facilitate low cost electronic trading for brokers which may be
paramount to the survival of the smaller broker. Web-enabled TVs would
increase the potential market and thus provide even greater savings.
Also Internet usage allows an alternative to the traditional manned claims
desk by allowing free exchange of information on claims procedures. All,
however, face the threat of disintermediation and broker commission rates

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are under threat. This has been partially due to the Internet, as customers “go
direct” with the underwriters.
Brokers have responded to this by increasing the range of risk management
services that they offer. However, this still does not deal with the issue of the
Internet being responsible for edging them out of the market altogether, as
the development of a
Universal Electronic Data Interchange allows communication between
customers and insurers that is more direct.
Not all is bad news. Indeed the Internet can be advantageous for the broker
in terms
of providing them with a faster more cost efficient method of transferring
information
globally and hence enabling them to pass on the savings to their customers
and hence
attract more business.
The Internet is also changing the role of the broker from an intermediary to
an
“infomediary” who conveys information to the customer. As markets
become
increasingly dependent on standardised information such as the FTSE
indices, the
broker becomes the supplier of information that affects these indices.
In essence, the Internet could speed up trends that are already present in the
market.
If this is the case then only those brokers, who are continually re-evaluating
their role

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and its changes due to the Internet, will be able to reap the full benefits.
Indeed
ignorance of this technology may result in significant consequences.

Implications for reinsurers

This topic is somewhat difficult to address, as reinsurers have minimal
Internet based
activity. The problems they face are different to brokers as they are not
involved so much in the transfer of information and they are more the risk
bearers. The ease of information sharing allows customers accounts to be
continually monitored by reinsurers. It will also mean that they are up to
date, thus making renewal simpler. Moreover, this data is easily manipulated
and stored thus decreasing administrative costs.
Within the London market this advantage is readily apparent with
organisations such as Lloyd’s enjoying the increased efficiency gain.
However, the Internet facilitates competitors in the reinsurance industry such
as the Bermuda reinsurance centre.
These centers have benefited greatly from the impact of the Internet as
distance and
location has been a traditional barrier to entry. Furthermore, such centres are
in anideal situation to postulate legislation for newer forms of e-commerce
that would
complement their existing tax position and hence generate even further
business.
These competitors have undoubtedly affected the traditional market share
that Lloyd’s
enjoys and thus it is imperative that such points should be considered.

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POTENTIAL EFFECT OF E-INSURANCE ON INSURANCE
INSDUSTRY
Insurance and the broader area of financial services are industries where
electronic commerce will play a significant role. These information-
intensive industries are fertile ground for the play of forces that have
spawned e-commerce. The evolution of the use of ecommerce by insurance
companies and intermediaries raises a number of issues with respect to the
impact of this technology on the industry and its regulation. Any discussion
of the impact of e-commerce on insurance must address some of the issues
affecting the major players in the insurance electronic marketplace1:
Insurance company (Insurers), Consumers, Insurance agents, Other service
providers, and Government /Society (through the supervisory authority).

Each group has a direct interest in the evolution of the electronic market.
Each is affected
to some extent by the technological change that is revamping electronic
commerce. The
interests and roles of these different stakeholders must be addressed so that
change is
promoted and managed effectively, rather than impeded by those that feel
threatened by it.

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Effect of E-commerce On Insurance Companies
Insurance companies have regarded the Internet mainly as another channel
of distribution for their products. Compared to online stock brokerage and
online banking, development of the Internet in the insurance industry has
been somewhat cautious.
Websites mainly serve to provide information about the company and its
products. Many
insurers especially in developing economies have not seized the
opportunities created by ecommerce for making all business processes more
efficient, beginning with the online sale of policies. But the growing number
of those who have embraced the technology is most encouraging .
There are some factors, which make the online selling of insurance products
difficult:-
1. The complexity of some products, e.g., tax-efficient life insurance
policies, increases the consumer’s need for specific advice. It has not yet
been possible to automate the provision of information; although it can be
assumed that continuing advances in technology will create new
opportunities for automated solutions. The complexity of many insurance
products can often be reduced by design modifications.
2. In many cases, it is difficult to standardize claims settlement for example,
as this involves a large amount of investigation and decision-making. This
process often involves people and companies who are not in a contractual
relation with the insurer.
3. The Internet is particularly suitable for products where contact with the
company is more frequent. Insurance is usually taken out infrequently, every
couple of years or even once in a lifetime. Once a policy has been
concluded, with some types of insurance the insurer and the policyholder

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have barely any contact, unless an insured event occurs. Also, existing
insurance policies can often only be cancelled with a certain amount of
effort. This makes the switch to an Internet insurer more difficult.
4. Many consumers still view the Internet as an insecure medium. This
prevents large transactions being concluded via the Internet, and it deters the
transmission of confidential information, both of which are essential aspects
of insurance policies.
5. In personal line especially, regulatory hurdles make Internet distribution
difficult. For example, as e-commerce increases the number of cross border
transactions, licensing requirements in all jurisdictions where such
transactions occur also apply.

Competition and Market Penetration

The Internet enables new entrants to the market to avoid the expensive and
lengthy process of setting up traditional distribution networks. E-commerce
lowers market entry barriers and increasing competitive pressure in the
insurance industry.
In the past, many insurance products have been distributed mainly through
captive agents or independent brokers. Since enormous investments are
needed to build up such a distribution network, established insurers were
generally well protected against new competitors. Now the Internet provides
new companies with instant access to the insurance market at an affordable
cost. Market transparency is improving, since product and price information
is more readily available through the Internet. Lower market entry barriers
and higher market transparency are combining to intensify competition and
force prices down. This also makes it increasingly difficult for insurers to

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pass the comparatively high costs of traditional distribution onto the prices it
charges for its products.
In life insurance especially, online distribution may change the nature of
the competition. Acquisition costs traditionally play a key role here. They
often come to more than 100% of the new premiums, and are only amortized
over the course of a long policy term. For new entrants to the market, such a
big cost burden at the start of the insurance contract is a major barrier to
entry, as they are unable to draw on a constant premium flow to finance new
clients’ acquisition costs. If Internet insurers manage to reduce these
acquisition costs significantly, it would become far easier for them to break
into the market. On the other hand, Internet insurers need to attract clients
through advertising, and this entails substantial costs as well. Furthermore, a
certain amount of advice is normally required for many life insurance
products, because of their transaction volume and complexity.
Even if e-commerce lowers market entry barriers, start-up companies in
particular need to become sufficiently well known if they want to win
significant market share. Another important factor, particularly in the
insurance industry, is that the client must have confidence in the insurance
company. Online sales still carry an element of uncertainty for many clients.
This is mainly because of unresolved legal aspects of online policy
conclusion and premium payment, as well as concerns about data protection.
Therefore, insurers with an established brand name have a competitive
advantage, as they naturally command a greater degree of confidence. New
companies need to build up this goodwill from scratch, and this usually
involves high advertising and marketing expenses.
The current disadvantage experienced by new Internet insurers should
gradually become less important over time. First, confidence in the Internet

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as a distribution channel will improve as its penetration increases. Second,
newcomers will be able to build up their weak reputations through secure
ratings or alliances with well-known Internet brand names. Successful
alliances for Internet insurers are feasible with online banks or online
brokers, as well as with quality portals such as AOL, Yahoo or Microsoft.
E-commerce enables established companies in other sectors to cross over
into insurance.
Lateral entrants from other sectors can break into the insurance business
with the help of the Internet. The most likely candidates are companies who
already have a well-known brand name and strong customer loyalty. These
companies, such as banks or internet providers, could set up new, efficient e-
commerce systems, without the burden of legacy systems or conflicts with
other distribution channels. They could also transfer their brand name to the
insurance industry and utilize existing sources of finance.

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Benefits for Insurance Companies

The new e-commerce capabilities bring significant efficiency improvements

in distribution, administration and claims settlement. The biggest cost block
for a non-life insurer is usually claims payments. Online distribution brings a
direct reduction in distribution costs. Additional savings potential comes
from using e-commerce to automate business processes. This in turn brings
reductions in administration and claims settlement costs. Modern
information technologies also bring cost savings for claims payments. For

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example, better data analysis may improve risk selection, while the detection
of insurance fraud and tighter control by partner companies can help to
reduce claims costs.
In life insurance, claims costs are much less than in non-life insurance,
because of the high savings component. Distribution costs represent the
biggest cost block, which means that the bulk of the cost savings can be
achieved in distribution. However, many life insurance products require a lot
of advice, and are therefore only partly suited to pure Internet distribution.
For traditional insurers, the need to adapt to the new e-commerce
opportunities not only entails direct cost, in the form of substantial
investments in the new information and communication technologies, but
also the indirect costs of having to change their existing business models.
Companies have to revamp their business processes and corporate structures,
which leads to many different internal conflicts. Internet marketing threatens
traditional distribution channels and therefore tends to meet with strong
resistance within the company. Many insurers avoid this problem in the
short term by not passing on to the customer the efficiency gains created by
electronic distribution. In some cases, the salesperson even receives a
commission if a client in his or her area takes out a contract online. Some
insurers pursue a dual strategy and try to establish a foothold in countries
where they have no significant market share by offering e-commerce
solutions while still maintaining the traditional distribution channels in their
home market. This is not a strategy for long-term success; however, as the
potential efficiency gains in the home market are abandoned.
Insurers selling over the Internet will have a substantial cost advantage over
the lifetime of a customer, relative to non-internet based insurers these
efficiencies are primarily driven by reduced sales costs, lower customer

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service costs, and cheaper and better information gathering about the
customer. At the same time, the use of e-commerce will demand the
progression and integration of various components of insurers’ information
systems, many of which are still wedded to legacy mainframe platforms that
are becoming increasingly inefficient.
According to Ernst and Young (1999), the average traditional transaction
costs is $90, while the average transaction cost through a web enabled
customer portal is $4.44.
Figure shows the costs of traditional vs. online purchasing processes.

The structure of many insurance markets and the role of intermediaries (e.g.,
insurance agents) will change dramatically. Currently, there are insurance
malls that allow one to obtain quotes from a number of companies almost
instantaneously. If the major functions of insurance agents have been
information transmission and facilitating transactions, ecommerce will make
these functions much easier and less expensive for insurers and consumers.

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Certain agent functions will be disinter-mediated1 or replaced by an
electronic market. The traditional agent role will likely be diminished for
standardized, commodity like products such as term-life, homeowners,
renters, and auto insurance. Electronic commerce will further the decreasing
use of the independent agency system relative to exclusive agent and direct-
response distribution systems. At the same time, the insurance agent’s role
may be enhanced in advising consumers on how to optimize their insurance
purchases and in dealing with insurers in areas such as claims settlement,
potentially valuable services for consumers.
Another interesting aspect of the economics of the Internet is the existence
of so-called network externalities. That is, the network becomes more
valuable the more people are connected to it. With the increased value of
connection comes the decreased cost of distribution. Products with relatively
high fixed costs and low value (such as travel, credit, or burial insurance) are
relatively expensive to produce. Those customers pay a high price per dollar
of coverage for these products. The Internet allows the disinter-mediation of
this relatively high overhead for these low face-value products. This means
that prices can be lowered and more insurance sold by reducing the
transaction costs of the exchange. Increased access through e-commerce also
may prompt some consumers to purchase broader, high-value insurance
products to manage their risk

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Top Obstacles And Concerns For Insurance Companies
In view of trends concerning the growth of e-commerce in the general
economy, it is interesting to consider what the impact has been and is likely
to be for the insurance industry in particular. Although other online financial
services have already taken off quite vigorously, the insurance industry’s
involvement with and commitment to electronic commerce lags far behind
competitors in the banking and brokerage industries.
Top obstacles for the insurance industry:
• Resistance to change
• Threat of agent/broker disintermediation
• Lack of technology/regulatory hindrances
• Threat of insurance company disintermediation
• Lack of industry vendor solutions

Top e–commerce concerns:

• Costs/impacts of moving off legacy systems
• Impact of legacy channel investments
• Lack of skilled information technology personnel
• Lack of e-business strategy
• Lack of enterprise technology architecture
It is widely recognized that e-commerce will enable insurers to significantly
lower costs, realize business process efficiencies, improve customer service
and brand loyalty, and enable insurers to better position themselves
competitively.
However, insurers cite as top obstacles factors such as resistance to change,
threat of agent/broker/company disintermediation, lack of technology
infrastructure, regulatory hindrances, and lack of industry vendor solutions.

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Insurance Products Suitable For E-Commerce
Not all insurance products are equally suited to Internet distribution. Their
suitability depends chiefly on how much advice is required. The more
complex the product and the bigger its financial scale or transaction volume,
the greater the client’s willingness to pay for advice. Products that are
particularly suitable for marketing on the Internet are those that can be
described and rated using a small number of parameters, such as motor,
private liability, homeowners, household contents and term life insurance.
These types of cover are also suitable for online price comparisons, which
make the Internet even more attractive for potential clients.
E-commerce also will have implications for the sale of more unique and
complex insurance and reinsurance products particularly those purchased by
commercial enterprises. These transactions rely heavily on information and
communication and e-commerce can make this process more efficient. At
the same time, the sale and servicing of complex insurance products will
require different kinds of networks appropriate for individualized
transactions. Security will be an important consideration here given the large
amounts of insurance and proprietary information at stake.
Products that are not necessarily suitable for online marketing include most
life and pension products, health insurance and many commercial lines. But
even these products can benefit from the huge opportunities for quality and
service improvements presented by ecommerce:
• If clients already have extensive product and risk expertise, the
Internet can still be used as a marketing tool, despite the high
complexity and transaction volume. “Internet team room”, for
example, could support the consulting and negotiation process.

26
 • Even if the conclusion of the policy and the associated advisory
services occur with little or no online support, policy administration or
claims settlement can still benefit from such support. For example, a
client may seek independent advice when choosing a private health
insurer, but is prepared to use online facilities to process and settle
doctors’ bills.
• Brokers can use e-commerce solutions to bundle together the needs of
a large number of clients, handle the administration themselves, and
then forward the data to the insurer.
• Modern communication technologies allow more personalized
products, faster response times, greater flexibility in covers and better
support for risk management.
However, there are ongoing debates about the suitability of individual
insurance product for e-commerce. The conventional wisdom is that
obligatory, very simple or low-price products do not require a seller’s push
and thus can be distributed through e-commerce. The greatest demand is for
motor vehicle insurance, followed by health, homeowner’s and term life
insurance. The very desired product to be sold on the net is shown in the
Figure, whereas insurers selling online directly to clients are offering a very
restricted portfolio of products.

27
New Value Creation for Insurers
The use of Internet technologies in the insurance industry is not just limited
to distribution, but also has a fundamental impact on almost all other
production areas. The integration of all business processes in a unified
information flow significantly reduces the cost of gathering and analyzing
information. Since the efficient processing of information is a key factor for
insurers in the creation of value, the use of new information and
communication technologies enables them to revamp and rationalize key
links in the value chain.

28
Newly established insurers are not burdened by legacy business systems and
are able to exploit modern information and communication technologies in
order to set “best practice” benchmarks for the entire industry. This will
exert significant pressure on established insurers to adapt their business
model to the changing requirements for greater efficiency, speed and quality
of service.
In the past, the value creation of insurers has centered on the aspects of
distribution, administration and claims settlement. In these areas there are
many routine tasks that could be automated through the efficient use of
information and communication technologies. The task would therefore
embody less value creation. In the future, insurers will have to create a
greater proportion of their added value through a higher standard of service.

Pre-Internet and Internet-enabled Insurance

Internet and e-commerce technologies are already changing the structure of
the insurance industry. The magnitude of the change can be best appreciated
by comparing Figure 2.10 and Figure 2.11. As shown in Figure 2.10, the
pre-Internet insurance world is largely linear, with individuals (personal
lines) or businesses (commercial lines) moving risk to insurers, sometimes
directly, but more often through the intermediation of brokers and agents.
Intermediaries are responsible for processing more than 90 per cent of all
premiums collected. The application of information technology increases
diagonally down the chart and is most prevalent in the reinsurance sector.

29
Figure 2.11 visualizes an Internet-enabled insurance industry and market. Its
main characteristics are that technology can be evenly distributed and
information intermediation is no longer a necessity but a preference. Gone is
the linear travel of payments and risk information from client to (re)insurer.
Buyers of personal and commercial insurance and reinsurance can choose to
pursue multiple paths to acquire price and policy information. Insurers and
reinsures have extended their reach through their online incarnations.
Brokers and agents may do so as well. Using data standards can positively
facilitate the resulting increase in communication and data exchange.

30
Agents and brokers were an irreplaceable link in the pre-Internet insurance
industry. Agents intermediated sales of policies to non-businesses, such as
personal life insurance, motor vehicle insurance, and homeowners insurance
and various savings and investment schemes. They also intermediated
insurance for small and dismissed business. Brokers intermediated insurance
between large organizations, or businesses, and insurers, as well as between
insurers and reinsures. Their economic role was to enhance market
efficiency by diminishing information asymmetries between buyers and
sellers caused by any of the following situations :
• The insurer is not fully informed of the scope of the demand, or the
insured is not knowledgeable about the selection of insurance policies
and prices available; or

31
 • The insurer has not fully mastered the technical and economic details
of the proposed risk, or the insured does not clearly understand the
insurance policy’s proposed terms and conditions.
In practice, agents are generally authorized to sell policies from only one or
a few insurers. Further, the terms and policy wordings of different insurers,
even if distributed by the same agent, often do not match. To clarify these
differences and enable cross-comparisons is perhaps the most important role
of the agent.

Outsourcing of Insurance Functions

New information and communication technologies are making it easier for
insurers to break up the value chain. Individual functions, such as
underwriting, policy administration, claims management, investment or risk
management can be optimized within the business divisions or outsourced to
a rapidly growing number of specialized external providers. Claims
management, underwriting and some parts of risk management are
particularly suitable for outsourcing to specialized providers. Rising cost
pressure will force traditional providers to review their fully integrated
business model.
Traditional insurers perform almost all stages of the value creation process
themselves.
However, a number of functions in the value creation process may be
outsourced or assigned to specialized service providers at greater efficiency
and lower costs. Examples are listed in Figure 2.12.
It, also, shows the value chain of a typical insurer. Traditional insurers
perform almost all stages of the value creation process themselves. The

32
bottom half of the figure provides a list of specialized providers that handle
individual functions in the disintegrated business model.
This would allow insurers to concentrate on those links in the value chain
they enjoy a competitive advantage(s) .

33
Effects of E-commerce On Customers
E-commerce opens up new ways of reducing costs. Simultaneously
hardening competition will ensure that these benefits are passed on to the
consumer. The Internet offers a number of possibilities for increasing the
value creation for consumers by means of increased transparency and
improved services, not just in the area of sales.
Consumers might believe that they can get different and better service
though the Internet. This can be seen today in a number of limited examples.
The Internet user, usually an above-average earner, well informed and price
conscious, likes to have several quotes to compare. Consumers can obtain
quotes for a number of companies. This is the idea behind the strategy of
aggregators, also known as navigators, supermarket sites or malls. In some
cases, consumers can see rating agencies’ evaluations of insurers. The
Internet and outsourcing can provide additional cost savings to the
consumer. By removing layers of inefficiencies, technology can bring the
customer closer to the insurance contract.
Consumers will also obtain price comparisons for relatively generic
contracts. For example, for many online insurers, they can compare prices
for annual renewable-term life insurance. Or, they can compare insurers’
rates for a standard set of auto insurance coverage for a given vehicle and
driver characteristics.
Consumers also could have access to internal records to see where their
claims are in terms of payment, when their next annuity payment is due, and
how their mutual fund is performing. This can be done without calling a
burdensome voice-mail system, being put on hold, or finding a person who
can give them the desired information efficiently.

34
 In addition to personal lines, commercial lines are also likely to benefit
from innovations over the Internet. Large consumers of insurance could
build or participate in outsourcing market auctions. Certain relatively
standardized blocks of business (fleet auto or workers’ compensation) could
be put up for bid. This would disinter-mediate the broker or agent from a
number of transactions unless they were the real market makers. At the same
time, intermediaries (i.e., brokers and agents) could provide additional risk
management advice to commercial buyers and qualitative information about
different insurers.
E-commerce can bring a substantial improvement to service
quality.).Advantage are:-
• Continuous service (24 hours/7 days)
• Depth of available information, such as price comparisons, product
information
• No restrictions imposed by national borders
• Faster response times
• Anonymity
• More transparency and speed of claims management
. These advantages virtually constitute a catalog of requirements for
insurers’ successful Internet presence. At present many websites are
cluttered and difficult to navigate. Many insurance websites do not allow
price comparisons. If a client wants to compare quotes from several
companies, the client still has to fill in a questionnaire with each insurer.
Insurance clients may use the Internet to place a large risk themselves.

35
INTERNET AND CURRENT ISSUEE IN THE INSURANCE
INDUSTRY
The Internet is acting as a catalyst to accelerate change in many of the areas
is identified in the section before. In the following, role and effect of Internet
on these issues are given
Globalization
The Internet is a global medium and increases the transparency of all
products including financial services products. The key and most difficult
aspect, of entering a foreign market is securing distribution channels. The
Internet provides global distribution potential, though there are still a
number of barriers including tax regimes, regulatory requirements, brand
and cultural issues.
New Entrants
Low barriers to entry on the Internet facilitate new entrants. In the financial
services industry the major entry barrier is distribution, which the Internet
can overcome. The internet emphasizes the importance of competency in
direct marketing techniques and branding which encourages retailers to enter
the market.
Regulation and Deregulation
The Internet acts as a ‘push’ mechanism for the government to pressurize the
industry into providing alternative cheaper solutions such as stakeholder
pensions. At the same time the Net ‘pulls’ regulatory change, as consumers
become more demanding due to its transparency. The Internet may lead to
products becoming more customer-centric, with few boundaries between say
banking and insurance, which will influence the regulatory environment.

36
Socio-cultural Changes
The Internet itself may have profound changes on working and living
patterns, making working lives even more flexible. This will influence the
financial products people want to buy, and when they want to buy it. For
example long-term regular premium products may no longer meet customer
needs.

CHALLENGES
Due to the complexities involved in insurance processes, many companies
fear that the upfront costs of implementing an e-business solution may be
too significant to warrant the return on investment. The highly complex,
detailed and multi-faceted nature of the insurance business may also make
the execution of these services appear overwhelming:
• The insurance cycle consists of numerous, detailed steps requiring
extensive personal data to complete many processes. The work consists of
the generation of printed policies, priced by compiling and analyzing reams
of data, and then serviced with monthly paper invoices for the lifetime of the
customer or until a claim must be processed – on paper.
• The multiple variances and unique requirements among states and
jurisdictions require additional workarounds.
• Operational challenges are compounded by the ongoing struggle for
compliance with numerous, ever-changing regulations.

37
• After attempting to apply hardware and software packages that were
cumbersome to integrate and delivered minimal cost savings upon
execution, many companies have been left with a negative perception of
paperless solution providers.
Attempting to attain the cost savings of paperless processing, many
companies subscribed to new technological solutions for core processes such
as underwriting, claims payment, policy administration and correspondent
support. However, now these companies are realizing that these technologies
are on disparate systems supporting segmented business sectors. Without
connectivity between the information, companies still rely on paper trails,
data re-entry and costly courier/mailing services to bridge the gaps. Because
each unique database must be updated when information changes, even the
most basic policy transaction can take weeks to be processed.
Many proponents of e-business services are touting expensive new
technologies and difficult alterations to time-honored processing workflows.
This has led to the perception that, to eliminate paper, businesses must first
buy in to something even more expensive and difficult to implement.
Fortunately, this is not the case when companies consider these requirements
before moving to an e-business services solution.

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REGULATORY AND SUPERVISORY ISSUES AND
INSURANCE ON THE INTERNET
The development of e-commerce, particularly on the Internet, presents new
challenges and concerns for insurance regulators and supervisors from
developed, as well as developing countries.
1. Background
The establishment of Internet-based insurance businesses offers both
individual insurance consumers and insurers and intermediaries potential
efficiency and cost benefits. E-insurance improves information symmetry
and market transparency conditions and may enhance competition that can
lead to reduced prices.
For insurance regulators from developing countries, Internet-based
supervisory tools may increase efficiency by streamlining and speeding up
reporting from insurance enterprises. The possibilities offered by Internet
communication can also greatly improve the delivery of information to the
public, insurers and local and international investors regarding market
conditions, rights and obligations. Also, secure Internet communication
could be a major tool for fostering international cooperation among
regulators to improve the security of insurance markets.
From the perspective of a supervisory authority in a developing country,
major concerns pertaining to e-insurance relate to cross-border activities and
how to safeguard the interests of consumers if they contract policies in other
jurisdictions. However, as most countries continue to require local licensing
for insurers offering products in the domestic market and prohibit cross-
border activity, cross-border trade in personal lines and mass insurance
products has not expanded. Also, the cost of establishing e-insurance

39
platforms, along with related marketing costs, has deterred financially
unsound operators from establishing a significant web presence. E-insurance
provides a new channel for distributing insurance products that accelerates
transaction processes, creating more opportunities for fraud. It imposes on
supervisors the burden of developing supervision methods that permit quick
responses to threats to the interests of insurance consumers. However, the
emergence of e-insurance does not fundamentally alter the principles on
which today’s insurance supervision is based. For regulators, the essential
question relating to e-insurance, as well as to other distribution methods, is
how to protect insurance consumers. Supervisors have therefore approached
e-insurance operations in the same way they supervise business and market
of traditional insurance operations, including rate monitoring, surveying the
marketing of insurance products, responding to public complaints,
conducting consumer education and fraud monitoring. To tackle the
particularities of e-insurance supervision, the International Association of
Insurance Supervisors (IAIS) established a working group on e-
commerceand the Internet. This working group has issued “The Principles
on the Supervision of Insurance Activities on the Internet” that were
approved by the IAIS at its annual conference in Cape Town on 10
October 2000. More generally, insurance supervisory authorities have the
same concerns as those regulating other e-businesses, particularly e-finance
businesses: business continuity, personal data privacy, payment procedures
and security, electronic signatures and IT platforms.

2. Supervision of established E-insurance operations

E-insurance was once perceived as a distribution channel that would erase
national boundaries, since a single e-insurance platform established in one

40
jurisdiction could offer insurance services globally. This has not occurred,
since in most countries the establishment of a locally licensed business is
required before insurance services can be offered to domestic consumers. E-
insurance platforms thus fall under the laws and regulations of the respective
jurisdictions where services are offered. More precisely, existing regulations
relating to market conduct determine how insurance providers may conduct
their business online. Competition rules and transparency and information
requirements form the core of market conduct regulations. Monitoring of
rates, marketing of insurance products, handling of public complaints,
consumer education and fraud are areas included under this aspect of
supervision.
3.Approval of rates, terms, conditions & contractual documentation
In many developing countries, insurers are required to file rates, terms;
conditions and contractual documentation for approval by supervisory
authorities before the underlying product is offered to the public .E-
insurance offerings too, are governed by such
Requirements. Often minimum and maximum rates are established for
compulsory individual insurance products such as motor vehicle insurance,
workmen’s compensation and some fire exposures. This is making it
difficult for e-insurance operators to undercut prices offered by traditional
competitors. Supervisory authorities should pay particular attention to the
terms, conditions and contractual documentation that are presented on
insurance providers’ websites. The supervisory authority should ensure that
the contractual relationships have a legal basis that is not prejudicial to the
interests of the insured, since the insured does not generally participate in the
negotiations relating to policy clauses.

41
In the case of life insurance, supervisors should require that certain clauses
be contained in the policies published on websites. This includes clauses
such as incontestability, under which the insurer, after a certain period, can
no longer contest statements made by applicants. Also, a clause on no
forfeiture should be shown. Such a clause protects the cash value of the
policy and provides for a grace period after the premium is due, during
which the policy cannot lapse. Such a clause is particularly pertinent for
Internet transactions where contracting and payment cannot occur at the
same time. In the developing country context, because of a general lack of
insurance education and in order to allow consumers to make informed
decisions, a large degree of comparability between contracts offered over the
web should be maintained during the initial phase of establishing e-
insurance operations. Two other problems to be addressed are that
(a) Because of different hardware and software configurations, information
presented on the web may look different to different viewers, and
(b) Computer proficiency may lead to an unintended contractual result.
Certain guidelines regulating basic website content may be needed: for
example, companies could be required to inform who is the supervising
body and who are the final risk carriers in the cases where purchases are
made from an agent’s or broker’s website.
Electronic signatures are important not only to confirm the existence of a
contract but also for specifying the starting date of the purchased insurance
coverage. The validity and effectiveness of a contract may be influenced by
failures in data transmission. A consumer may be under the impression that
a contract is in place, while the insurer may have received corrupted data
that does not allow a policy to be issued. The existence of a problem may
not be obvious until the insured attempts to make claim under the non-

42
existent policy. Also, after a policy takes effect, it may be necessary to
cancel, change or complement it. Possible reasons for such an intervention
include the discovery of an error or a fundamental change in the insured’s
risk profile. In such a case, it may be prudent to ask whether online
insurance products should carry a “return or exchange of goods policy” and
what kind of security is needed to prevent accidental or unauthorized
cancellation.
Also, supervisors should determine whether an insurer posting offerings on
the Internet is discriminating against certain categories of consumers. The
traditional roles of supervisors - to ensure that compulsory mass products or
personal lines are affordable and available, and to ensure the fair treatment
of consumers - should be maintained with regard to products offered on the
Internet.
4. Marketing_of_E-insurance_products_
Supervisory bodies should preserve the fairness of information presented to
consumers and should attentively monitor the marketing of e-insurance
products. Advertisements should not be misleading, past experience should
not be used to predict future results, and products should not misrepresent
benefits. Often insurers differentiate their products from those of
competitors by inaccurately describing or overstating advantages and
benefits. When an intermediary (an agent or broker) offers insurance
products over the Internet, such a seller should be required to obtain a
license before establishing a presence on the web. The licensing procedure
should require the intermediary to undergo competence tests, and the its e-
insurance platform and website should be screened in the same way as those
established by insurers.

43
5. Combating_fraud_
Supervisors and regulators typically maintain that sales over the Internet
increase opportunities for insurance fraud, money laundering and the mis-
selling of insurance products. Some criminal groups engage in mass
subscription of single policies under false or given identities, redeeming the
policies quickly thereafter in order to launder money. As no direct contact is
established between parties to an insurance contract established via the
Internet, e-insurance is an obvious target for money laundering operations.
Supervisors should ensure that e-insurance providers have sound
mechanisms in place for authenticating the identity of policyholders.
Also, to trace unsound or fraudulent operators and consumers, it is
paramount that supervisory authorities establish communication networks
among themselves to share information on such perpetrators. E-insurance,
like other e-finance businesses, is at risk from both internal and external
security threats (infiltration, corruption and theft of customer data files).
Increased connectivity, in particular the connection of internal networks with
the Internet, introduces new vulnerabilities that require the deployment of
more advanced and effective security tools. Regulators should take steps to
ensure that e-insurance providers have the necessary security in place to
protect the integrity of information and the privacy and confidentiality of
policyholders’ data, whether the data storage is performed by the e-insurance
provider or outsourced to Internet service providers.
6. Public_Complaints
Internet-based reporting and monitoring of public complaints could prove an
indispensable tool for insurance supervisors. In a number of countries,
formal offices within the supervisory authority have been established to

44
respond to insurance customers' complaints. Their purpose is to streamline
administrative procedures and sometimes to serve as an alternative to
judiciary proceedings. For supervisors, the monitoring of complaints
provides a very useful source of information for holding insurers responsible
for their offered services. To resolve complaints, supervisors should
facilitate communication between insurers and complaining customers. They
should make sure that companies have complied with the law and have
responded promptly and fairly, and they should inform insurers of problems
that customers experience with contract language, customer service or
technical aspects of the website. Also, websites posting insurance offerings
should give contact information for the official authority dealing with
consumer complaints, and the site should clearly describe the mechanism for
dispute settlement. One of the simplest and most useful Internet tools is the
FAQ (frequently asked questions) page. A well-structured, comprehensive
and easily navigable FAQ page can satisfy the vast majority of public
queries.
7. Consumer_education
To build consumer’s awareness and understanding of insurance and to
improve market efficiency, consumer education is paramount. E-insurance
offerings should include educational material to help consumers understand
the products they buy. Also, supervisory authorities should provide guidance
and educational material on their websites for consumers interested in
purchasing insurance online. Insurance laws, regulations and statistics can be
made more easily and widely accessible through the Internet. Most Latin
American and Asian as well as many African and Central and Eastern
European insurance supervisory authorities have already established
websites designed to inform the public.

45
8. Supervisory_efficiency
The advantages that the electronic format offers for compiling and
processing data allow supervisors to devote more time and resources to
analyzing periodic financial reporting by insurers. Many supervisors in
developing and emerging markets have dedicated web sites for the
submission and processing of reporting from insurance companies, and
several have developed Internet-based solutions. The Egyptian Insurance
Supervisory Authority is offering a financial reporting application, on a
cooperative basis to its counterparts in other African countries. Whenever an
insurance provider establishes an e-insurance operation in a country, a
continuous dialogue should be established between the e-insurer and the
regulatory body to resolve areas of uncertainty before the operation is
launched, and to contribute to regulatory development. Authorities should
continually adapt their insurance legislation to the needs of their insurance
consumers, taking into account shifting consumer interests.
9. Supervising_cross-border E-insurance_activities
Among factors that have inhibited the development of cross-border e-
insurance are the wide variations regulatory and supervisory requirements
between national and state jurisdictions. If an e-insurance operator wants to
offer services in several jurisdictions, it needs to undergo obtain licenses and
comply with the respective jurisdictions’ supervisory, tax and other
authorities. It may be difficult to incorporate all the different and sometimes
contradictory requirements into a single e-insurance platform.
Recent studies have concluded that the actual differences between national
approaches are so extensive that e-insurers are unlikely to do business on a
multicountry basis in the near future. A more likely development would be

46
increased targeted penetration of national markets, with whose regulatory
and supervisory requirements e-insurers are familiar.
To avoid being indicted by a national supervisory authority for unlawfully
offering insurance services in that national market, e-insurers should clearly
indicate on their website their identity (address, home country) and the
jurisdictions in which they are legally permitted to provide insurance
services. Also, e-insurance providers should post strong specific disclaimers
and risk warnings directed to citizens of countries where the e-insurer is not
authorized to operate. The home country supervisory authority should oblige
e-insurers to post such disclaimers and warnings.
The growth of cross-border e-insurance will necessitate a harmonization of
regulatory and supervisory frameworks, the recognition by insurers of home
country regulators and of home country complaints and dispute settlement
mechanisms. Thus it will require extensive cooperation between regulatory
bodies around the world. Such developments could be part of international
negotiations on the opening of national financial markets such as those
conducted under the aegis of the World Trade Organization.

47
CONCLUSION
It is evident that the insurance industry is gearing up for e-insurance.
Insurers, intermediaries and reinsurers are investing in IT and trying to
determine the proper business model to follow. The fundamentally
information heavy nature of the insurance product will eventually make full
e-business treatment a workable option provided that efficiencies do
materialise and are passed on to consumers. To succeed as einsurance, it has
to be cheaper and better than the traditional offline option. Today IT is
widely used to handle communication with intermediaries, policy
processing, premium notices, market analysis, sales forecast and accounting.
Clearly, insurance is an information-intensive enterprise and is thus suitable
for ecommerce. Many insurers and intermediaries have realised that e-
insurance is not just about distributing insurance products on the internet and
have incorporated their e-business plans into their overall business
strategy.Adopting e-insurance and introducing change in IT systems is an
incremental process, not an event, and should stem from a fundamental need
to re-engineer and modernise business processes in order to better respond to
client demand, as well as to the client’s own adoption of internet technology.
Substantial investments may be required and open communication with
stakeholders and policyholders should be a given. Insurers should focus on
growth as well as on cost reduction. Efficiencies may materialise, but
forecasts and calculations must not undermine the costs of online client
acquisition, retention and marketing, in particular if the insurer is of the
internet pure-play type.

48
 Website functionality is an issue in its own right, requiring a proper
definition of customer and product profiles. It also needs precise interlocking
with powerful back-office IT. Insurers and intermediaries need to examine
how they can achieve the most possible value added through an online
presence. A fundamental problem of all insurance websites is the low rate of
repeat visits by existing customers. Increasing repeat visits, as well as new
traffic to the insurer’s website is essential.
Unfortunately, there is no clear recipe for success and e-insurers may
have to look very closely at the internet habits, demographics and lifestyles
of their clients to find answers. Once improvements are achieved, the
existing e-insurance infrastructure must be used to market financial products
related to a customer’s insured assets, within the limitations set by insurance
and financial regulations of the market. Regular updates are a requisite
feature. Online traffic should be analyses from the point of view of how it
can be converted to income and whether the website and the general IT
infrastructure are well matched.
The same applies to insurance supervisors and regulators. The power of the
internet should be harnessed to improve consumer protection and education
and awareness building. It can also be used to receive and process periodic
financial reports, thereby freeing up resources for supervising management
and insurance practices. Also, national insurance supervisors can use internet
technologies to communicate among themselves and co-ordinate activities
related to preventing fraud and money laundering.
E-insurance faces three serious challenges. The first is to redefine the
relationships between insurers and their agents and brokers. The second is to
bring existing pre-internet computerised data systems out of the back office
and online, onto the World Wide Web. The third challenge is to interface the

49
business process of insurance to a fully functional website given the fact that
most existing customers are unlikely to make frequent repeat visits to a site.
While ecommerce has not changed insurance products greatly, insurance
companies and brokers need to be innovative in their use of ecommerce
channels to ensure that they continue to meet public need and also to address
public concerns (especially regarding security). They also need to ensure
that their ecommerce strategies meet the commercial threats that may arise
from new the “e-insurance”. There is a great need to ensure that ecommerce
channels are integrated properly with more conventional trading methods
and the online customer relationship is managed appropriately.
Ecommerce is here to stay and it is already the preferred mode of
doing business around the world. Proactive steps should be taken as there is
no place for laggards in this cyber world. Insurers need to realise that online
insurance should not be taken lightly. These endeavors require real
commitment and leadership to reap the rewards of smarter, more robust
business processes.
Meanwhile, it appears that insurers are unfortunately not making the best out
of the web.

REFERENCE:-

• Dasgupta, Prithviraj And Sengupta, Kasturi, (2002), “E-Commerce

In The
Indian Insurance Industry: Prospects And Future,” Journal Of Electronic
Commerce Research

50
 • IAIS, (2000), “Principles On The Supervision Of Insurance
Activities On
The Internet,” International Association Of Insurance Supervisors.
(www.iaisweb.org).

• SwissRe, (2000), “The Impact Of E-Business On The Insurance

Industry:
Pressure To Adapt – Chance To Reinvent,” Sigma Series No. 5, Zurich.

• UNCTAD, (2002), “E-Commerce And Development Report 2002,”

Chapter
8, United Nations Conference On Trade And Development, United Nations,
New York. (http://r0.unctad.org/ecommerce/ecommerce_en/edr02_en.htm

• Swiss Re: “The impact of e-business on the insurance industry:

Pressure to adapt – chance to reinvent”, sigma No. 5/2000.

• Schmitz, Stefan, W., (2000), “The Effects Of Electronic Commerce

On The
Structure Of Intermediation,” Journal Of Computer-Mediated
Communication, 5 (3).
(http://www.ascusc.org/jcmc/vol5/issue3/schmitz.htmrl).

• Iran E-Commerce:
(http://www.iranecommerce.net/articles/insurance_managemen.htm)

51
 • E-Business W@Tch, (2002), “ICT & E-Business In The Insurance
And
Pension Funding Services Sector,” The European E-Business Market
Watch,
Sector Report, No.5.
(http://www.empirica.biz/empirica/themen/ebusiness/documents/no05-
ii_insurance.pdf).

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