E-Commerce In Insurance Industry

8/10/2019 E-Commerce In Insurance Industry

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E-Commerce in Insurance Industry

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Table of Contents

No Content Page

1 Introduction 2

2 Insurance Industry 2

3 Advantages and Disadvantages of Trading Activities 2

4 Online Advertising 4

5 Security Issues 6

6 Future Trends and Predictions 7

7 Conclusion 10

8 References 11


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Introduction

Electronic commerce or e-commerce, as defined by VanHoose, is any process that

entails exchanging ownership or rights to use goods and services via electronically linked

devices that communicate interactively within networks(p7, 2011). The internet has paved

way for businesses to take advantage of this electronic marketplace. Whether is business-to-

consumer, business-to business or consumer-to-consumer, e-commerce no doubt introduce to

economic students a new branch of microeconomics to look into.

Insurance Industry

Many industries have taken advantage of the electronic marketplace and the insurance

industry is no exception to this. In its simplest term, insurance is an agreement contract

between an entity with the insurance firm where the entity pays a premium in return for

financial protection or reimbursement against losses.

The introduction of e-commerce into the insurance industry creates a new terminology

for this specific type of business, known as i-insurance. I-insurance or e-insurance, is the use

of the Internet and information technology in developing, producing, distributing and selling

insurance services (Bromideh 2012, p3).

Advantages and Disadvantages of Trading Activities

The advantages of trading activities in the insurance business via e-commerce can be

seen as benefits obtained by the insurer or the insurance company, benefits obtained by the

insured and policyholders.

Among the advantages for the insurer is the reduction of cost. In 2012, the cost of R&D

has significantly rises while the profit margin has shrunk (Bromideh 2012). While currently

most life insurance still requires an intermediary like an agent or broker to sell insurances,

however renewal of policy or purchasing some general insurance can now be paid online.

This allows insurance firm to saves cost on commission paid to middlemen (Meshkat et al.

2012). Online submission also reduces managerial and administrative cost (Meshkat et al.

2012). Because of this, insurance companies invest a significant amount to make their

websites interactive and advocates their clients to use the web portal for renewal activities.


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Online renewal and purchasing also provide a convenience advantage to both the

insurer and the policyholders. The traditional purchase would either require policyholders to

physically meet up with agents or visit the insurance offices. Additional time delay in the

transaction of cash and documents between different parties further add to the inconvenience.

Today, online renewal and purchasing does not requires submitting information manually and

can be done in the comfort of policyholders own homes. A study by Life Insurance

Marketing and Research Association (LIMRA) shows that in 2013, 50% prefers online

purchasing and 85% claimed they would use Internet to purchase a life insurance policy some

way (Root 2014). Below is a snapshot from WorldNomads.com on the availability to

purchase travel insurance easily online even while travelling (2014).

(WorldNomads 2014)

In addition, digital data and online payment directly to the website ensure efficiency

and reduce the risk of fraud and missing documents.

Unfortunately, online insurance sales comes with its own significant disadvantages that

shouldnt be overlooked. Among the disadvantages stems from the fact that insurance is a

very complex product. Most client prefers to purchase conveniently online but the complexity

of this product, especially life insurance, would eventually require a face-to-face explanation

to dissect the legal terminologies and numbers in the quote and contract (Golia 2013).

Aside from psychological barriers, there also technical disadvantages occurring in this

matter as the industry in general is not 100% ready for e-commerce. Among them are high

cost related on necessary technology, lack of standardization of some communicationprotocols, (Meshkat et al. 2012) and many more. A research on Australia insurance firms


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websites, as far as the transaction features go, only a 20.7% of the businesses offer online

business and even fewer (13.8%) offer online accounts (Yao 2004).

This is particularly true in the case of life insurances as life insurance encompasses too

many factors for standardisation. Also, answering questions online pertaining to insured true

risk may result in asymmetric information since information obtained by insurer is limited to

the question asked in their online digital form. Asymmetric information as according to

VanHoose is the information possessed by the party in a transaction but unavailable to

another party (p126, 2011). Although face-to-face traditional selling may still result in

asymmetric information in favour of the customer, however agents and brokers are able to

provide a more flexible range of questions in relation to individual customers case, hence

determining the insured risk more accurately.

In simplification, products that have potential of standardizing, describing and rating

through limited number of parameters like car insurance and endowment insurance can be

easily purchase online but high-value complex life insurance products, in which the

customers requires consulting, may not be appropriate for online purchasing (Meshkat et al.

2012).

Online Advertising

The digital revolution accompanied by massive growth on Internet users has led

marketers to adopt this medium to promote and advertise their products. Online advertising

comes with attractive advantages including lower advertising cost per sales due to micro

targeting, immediate feedback from direct-response sales medium, interactive and with the

introduction of Java, online advertising are fancier with better graphic and animation (Belch

& Belch 2012, pp490-492).

Insurance firm are no exception to this profitable trend and in fact have its own specific

benefits for both insurers and policyholders. This is due to insurance being characterised as a

search good which means that it is a product where individual can evaluate its quality before

the actual purchase (VanHoose 2011, p193). A potential purchaser would generally be able to

determine what the insurers product covers from the insurance quote and hence able to

perform a price-quality comparison pre-purchase. Because of this, insurance company


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normally engaged in informational advertising where the companys advertising focus

primarily on informational knowledge on the insurances features (VanHoose 2011, p196).

One example of an insurance company utilizing online advertising is AXA insurance

which initially started with email advertising strategy. In 2012, AXA with Oliver Marketings

designer have produced a fully interactive digital magazine called #CommercialSense to

promote their company to insurance brokers (Roderick 2013). This magazine includes an

industry-first social media dashboard to encourage social engagement and accompanied with

flash animation, video and full mobile or tablet compatibility (Oliver n.d.). As a result, there

are 28000 visits to the their four magazines, 4500 unique visitors, 35000 page views, 15%

increase in viewership after launching the 4th issue and 80% growth in AXAs Twitter

followers (Roderick 2013). Below is the front page of one of #CommercialSense issues(CommercialSense 2013).

(CommercialSense 2013)


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Other examples of insurance firms utilizing online advertising includes Allianz using

search engine advertising (Google n.d.) and Prudentials Pruaccess mobile app (Prudential

2014).

(Prudential 2014)

(Google n.d.)

Security Issues

The purchasing of insurance usually involves dealing with a lot of revealing sensitive

information and high value transactions for relatively very important product. Because of thisfactor security issues and customers fears of presenting personal to illegal websites and

confidential information with potentially hackable username and password (Meshkat et. al

2012) becomes among the major barrier to e-insurance. An Iranian studies showed that 34%

of respondents have a negative perception on internet technology security (Bromideh 2012).

However it should be noted that most reputable insurance company website have

invested in online security pages to keep their clients and their own money as safe as

possible. Figure A shows the adoption of secure sites increase by 47% of the surveyed

insurance firms in 2004 since 2000 (Grossman, McCarthy & Aronson 2004).


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Figure A

(Grossman, McCarthy & Aronson 2004, Table.1).

Shopping using high-level encryption browser like Internet Explorer and Mozilla

Firefox could also keep vital information from most hackers (Car Insurance Comparison

2014). In addition, credit card and debit card comes with identity theft protection and credit

statement assists in checking for fraudulent charges (Car Insurance Comparison 2014).

Although the undeniable reality that secures sites do get hacked, this does not deny that

insurance firm do provide maximum protection for their client and will continue to do so in

the future as internet technology continues to grow.

Future Trends and Predictions

With the rise in internet availability and usage, there has been an increase in customer

preferences in buying insurance products online.

This behavioural change is more prominent among younger customers who uses the

internet primarily to research and compare various policies, view policy details, make policy

changes, pay premium bills, and contact agents/brokers (Bhattad 2012). In Figure B, the

highest level of satisfaction achieved by Baby Boomers and Generation Y customers are

when interacting with agents using emerging technology and in Figure C,71% of customer

preferred online research on insurance (Jans 2014).


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Figure D

(Jans 2014, Fig.8)

Finally, in figure E below shows the number of insurance companies website surveyed

provides the availability for customers to make payment online has grown from 9% to 20%

from 2000 to 2004. Other significant improvement in i-insurance is the 15% increase for

customer to change or update their policy, locating agents online service increases from 43%

to 57% and the availability to request a quote and report a claim online has increased by 2%

for both services. (Grossman, McCarthy & Aronson 2004).

Figure E

Grossman, McCarthy & Aronson 2004, Table.1)


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Although the improvement in the 4 years span is hardly revolutionary, it signals a

potential growth of i-insurance in the future.

Conclusion

While agents advices are still valued especially concerning life insurance products,

there are increasing usage of online channels to purchase non-life products. Market segments

like motor and home insurance have become commoditized and require less advice, making

them more suitable to be sold in the internet. With the emergence of younger generations

with better technology adaptation along with rapid improvement of internet technology, one

can only expect more in the e-insurance future.

1555 words


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References

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Communications Perspective, McGraw-Hill, New York

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http://www.capgemini.com/resource-file-

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E-Commerce In Insurance Industry