Banks' Web savvy could help them offer property and casualty insurance over the next few years, but big-name insurance carriers may ultimately have the edge in distributing insurance in a rapidly developing online marketplace.

A study by a unit of International Data Corp. in Framingham, Mass., found that by 2004, 37% of insurance sales will be Web-influenced, reflecting consumers' willingness to shop on the Internet even if they don't necessarily close transactions online. Banks' strong commitment to technology is an advantage as they compete for Internet business, but carriers have the name recognition that consumers are looking for, said Jennifer Blackmore, senior research analyst in IDC's e-insurance program, which produced the study.

As banks and insurers race to develop soup-to-nuts financial menus, banks have entered the property-casualty insurance marketplace mostly by buying insurance agencies, which control the customer relationship in most cases. And banks have been on the leading edge with their technology, developed for ATMs and online banking. "The banks are already automated; they already have the back-office technology," Ms. Blackmore said.

But insurers retain control of the underwriting expertise and data, and they operate in a regulatory environment that can create barriers for new entrants, Ms. Blackmore noted. The big carriers - like Allstate and State Farm - also have strong brand recognition.

In some instances, she predicted, banks and other lenders may gain some advantage by using the Web to cross-sell. For example, she said, people already can apply for home refinancing online and be offered insurance from a brand name carrier on some sites. But overall, she said, insurance carriers will win out online - if they make some needed technological changes.

Though the insurance industry has not adopted as many consumer-oriented technologies as the banking industry has, carriers have focused on developing business-to-business Internet applications that improve efficiencies and speed up transactions on the back end, said Rick Gilman, a vice president at ACORD, an insurance industry group in Pearl River, N.Y., that focuses on technology.

Technology by itself "is never going to be a competitive advantage," he said. More important is "what you do with the technology, the services and the support that you can provide your customers and your business partners as a result of the technology."

The IDC study, titled "Personal Property and Casualty Online Premium Volume Forecast and Analysis," looked at what carriers and online insurance brokers are doing to facilitate online insurance sales, and it evaluated whether the offerings were in line with consumer desires.

Right now, "not a lot of people are buying online," Ms. Blackmore said. One reason, she said, is that there are few opportunities to do so. But she pointed out that some barriers to online insurance sales have been removed with the passage of the electronic signature bill. The trick now will be to put up services to match consumer demand for online shopping.

Though the study says the Internet will "influence" 37% of all premiums purchased in 2004, it says only 6.3% of all transactions will be completed online.

This means the Internet will be driving $57 billion worth of business to offline insurance agents and other insurance sources. This finding goes against common wisdom among insurance agents, who often see the Internet as a threat, Ms. Blackmore said. "There's a lot of advantages for the agents" if people research online but buy offline, she said. "It can ease the processes for agents. Consumers can submit an application online, and the agent will have the person come in and sign. Half their work is done for them."

But to exploit the Internet as a viable distribution channel, or a way to drive business to agents, insurance carriers must streamline their processes and capitalize on their brands, she said.

The Internet world is already one area where banks and insurance have been converging, and this trend could persist, through aggregators and portals that offer a range of financial services, she said.

However, IDC expects that the online malls or aggregators that sell non-brand-name policies directly will capture only about 20% of the online market, Ms. Blackmore said. "For the foreseeable future, people are going to want to go with the brand names they know and trust."

A lot of people now do not know where to look for insurance online, she said. "As the major carriers offer online quote comparisons, people will more and more gravitate toward the big names," she predicted.

Smaller local brands may also find a home on the Internet, especially in partnerships with other financial providers like banks or portals, she said. And there will also be a good online market for niche products - Ms. Blackmore gave the example of professional liability insurance for nurses - needed by a small subset of consumers but often hard to find offline.

The key issues, Ms. Blackmore said, will be automating the processes to make online transactions more efficient and providing incentives for people to use the Web.

Insurers must "streamline the online applications," she said. Estimates said that last year 62% of online insurance shoppers abandoned the effort before buying a policy, either online or off.

"People go online and start to apply online, and the application asks for a VIN number, or it's too slow, and they don't end up even completing an application or getting a quote," she said. The VIN - or vehicle identification number - identifies each car.

Sellers of insurance need to use databases to gain access to information about insurance shoppers who provide their Social Security numbers or find other ways to shorten the application process if they want to encourage people to use the systems.

IDC predicted that by 2003 the rate of abandonment will drop to 28% and then stabilize because 20% of all online shoppers have no real interest in buying insurance.

The study said the number of people using the Internet to buy insurance will continue growing as transactions become more streamlined, insurers develop better technology, and the variety of financial products available on the Web rises.


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