European Online Brokers InsuranceCity, InsuranceWide Show the Way

“Right now we think we’re ahead of the States in [online] personal lines,” said James Harrison, Chief Operating Officer of the U.K.’s InsuranceWide (IW) www.insurancewide.com. He might be right.

Even with insurance websites becoming almost as ubiquitous as McDonald’s, and online insurance services providing policy information and premium quotations, something’s missing. The larger brokers and insurance companies have built their sites around commercial insurance, or specialize in “commodity products”-mainly auto and homeowners. The quotation services, in essence, find the cheapest coverage available.

On the other hand, full-service personal lines brokers, who design their own policies and then place them with insurers, are a rare online breed. Their place in the insurance delivery system is still in the formative stage, but they do exist and they can be quite successful, as IW and Germany’s InsuranceCity (IC) have shown. If their early promise is fulfilled, they will play an increasingly larger role in the insurance industry.

As “online brokers” go, IC is a pioneer and it’s all of three years old. It has the advantages of all Internet businesses: it’s cheaper to sell and service products-especially intangible ones like insurance-through the web than it is to maintain brick-and-mortar offices full of salespeople. The main disadvantage, also true of other dot-coms, is the loss of personal contact with clients.

Andreas Wuellner, IC’s marketing director, described the company’s background: “It was actually started as two companies in 1997 when Marc Geizen and Oliver Ohl both began to work independently to develop a new concept for making insurance available over the web. It took them over two years just to create the necessary software. The two companies came together with the backing of Goldman Sachs and created the current website in January of 1999.

“Originally we would steer prospective clients to the best choice,” Wuellner continued, “but we found that Germans like to have a lot of choices; they want to shop around and see what’s available. So we extended the business model to let customers do comparative shopping, and we now provide a full list of all the options available.”

This service differs from company sites, which offer only the products underwritten by that particular insurer. It also differs from other online sites in that IC’s business model is that of a full-service broker, which just happens to operate over the Internet.

“Sure we have five or six competitors,” Wuellner said, “but they only transmit information and then transfer the client over to the insurance company to write the policy. InsuranceCity’s objective is to perform all the services of an insurance broker. We do the policy processing in-house, and the customer is our customer, not the insurance company’s.”

Online insurance brokerage is still developing. IC Chairman Carlos Reiss told Reuters News Agency last August that out of the approximately $109 billion Germans annually spend on insurance, around $43.5 billion of that could be sold over the Internet. He estimated that within four years, volume would reach $8.7 billion, mainly from the liability, household and automotive sectors.

Websites like IC’s are tailored for individual consumers rather than commercial enterprises. They offer ideal platforms to provide commodity-type insurance products, and their cost advantage is real. Reiss told the Financial Times: “Let’s face it, for every 10 people a standard insurance business needs, we require just one.”

InsuranceWide won’t celebrate its first birthday until December, but “it’s doing exceptionally well,” Harrison said. “Insurance is the perfect online product, provided it’s handled correctly and you recognize the need for off-line support.”

Backed by Lloyd’s insurer Cox Insurance Holding Plc and Internet Service Provider Freeserve, IW has already established a market presence. It offers automobile, homeowners and travel insurance, and aims to make its policies more flexible and sophisticated within its product lines. Aiming at a new sector, it recently launched a series of business insurance coverages for sole proprietors and businesses with less than 25 employees.

“Our goal is to try to make using our site as simple as possible, while at the same time offering the right choice to our customers,” Harrison said. He cited the use of postal codes-which are extremely detailed in the U.K.-and automobile registration numbers as a way to avoid asking a series of questions that are burdensome to answer and may not even apply to that particular person.

“We set up the system so we can determine what a person needs with a limited number of questions, then three buttons and you’re away,” Harrison said. The next steps are the presentation of the policy, the premium rate and the available extra services-the “off-line support.” For instance, IW offers an option on its homeowners policies for emergency services like plumbing and electrical repairs for as little as $3.65 a month.

IW handles internal procedures up to the underwriting stage. At this point it refers the policy to its panel of insurers, which currently consists of more than 20 companies, including Royal & Sun, CGNU, Cornhill and others. One or more quotes are given on the desired coverage. The policies themselves are designed to be as inclusive as possible, and the rates quoted reflect this. “We may not always have the cheapest quote,” Harrison said, “but we’ll always be competitive, and the flexibility we offer meets the real needs of our customers.”

The business model seems to be a success. “I’d estimate that between two and three percent of the people who go to our site end up buying a policy, and that rises to 18-20 percent of the people we give quotes to,” Harrison said.

Being less than a year old, IW doesn’t have any figures on renewal rates, but Harrison is confident that his online customers will remain loyal. “After all it’s easier to renew [a policy] online and it reduces the costs.”

While both companies see a lot of room for expansion, both geographically and in the products and services they offer, they won’t be setting up shop in the U.S. any time soon. However, some U.S. brokers might be interested in their business models, which illustrate the power of the Internet as its influence spreads on a global level.

Topics Carriers Agencies Europe