the online insurance imperative: driving growth by expanding your online presence

Insurance

The Online Insurance Imperative: Driving Growth by Expanding Your Online Presence

White Paper

IBM Global Business Services


In a 2008 study on the direction of spend in major US Insurance solution

areas, 39 percent of respondents said they would increase spend in the Internet

channel1. But toward what end? What do online customers really want? How can

Insurers ensure their investment in the Web channel drives value?

Whether firms have a strong online presence, are building a business case or

are looking for ways to define direction and maximize planned investment in

an online channel, there is much they can learn from customers, other financial

markets firms and successful online players across industries. The online

imperative will change business models across industries and customer segments

– including the Insurance agency model and consumer base.

Customers are becoming more price-sensitive and technologically savvy – many

young consumers now fully expect to do business from their laptops and mobile

devices. To date, there have been 1.4 million iPhones sold, and some Insurers are

seeing 60 to 70 percent of site logins coming from iPhone users. Baby-boomers

are getting increasingly comfortable with the technology as well, prompting

Insurers with ideas of maintaining and growing market share to move quickly

toward investments in Web-based revenue generation.

In the past, table stakes for the online channel included being able to find

Insurer contact information and locations. Now research shows that at a

minimum, Insurers must offer online quotes and the ability to research and

apply for products and track claims online. However, many of the industry’s top

competitors are already cornering the market with plays in these areas. To achieve

competitive parity, firms must consider more innovative ways to ramp up their

online presence and create value – that are ultimately linked to an overall online

channel strategy defined largely by their customers.

Game changers

Most Insurance companies recognize the need to invest in the online channel,

and many have plans to do so in the short-term. But there are a few trends

companies should consider as they decide how to spend in this area. Most

importantly, firms must understand the market imperative to develop more

interactive services to sell and support products online.

Table of Contents

1 Game changers2 Play to win3 Process4 People 5 Technology6 Play it forward6 Know the customer7 Easy does it7 Build for the future8 Are you positioned for success?8 For more information8 About the authors9 Sources

Page 1


In a 2007 study, IBM found that more than 50 percent of consumers would

purchase Insurance online from a company that they were already familiar with

and trust. Not surprisingly, the younger the customer, the greater the propensity

to buy online. 29 percent of Generation X (aged 35-44) and 33 percent of

Generation Y individuals (aged 18-34) researched their last financial product

exclusively online. Studies show that online auto Insurance applicants are, on

average, ten years younger than offline applicants and are more likely to have

a college or advanced degree. The average household income among online

auto Insurance applicants is $63,300 —about $3,000 more than the other auto

Insurance applicants.2 In addition, 94 percent of online applicants go on the

Internet at least once a month, and 68 percent have broadband access at home.3

These trends are not specific to auto Insurance, but rather reflect an upward

trend of online adoption visible across the board in every industry. Customers

are ready to interact meaningfully with companies online. The increasing safety,

speed and pervasiveness of online interaction is raising the stakes for companies

who have not yet fully invested in online as an acquisition and customer service

channel to grow and maintain their business.

Play to win

The online channel is a rare safe bet in today’s market– any thoughtful

investment to improve the channel will likely yield rewards. How can Insurers

design a system that is commerce ready – and positioned to deliver a commodity

based, yet highly personalized Insurance product?

Firms should begin by thinking about a commerce value chain focused on their

interactions with customers. Insurers must build a Web presence that attracts

customers, and guides them easily and swiftly through interaction, action and

reaction. These four main components demonstrate several elements that need to

be present to deliver quality products to customers.

Highlights

Studies show that online auto Insurance

applicants are, on average, ten years

younger than offline applicants and

are more likely to have a college or

advanced degree.

Page 2


Viewing an Insurance commerce site from this perspective helps to narrow

down the scope as well as begin to create components that can be reused across

multiple implementations. How Insurers accomplish this in practice will certainly

be different for different businesses and business models. But it is essential for

all to consider how processes, people and technology will need to be aligned to

support a valuable online channel.

Process

Insurers must examine how underlying business processes may need to change

in order to sell to the consumer online. All aspects of the Insurance value chain

should be considered.

Key questions firms will need to answer across the value chain range from

high-level strategy to logistical detail, including:

• Arethereexistingservicesand/orfunctionsbuiltacrossotherchannelsthat

canbeleveragedintheonlinechannel(suchasaquotingservice/processor

apaymentprocessingservice/processcurrentlysupportingtheagencyorcall

center channels)?

• Cancurrentunderwritingsystemshandleamorereal-timeapproachto

applying business risk?

• Howwillratecomparisonsandproductintegritybeensuredacrossall

channels?

• Ifsavingandretrievingaquoteispartofthefeaturefunctionset–whatare

the rules related to external data orders (e.g. Motor Vehicle Report, Clue) and

product changes?

• Howwillyear,make,model,sub-modelandVINbecollected?

Page 3

Figure 1: Components of a Web Commerce Value Chain

User Focused, Fast, Reliable, Available, Secure with High Privacy

Attract

AdvertisingMarketing

Interact

SalesContent

Act

Order CapturePayment

Fulfillment

React

CustomerService

Order Tracking

Modified from, “Designing Systems for Internet Commerce”–Treese & Stewart


A safe starting point is to develop a high level Use Case Diagram ensuring

consideration of the main components for a basic online system: Login, Create

Quote, Modify Quote, Compare Quote, Search for Quote, Enter Quote

Information, Purchase Policy and Make Payment.

Page 4

Consideration of a well-designed commerce site with many of the standard

functions necessary to obtain repeat visitors is key to the next evolution of a Use

Case Diagram. Maintaining accurate data and site currency is a large part of that

standard. Jacob Neilson’s ten things to consider for commerce websites provide

excellent guidelines in this area.4

People

The skill set and resources that are critical to build and support a more

interactive and valuable online channel – such as business intelligence and click

tracking – may not be available within Insurers’ current organizations. How will

skill gaps be filled? Will skills be developed in house, or is engaging a partner

that understands the B2C channel the better option?

Figure 2: High Level Use Case Diagram

Login ModifyQuote

SearchQuote

EnterQuoteInfo

CompareQuote

Policy Admin System

MakePayment

PurchasePolicy

CreateQuote

<<Include>>

<<extend>>Customer

<<Include>>

<<Include>>


Furthermore, firms must clearly define organization, roles and responsibilities

necessary to ensure online channel success. Who will service web-based policies?

Will call center personnel or agents be compensated for web based policies sold?

How will project delivery be handled, for instance, to balance speed to market

and state-by-state delivery roll-out (e.g. software factory5)?

Technology

Supporting valuable interaction online will require a 24x7 infrastructure, not only

in production but also in development and test environments. This is especially

true if Insurers adopt a “follow the sun” approach for delivery.6 Firms must

consider how to align technology to deliver speed, security and customer value

by answering key questions concerning a range of site performance and value

requirements – some of which seem deceptively simple, and are thus easy to

overlook and underestimate:

• Whatisthecross-browserandcrossdevice(mobile,kiosk,etc.)development

and testing strategy?7

• Howwillintegrationtoback-endsystemsandservicesbehandled(e.g.

change management, up-time and enterprise release management)?8

• Willthesitebedevelopedbygeographicstate,orbyastandard“vanilla”

state?Whataretheby-stateand/orbasestaterequirements?Howwilldeltas

or complexities of each state be categorized and managed?

• Howwilldatesbehandled(leapyear,timestampsacrosssystemsandservers,

geographic time zone conflicts, effective vs. written date, etc)?

• Howwillexternaldatafeedsbehandledtopresentaconsolidated,realtime

view of customer risk profiles?

• Whatwillbethesecurityprotocolstohandlesensitivepersonalinformation

(SPI), encryption decryption, SSL, payment collection, and terms and

conditions?

• Howwille-mailanddocumentation(e.g.CertificateofInsuranceissuance)

be managed?

Page 5

Highlights

Firms must know the customer, make

interaction and navigation as easy as

possible, and build the online strategy

and channel to position firms for success

now and in the future.


Another important consideration is application performance. Back end

performance optimization has always been and will continue to be (to lower

hardware costs and power consumption), however front end optimization is equally

critical. According to recent work by Steve Sounders, 80 to 90 percent of the time

spent by users waiting for pages to load is spent on the front end, all the work that

needs to be done after the HTML document has arrived.9

Play it forward

However Insurers answer the above questions, all activities must be aligned to a

clear, pervasive online channel strategy that puts the customer in the center of the

room. To do this, firms must know the customer, make interaction and navigation

as easy as possible, and build the online strategy and channel to position firms for

success now and in the future.

Know the customer

Insurers must build comprehensive online distribution strategies, including

definitions of which products to distribute, how to integrate with other channels,

how to manage direct versus indirect product pricing and how to segregate

customers based on channel preference. To encourage online adoption, firms will

need to develop and market less expensive products, added incentives or products

tailored to the youth market online

In addition, firms must familiarize themselves with the benefits of Web 2.0 -

both from a marketing and relationship and product development perspective.10

Increasingly, customers want to benefit from product comparisons that include

customer ratings and opinions. Furthermore, an online channel that fails to

more effectively link agents to customers in social networks would be missing

a significant opportunity to enhance customer relationships, perceived value,

brand strength and as a result, sales opportunities. Companies across industries

are using online networking to benefit from customer interaction, real-time “use

cases” and customer suggestions – adopting a “customer as developer” view to

developing high value products, services and interfaces that effectively pinpoint

customer wants and needs.

Page 6


Easy does it

Consumers have increasingly limited time and patience for companies to explain

the value they provide. Hence, firms must make online interaction fast, easy and

convenient. Likely the most valuable thing today’s Insurance customers find in a

face to face interaction with their agent is that agent’s ability to explain products,

services and cost schedules in terms customers understand, quickly. Any

successful web presence must seek to do the same – but at the time and place of

their customers’ choosing.

When it comes to information, less is more – which means information must be

organized and presented in a way that drives customer value. Customers must be

able to search for information and compare products one-to-one. When it comes

to selling online, firms must simplify the buying process, including making

terminology easier to understand, having self-help tools, and offering immediate

links to reach a customer service representative via interactive chat, shared

screens or live video streams. And it must be said that the online channel should

be linked seamlessly to agents and call centers – with each benefiting from a view

of the same customer history and policy data.

Build for the future

Insurers must not only invest in new technologies to support direct Insurance,

but focus on changing their corporate cultures to facilitate and foster change in

their organizations to support the transparency cross-channel strategy requires.

Architecture should leave the door open for the inclusion of new and future

technologies, especially those designed to enable collaboration across traditional

barriers(agent/consumer,agent/agent,consumer/consumer,consumer/firm).

Lastly, firms should plan for the future by building in measurement of the

success of the online channel. Aligning metrics that clearly demonstrate the

significance of online commerce in the organization is essential to understand

where future investments and initiatives are needed to make the most impact –

and maximize investment dollars. In addition, firms must put in place a process

for decision-making that supports continuous improvement of the online channel

as new market stakes emerge.

Page 7

Highlights

When it comes to information, less is

more – which means information must be

organized and presented in a way that

drives customer value and allows the

ability to compare.


Are you positioned for success?

Chances are, your firm is already well down the road toward making key changes

in the online channel. But are they the right changes to position your company

for near term and future growth? Growing online and mobile adoption, advancing

technology and the increasing crunch on consumer wallets will converge to

change the game in many industries – including Insurance. An industry valued

for its conservatism will be forced to adapt, and mitigate the risks inherent in

innovation. Those who have made strategic investments to tap a larger customer

base through a well-conceived, valuable, secure online channel will corner the

market. What is your strategy for ensuring your firm a solid seat at the table?

For more information

For information on how IBM has helped companies in Insurance and other

industries navigate the online market imperative, contact Patricia M. Hamilton

at [email protected] or Kent Arkes at [email protected]. To

read more about how IBM is helping leading Insurers change their game, go to

www.ibm.com/insurance.

About the authors

Luke Kelleher is a Project Executive and Senior Managing Consultant with IBM’s

Global Business Services Insurance practice. His specialties include complex

systems integration, project management, data conversion and object-based project

methodologies. He can be reached at [email protected]

David Lipien, PMP is a Senior Managing Consultant with IBM’s Global Business

Services Insurance practice. His specialties include complex systems integration,

release management, internet-based technologies, wireless technologies and

object-based project methodologies. He can be reached at [email protected]

Contributions by

Bill Busby, Partner, Americas Insurance Leader, IBM Global Business Services

David Notestein, Executive, Insurance Industry, IBM Institute for Business Value

Page 8

Highlights

Those who have made strategic

investments to tap a larger customer

base through a well-conceived,

valuable, secure online channel

will corner the market.


Sources1 Direction of Spend in Major US Insurance Report. Gartner, 2008.

2 Hutson, Kathy-Ann. U.S. Personal Auto Lines P&C Website Analysis. IBM, 2007.

3 Hutson, Kathy-Ann. U.S. Personal Auto Lines P&C Website Analysis. IBM, 2007.

4 Nielsen, Jakob. (1994b). Heuristic evaluation. In Nielsen, J., and Mack, R.L. (Eds.), Usability Inspection Methods, John Wiley & Sons, New York, NY.

5 Kelly, J. and Lipien, D. How a Factory Development Model Can Help Insurers Gear up For Success. IBM Global Business Services. 2007.

6 www.cmcrossroads.com/content/view/9082/202/

7 www.computerworld.com.au/index.php/d;678159717;fp;4;fpid;535331

8 www.ibm.com/developerworks/rational/library/06/0925_lipien-haines-gan/

9 Souders, Steve. High Performance Web Sites: Essential Knowledge for Front-End Engineers. http://stevesouders.com.

10 Souce The McKinsey Quarterly, “How Businesses are using Web 2.0,” 2007

Page 9

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