Riding the Whirlwind

Strategic Interactive Marketing for the Insurance Industry

Key Points:

The World Wide Web (WWW) has caught the imagination of many people. It has been instrumental in the sudden growth of the Internet.

Setting up a basic WWW information site may cost next to nothing - even pets have their own sites!

5.10 Internet World Wide Web

5.10.1 Whilst e-mail and other Internet information tools have been around for many years, it is the World Wide Web (WWW) that is catching the attention and imagination of the population and the media.

5.10.2 Companies have rushed to embrace the net. Reasons include its:

• modern image: it gives a 21st century appearance. One interviewee said they had an [information] site because the board said the company should have one.
• low entry cost: getting something up on the Internet may cost almost nothing. One interviewee had a student build their site for nothing, as a thank you for a work assignment.
• good consumer profile: surveys indicate that many Internet users are well educated professionals with good incomes.

The current profile of a typical user is a well educated professional with above average income.

Booze Allen and Hamilton have shown the extremely low cost of Internet based banking.

As the Internet is interactive, it is able to support many new and innovative value added services.

• low transaction costs: A recent Booz Allen and Hamilton report compared the cost of a bank transaction via different medium, with the Internet the lowest (see box).
    

Booz-Allen & Hamilton Study

Transaction Costs
Branch Banking	60p
Telephone Banking	35p
ATM Banking	17p
Internet Banking	8p
Cost / Income Ratio
High Street Banks	50%
Internet Banks	15%

The report estimates that, by the turn of the century, some 16% of households in the US will use Internet banking. Being mainly in the upper-income brackets, they account for some 30 per cent of retail banking profitability.
 

• improved service: it is possible to deliver immediately intangible products any time of the day or night. Even tangibles services, if linked to an efficient distribution system, can give an order of magnitude improvement in response times.
• added value services: using the interactivity of the Internet, it is possible to personalise products and services to meet individual needs, and by involving the customer in this process it leads to a psychological buy-in. Adding supplementary information services (e.g. novel uses of the product; problem diagnosis) will enhance standard commodity type offerings.

The Internet allows companies to reach new markets and to introduce new product and service paradigms.

For example, travel agents will decline as Internet ticket purchases grow. Travel insurance will also need to be sold via the new medium.

Advertising now has a new outlet.

The interactive nature of the Internet makes it ideal for collaboration.

- New Markets and Business Models -

• new markets: without the traditional constraints of physical distribution, one can quickly increase the geographical scope of one's markets.
• new products and service paradigms: the Internet and other new distribution mediums provide an opportunity to re-engineer the value chains within established industries, and even create completely new ones. For example:
• some airlines now electronically auction unused seats for flights due to depart within the next day or so - in a processed call disintermediation, bucket shops may well disappear into oblivion. Many believe the whole travel agency business will disappear except for the business sector where agencies provide a full planning service in return for a retainer fee.

Check-in at the desk. If travel agents disappear then insurers will need to sell travel insurance via the Internet (Home page for SouthWest Airlines).

• Electronic newspapers and magazines, compiled to personal preferences are delivered to the breakfast table or the office desk.

.... 1,000's a week subscribe to electronic Wall Street Journal at $49 a month .... 40% still buy Paper version ....

- Collaboration via Interactive Mediums -

Customers can collaborate in the R&D process, dramatically reducing the time to market and ensuring the service meets real needs in a practical way.

The Internet does have some short term problems:

• response times are poor.
• the software changes almost daily.
• UK telecommun- ication costs are relatively high.
• security is still a concern.
• development skills are in very short supply.

All these problems will be overcome.

• poor response times: the number of users and their information demands are growing faster than the infrastructure is expanding.
• variable user capabilities: user's software and hardware varies in this fast changing environment. This impacts the delivery format and presentation of information.
• user cost of participation: outside of the US, communication costs remain high, though with liberalisation of the telecommunications market, this is changing. Hardware costs are also high, both absolutely and relative to incomes, compared to the US.
• no established modus-operandi: processes and methods of working have yet to be standardised for electronic commerce. Established legal frameworks are probably inadequate.
• security: universal systems for the secure transmission of information or money do not exist, but this will change soon.
• immature market: experienced skills are in short supply. There is a steep learning curve that is akin to walking up a down escalator.
• supply instability: New suppliers are entering the market yet most Information Service Providers (ISPs) are running at a loss.
• other delivery mediums: alternatives to the Internet might become the preferred route to the mass market.

None of the above (except the last item) are insurmountable and the industry is rapidly developing solutions and capabilities. Even the last item will probably become less significant as the various delivery technologies merge.

Banking is thought to be the lead financial services application. Insurance and other service to follow.

Private Internet systems could serve affinity groups at their work place.

- Banking to Lead -

5.10.5 Interviewees general comments on the Internet include:

• banking is most likely be the lead application with other financial services such as insurance following on (some questioned whether there is any money in banking and whether cross-selling does compensate as customers become smarter).

Interviewees see on-line banking as a fore-runner to selling insurance on-line
(NationsBank home page).
 

• private Internet systems could be used for the servicing of affinity groups. For example, employees in a company health care insurance scheme would undertake inquiries and make policy changes and claims themselves, using their company's PC during their lunch hour.

Many are sceptical: customers want choice of delivery methods; it needs cheap, high speed access links; and only a few customers will take to it.

- Customers Need Choice -

Many though were sceptical:

• customers have different behaviour patterns. They should have choice throughout the purchasing and service cycle rather than be forced to use a single delivery method.
• the Internet may / will only take off when there is fast cheap (even free) access. Even so, it's a niche market - most people have better things to do than surf the net.
• the Internet may attract individuals with high net worth, but is there enough of them? And with their high demands, are they profitable to service?
• the Internet will generally only really attract explorers. There is still the problem of raising the conversion rate.
• the Internet services industry (e.g. designers & developers) is fragmented with too many smaller players, and they are too technologically driven. Larger insurers expected to undertake Internet development themselves with limited external resources or use of outsourcing.

Many interviewees found their companies' offering disappointing.

They are out-of-date, boring, untargeted, too technology driven, lacked marketing information, and are too stand-alone.

- Web Sites are Disappointing -

5.10.6 Despite these concerns, nearly all the companies interviewed had an Internet site, but many interviewees find their company's offering disappointing. Some common problems are:

• out of date: there are no processes to ensure the content remains current and fresh, or methods for communicating to customers as to why they should visit or re-visit the site. Sometimes the site was the initiative of the IT department using information gleaned from annual reports.
• boring: some sites are just like annual reports, complete with financial information, pictures of the directors and lists of product names.
• untargeted: sites contain everything from products and services aimed at customers, to information for shareholders, through to general PR aimed at the public, school children or staff.
• technology driven: with some sites the form won over the content with the extensive use of pictures, sound, frames, and even video. As a consequence customers find accessing the information "like watching paint dry". Repeat visits are few.
• lack marketing information: statistics, such as the number of people visiting, what they looked at, their profile, and how often they came back, are not available.
• stand-alone: business reasons are vague and no consideration has been given to processes; there are no business objectives or success criteria.

.... MoonDream survey .... only 20% of UK financial service providers have web sites that are useful, interesting and Quality ..

Those distributing via brokers are sensitive to communicating direct to customers. Never-the-less they thought it important to understand this new distribution medium.

Insurers and brokers need to work in partnership to present a concerted picture to the consumer.

- Sensitive to Bypassing Their Brokers -

5.10.7 Those distributing via brokers are sensitive to how they use the Internet. They feel it is important to gain experience of dealing direct with customers but not to make their brokers feel insecure. Developing an integrated Internet site is the way forward, especially in partnership with the large brokers, as they have more resources and more experience with technology.

• The insurers could electronically link potential customers to the brokers and brokers could link to the insurers to provide in-depth product information.

- A Need to Retain Web Visitors -

• The challenge for insurers is to stop the visitors who are re-directed to brokers, to be then offered a competitive product; and the challenge for brokers was to stop visitors who are re-directed to insurers to deal direct. The answer seems to be a commercial partnership agreement underpinned by a trusting relationship, plus the use of technology to seamlessly link brokers and insurers but to limit "break-out" opportunities.
• Any links need to enter the other partner's site at the appropriate point, rather than the common "home page". For example:
  • link from an insurer, with the customer having reviewed a motor policy, into a broker's site at the motor application form. Some details (if already provided to the insurer) to be automatically entered into the electronic form.

Churchill is typical of the larger brokers on the Net. Opening times of their telesales unit are prominently displayed.

Serious pilots are costing in the order of £0.25m to £0.5m.

Capital Radio's much praised site has cost almost £1m.

- £0.25-£0.5m Spend on Pilots -

5.10.8 Of those interviewees who had made a strategic decision and are undertaking serious pilots, they mentioned costs in the range £0.25-£0.5m for the creation and first year's running cost. This includes external spend on telecommunications, hardware, software, design and development. Any internal spend on user's time was additional. Second year budgets varied from £150K to £1m reflecting a range of approaches from just ticking-over to the development of home banking and shopping malls. As a comparison, Capital Radio apparently have little change from the £1m costs of setting up their site.

Capital Radio's much praised site is reported to have cost £1m.

Most see their pilots as a learning exercise. Some are dabbling in case the Internet gets big.

Unfortunately, customers see the insurers sites as full service offerings.

Like e-mail, insurers are poorly placed to handle Internet commerce.

- Companies See Learning Benefits Customers See Full Service Offering -

5.10.9 These strategic developers all mentioned the learning benefits from their pilots. For most, this was the prime reason for their Internet site: It will be big one day, and then we will be ready is a typical comment.

5.10.10 A number said, that whilst internally classing their Internet projects are as pilots, their customers perceive them as full service offerings. Being a pilot, no amendments have been made to internal procedures with the result that customer service is often slow - a direct contradiction to the expectations of the customers. Interviewees recognised a need to handle and co-ordinate all communications from customers whether post, telephone, fax, e-mail, or WWW.