4 online selling myths: people who shop for insurance online like agents, too.

Many U.S. agents and insurers are under several misconceptions about insurance consumer behavior on the Internet. When it comes to how consumers shop for and purchase insurance, particularly automotive insurance, InsWeb has discovered four commonly held beliefs:

* The vast majority of online insurance shoppers are young.

* Most online insurance shoppers end up buying their insurance online. * Most online insurance consumers favor buying direct to working with agents.

* Individual agents cannot effectively compete for online consumers. InsWeb also has discovered that none of these perceptions is true.

While the Internet may offer a great deal of information for consumers and potential business for insurers, research has proven that in the end, the majority of online consumers prefer to buy their policies from an agent.

A good analogy is the way consumers purchase a new or used car. Millions of shoppers go to the Internet first, but in the end make the purchase from an individual or dealer, eBay Motors will orchestrate more than half a million such sales this year, and Edmunds.com estimates that nearly 30% of new car buyers start online.

Use of the Internet as a tool among insurance consumers is growing. According to International Data Corp., a Massachusetts-based research firm, the Internet influenced more than one-third of all insurance purchases made by consumers in 2004.

For example: The net auto insurance premium written in the United States is reported to be roughly $160 billion. Assume that one third is at risk of switching each year, and half of that moves from one carrier to another. If these assumptions are accurate, then consumers representing approximately $9 billion in auto premium used the Internet during the shopping process. That's pretty close to the prediction A.M. Best Co. made tour years ago when they said the Internet would influence $10 billion in auto premium in 2005.

Now consider the four myths one at a time.

MYTH NO. 1: THE VAST MAJORITY OF ONLINE INSURANCE SHOPPERS ARE YOUNG.

When it comes right down to it, there is little, if any, difference between the online and offline auto insurance shopper. The demographics and risk characteristics of both groups are similar.

For the most part, as "InsWeb Auto Applicant Characteristics--2003" on page 104 illustrates, InsWeb's shoppers are more than 30 years old, male drivers, homeowners and college graduates and have carried car insurance for five or more years. Furthermore, the trends are positive with the numbers improving in each category since 2000, and InsWeb has continued to see similar trends through 2004 and the first quarter of 2005. The profile of InsWeb's consumer looks similar to the online insurance consumer in general, given that approximately 3% of all U.S. households filled out the company's auto quote form last year.

Finally, most online shoppers also tend to be in the "preferred" or "standard" risk pool with good driving records.

MYTH NO. 2:

MANY ONLINE INSURANCE CONSUMERS END UP BUYING THEIR INSURANCE ONLINE.

Despite the information and influence that the Internet wields, "less than 2% of online insurance shoppers start and finish the purchase process online," reports Celent, an IT research strategy firm covering the insurance industry. Celent goes on to say that "purchasing insurance, like opening a bank account, is a large, non-time-sensitive decision that people do only once a year or so. There is really no need to do it 100% online."

So, while the Internet may help insurers reach more customers, educate and let them know there are options, the reality is that most consumers have greater peace of mind when they complete their purchase offline with a live person.

InsWeb expects more consumers to be eligible for and feel comfortable choosing the "buy online" option over time, but that is not happening much today because of consumer behavior and the complexities of technology.

The real challenge for insurance providers has been to build the technology to ensure that a policy that is bound, or finalized, online contains accurate information about the insured. It is a complex, time-consuming and expensive process for carriers to try to validate the data the consumer provides in real time using underwriting reports, such as claims history, motor vehicle and credit, lf these reports are not integrated into the online process, then it is likely that manual work will be required on the back end to correct data provided by the consumer.

MYTH NO. 3:

MOST ONLINE INSURANCE CONSUMERS FAVOR BUYING DIRECT TO WORKING WITH AGENTS.

Until recently, this was a notion in which InsWeb also firmly believed. Over the past 15 months, however, the company has found that online insurance shoppers fall into three groups:

Self-directed consumers. They prefer to do everything by themselves and are quite comfortable purchasing insurance directly from a provider.

The indifferent. This group will buy direct or from a local agent depending on which is more convenient or offers the least expensive product.

Information gatherers. They use the Internet solely for research and have every intention of buying from an agent in their local community.

Several data points corroborate that research. According to Jeff Myers, executive director of Trusted Choice, "Our own research shows that more than 85% of people go online to research but end up purchasing from an insurance agent."

One also needs to look no further than the distribution of auto premium between the direct and agency channels. Management consulting firm McKinsey & Co. estimates that the exclusive and independent agency channels held an 83% market share in 2002. Agency consumers rely on their agents' advice in selecting limits, deductibles and carriers, obtaining all available discounts and buying other insurance products and/or financial services. The other 17% of personal auto premium was written by direct insurers. The distribution of online insurance-influenced premium approximately mirrors these statistics.

The ultimate proof was discovered, however, when InsWeb expanded the distribution of its consumer leads to include agents in the consumer's local community. Overall productivity, of the company's marketplace increased, as local agent participants garnered incremental sales.

MYTH NO. 4:

INDIVIDUAL AGENTS CANNOT EFFECTIVELY COMPETE FOR ONLINE INSURANCE CONSUMERS.

Tens of thousands of agents have established a variety of cost-efficient and effective methods to achieve an online presence. Thousands of agents are receiving consumer leads on insurance marketplaces such as InsWeb, NetQuote and Insureme. InsWeb's agent surveys have found that 79% of respondents use some form of lead service, 57% currently process between 50 and 250 leads each month, and 93% want an online lead source. On the other side of the equation, consumers who log onto these platforms will easily find agent options right next to carriers' online quotes.

Secondly, almost all independent and captive agency carrier Web sites furnish direct links to local agents or provide online consumers with agent contact information.

Currently, the cost of a click-through on a popular "pay for placement" search engine for the term "auto insurance" is $16. This is indicative of the cost of online advertising for insurance nowadays. So while agents may be priced out of doing mass Internet advertising, they can localize their online marketing efforts and do cost-efficient targeted ads both individually and with help from their carriers. This is no different from the way agents have been advertising in their hometown newspapers or phone books.

There is clear demand from both consumers and agents to be introduced to each other via the Internet. In the near future, online lead generation will be as common as traditional forms of advertising. Agents who understand this will reap the benefits of increased insurance sales, whether offline or online.

Key Points

* Consumers like to use the Internet for research, but most prefer to buy insurance from an agent.

* Most online shoppers tend to be in the preferred or standard risk pool with good driving records.

* Online shoppers fall into three categories: self-directed, indifferent and information gatherers.

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Contributor Jaimie Pickles is the executive vice president of InsWeb Corp.