Eyes Wide Open; Eyes Wide Shut.

A few insurance leaders aggressively pursue e-business as a way to grow. Many stand by blindly.

In his journals published in 1863, Ralph Waldo Emerson said, "People only see what they are prepared to see." This is what's happening in the insurance industry today. Many insurers are unprepared to see the opportunities presented by e-business.

The product mindset is still firmly entrenched, despite growing evidence that power resides with the buyer, and consumers are jumping on the Internet as the first stop in the buying process. People are researching products and getting quote comparisons from an ever-increasing number of online quote services, such as InsWeb and Quotesmith.com. Forrester Research Inc. estimates that by 2003, Internet insurance sales will top $4 billion and "Internet-influenced" sales of personal insurance will hit $7 billion.

The insurance and financial-services industry is amid the greatest revolution ever. In just five years, the world has connected and learned to surf the Internet--for information, shopping, medical advice and more. Some estimate that there will be 1 billion Internet users by 2005.

Deregulation and the aging of the baby boomers expand the opportunities in financial planning and retirement investment the world over. Commoditization of insurance products is helping push agents into the role of trusted adviser, and privatization in Europe is opening that market to 401(k) types of products sold at the consumer level.

Customer service expectations are the highest ever. Consumers are demanding excellent service delivered through multiple outlets, such as telephone, fax, computer and wireless, hand-held devices. By 2002, the number of information appliances sold annually is expected to hit 55.7 million, outnumbering personal computer sales, according to International Data Corp.

What can insurers learn from this? The old ways of developing products and marketing must be adapted or transformed to prosper in today's competitive market. Consumers are in the driver's seat. The trick is to anticipate customer needs and to be there with the products and services they want even before they know they want them.

Some canny executives have seen the Internet vision. Allstate Insurance Co., Zurich Financial Services, Amica Insurance Co. and Chubb Group of Insurance Cos. are among the leaders that have begun to explore growth through e-business technology. But most companies in this conservative industry are content to watch the innovative leaders and follow at a distance. This could be a dangerous strategy. While some folks are watching the competition, predators are stalking takeover candidates. Insurance mergers and acquisitions totaled more than $200 billion in 1998, and when the numbers are tallied, 1999 promises to be another banner year. Given the enactment last year of financial-services reform legislation, only the imagination limits what could happen over the next few years.

Online competition is coming from virtual insurers or Internet-generation companies, such as England's Screen-trade, as well as Web portals, such as Yahoo and Excite. More than a dozen virtual insurance companies have been launched in the last couple of years, including Reliance National Insurance Co.'s CyberComp, San Francisco-based eCoverage and Ineas Insurance Co. in the Netherlands.

Businesses are scrambling to get online. The demand for online sales and services grows daily. Forrester Research estimates that e-commerce spending will reach $143 billion in 2003, from up $8.1 billion last year. But jumping into the Internet can be risky. Losses due to technical failure and security breaches can occur. Several insurers and brokers--including Marsh Inc., American International Group, St. Paul Fire & Marine Insurance Co., Zurich, Chubb and Lloyd's--recognized the opportunities presented by those risks and offered insurance protection to cover "cyber liabilities."

Insurers are just beginning to reap the benefits of online interactive products and services. Allstate, Chubb and Progressive Corp., for example, offer online claims settlement in addition to rate quotes and other services.

Prudential Insurance Company of America has increased agent sales of life policies by 200% by giving agents laptop computers equipped to do customer-needs analysis, sales illustrations and contact-management software. Maximizing agents' productivity is becoming a key means of growth through use of business intelligence technology Using such methods to analyze customer data, develop leads and distribute them to agents, Winterthur realized a return on investment of more than 21% in a targeted marketing campaign vs. 5% to 6% previously.

Growth opportunities abound, if insurers take a good look at what the marketplace and their customers can tell them. Insurers must learn to use new distribution channels to better serve the market. That means changing strategies and processes for optimum performance in a networked world.

John W. McCauley is vice president and global consulting executive for financial services with IBM, White Plains, N.Y.