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Leaping the 'Digital Divide'.

Insurers need to understand the various business models available through the Internet Internet

Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the
. Think e-business, not Web site.

Many insurers are concerned about falling farther behind in the race to the Internet, and they feel pressured to develop an integrated online strategy. According to according to
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

 an e-business survey of U.S. life insurers, most companies only recently have begun to implement their Internet initiatives.

Given the relative infancy infancy, stage of human development lasting from birth to approximately two years of age. The hallmarks of infancy are physical growth, motor development, vocal development, and cognitive and social development.  of online insurance sales, it is not too late to leap the "digital divide." The divide separates companies that have successfully integrated e-business into their operating processes--such as broker Charles Schwab--from those that have not. Most insurers are in the "have-not" group.

A successful leap will give an insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual.

An insurer is frequently an insurance company and is also known as an underwriter.
 a powerful competitive advantage in distribution and greater efficiency in delivering services. It also will help the company remain in business tomorrow, because carriers not doing business online will be at a serious disadvantage. Before making the leap, however, it is important to look carefully to determine what direction the company should take and when it should begin.

Some insurance managers have a narrow view of the Internet. For them, an e-business strategy is synonymous with synonymous with
adjective equivalent to, the same as, identical to, similar to, identified with, equal to, tantamount to, interchangeable with, one and the same as
 plans for a Web site. But a Web site is only a small part of a company's overall e-business strategy and objectives.

Used appropriately as an enabling tool, the Internet can have a major impact on almost any business process, including sales and service. For example, in the property/casualty and health insurance businesses, companies can use the Internet to digitally streamline claim processes to improve efficiency and effectiveness. In the life and annuity annuity: see insurance.

Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities.
 businesses, the Internet can assist companies in digitally streamlining a policy or the annuity contract Annuity Contract

The written agreement between an insurance company and a customer outlining each party's obligations in an annuity coverage agreement. This document will include the specific details of the contract, such as the structure of the annuity (variable or fixed), any
 acquisition process. But the challenge to overcoming resistance to change and achieving the fundamental transformation required in business processes and legacy systems should not be underestimated.

The Meta-Model Framework

Too narrow a view of the Internet will limit a company's strategic options. Think e-business, not Web site. There are several Web-based distribution alternatives from which to choose. The strategic meta-model framework can assist in the selection of an appropriate business model (See "How the Strategic Meta-Model Framework Works," above).

A meta model is a higher organizing level for a number of related business models. Although Yahoo! Finance and Schwab differ in many ways--Yahoo! Finance has hotlinks, while Schwab has an integrated e-business offering--they belong to the same meta model. Both have an open architecture, which means they sell a broad range of products from multiple providers, and they have a direct relationship with customers, the end users.

In the strategic meta-model framework, the horizontal axis represents a product or manufacturing perspective. An insurer can sell either proprietary products or those of other providers. The vertical axis reflects a distribution or customer perspective. Some carriers consider their producers or intermediaries as customers, while others see the end users (insureds) as the customers. Viewing intermediaries or policyholders as customers is much more common in financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page.
 than the business-to-consumer and business-to-business distinctions prevalent in other industries.

Furthermore, one size does not fit all when it comes to Internet functionality. Different meta models--and different strategies targeting different market segments within a meta model--require different degrees of Internet functionality (See "Understand Internet Functionality When Choosing a Meta Model," left). Companies must consider the degree of Internet functionality as well as understand the implications of selecting the appropriate meta model. By doing so, insurers can use these frameworks to define an e-business vision, choose a business model and identify the organization capabilities needed to succeed.

A description of the meta models follows:

* Clicks and Mortar Also called "bricks and clicks," it refers to businesses that offer online services via the Web as well as the traditional retail outlets (offline) staffed by people. Coined in 1999 by David Pottruck, co-CEO of the Charles Schwab brokerage firm, it refers to running the two divisions in a . Clicks-and-mortar companies sell proprietary products directly to customers and integrate physical and Web-distribution channels. Geico, Progressive and most traditional banks are representatives of the clicks-and-mortar meta model. These companies offer the same products online and through a physical channel, such as a branch or call center. Because of the complexity of selling multiple products across multiple distribution channels, a clicks-and-mortar company must adopt customer-centric processes to become distinctive. From planning and marketing to legacy system integration and measuring profitability, every function must be customer centric.

* Pure Play. A pure play is a virtual insurance company selling proprietary products directly to customers. A pure play may be a dot-com or a dot-corp--a company selling products and services unique to the channel. Ecoverage is an example of a dot-com. John Hancock, Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis.  and Coverna Direct of Aegon are examples of dot-corps. Pure plays require total Internet functionality, a brand that creates Web traffic, a great user interface (the look and feel of the Web site) and customer confidence in fulfillment ful·fill also ful·fil  
tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils
1. To bring into actuality; effect: fulfilled their promises.


* Product Aggregator. Product aggregators distribute products from multiple insurers directly to insureds. InsWeb and Quotesmith are aggregators focusing on term life, auto and homeowners insurance. Product aggregators have spurred the shift to the Internet by providing choice to consumers. Product aggregators must be an early entrant en·trant  
One that enters, especially one that enters a competition.

[French, from present participle of entrer, to enter, from Old French; see enter.
, sign up enough carriers to provide shoppers with the perception of choice and persuade carriers to change their distribution strategy. Many carriers use product aggregators to generate leads for their agents, while paying agents Paying Agent

An agent who accepts payments from the issuer of a security and then distributes the payments to the holders of the security. Also known as a "disbursing agent.
 the same commissions. Thus, product aggregators become another expense layer for these insurers, making their products less profitable.

* Distribution Center. A distribution center also offers products from multiple providers directly to consumers. Unlike a product aggregator focusing on product lines, the distribution center concentrates on the relationship with customers across broad product lines. Personal financial-management software sellers Quicken A popular financial management program for PCs and Macs from Intuit, Inc., Mountain View, CA ( It is used to write checks, organize investments and produce a variety of reports for personal finance and small business. , Yahoo! Finance, WingspanBank and Schwab are typical distribution centers. Given the daunting daunt  
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.

[Middle English daunten, from Old French danter, from Latin
 task of creating a distribution center for customers, many centers develop relationships with partners (that may be other providers) to fill in product gaps. For example, WingspanBank uses E-Loan for credit products and InsWeb for insurance products.

* Specialty Provider. A specialty provider has relationships directly with multiple providers and customers. It delivers services that typically represent a part of the sales and service value chain. Cybersettle, the best example of this meta model, offers outsourced solutions for the claim-adjudication process. A specialty provider serves niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector.

By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers.
, and such a company must be focused, an early adopter and possess outstanding functionality and execution capabilities.

* Product Manufacturer. Product manufacturers sell their own proprietary products and consider intermediaries their customers. Most traditional insurers fall into this category. There are really two types of intermediaries: producers (agents) and Web centers of influence, such as portals and exchanges. Insurers that focus on producers must concentrate on infrastructure, using the Internet to sup. ply (mathematics, data) ply - 1. Of a node in a tree, the number of branches between that node and the root.

2. Of a tree, the maximum ply of any of its nodes.
 tools that support producers. This could lead to each producer having its own personalized portal See personal portal.  integrated into the insurer's Web site. Those that focus on Web centers of influence must be able to provide low cost, a product brand and economy of scale. To distribute products through portals, where customers have a choice of multiple carriers, an insurer must have a strong product brand and offer low rates. The product becomes a commodity. The key is to pick Web centers of influence with the greatest market pull and integrate them into the sales process A sales process is a systematic approach for performing product or service sales. The reasons for having a sales process include seller and buyer risk management, achieving standardized customer interaction in sales and scalable revenue generation.  as closely as possible.

* Network. Managing general agent online companies are bricks-and-mortar organizations selling products from multiple providers. They have intermediaries as customers through physical distribution channels but also have an online presence. RELee is such a company. Most managing general agents focus on physical distribution channels. Their primary challenge is digitally streamlining manual processes, legacy systems and agent behavior.

* E-mediary. An e-mediary sells products from multiple providers to intermediaries like managing general agents but exists only online. Examples include ChannelPoint and BenefitPoint. They are analogous analogous /anal·o·gous/ (ah-nal´ah-gus) resembling or similar in some respects, as in function or appearance, but not in origin or development.

 to Sabre, the travel reservation system used by all travel agents to book flights on any airline. E-mediaries want to be the platform that insurance brokers and agents use. Unfortunately for e-mediaries, carriers don't want to sign up unless brokers use the platform, and brokers don't want to use the platform until they have access to a number of carriers. E-mediaries must resolve this dilemma, treat both carriers and intermediaries as customers and integrate with the various legacy systems of insurance companies. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke"
put differently
, huge investments are required to build the infrastructure needed to succeed as an e-mediary.

Careful Planning

Here's some final advice before leaping the digital divide. First, don't rush into e-business. Don't get bogged down in analysis paralysis Analysis paralysis is an informal phrase applied when the opportunity cost of decision analysis exceeds the benefits. Analysis paralysis applies to any situation where analysis may be applied to help make a decision and may be a dysfunctional element of organizational behavior. . Careful planning will improve the chances of doing it right the first time. As a rule of thumb, analysis should take four to six weeks instead of three to four months. An effective planning effort should review the competitive marketplace, identify the customer needs to be addressed and determine the business offering that will provide an appropriate solution.

Second, monitor progress against expected outcomes. Although this sounds simple, it can be quite challenging. Determine what outcomes are desired, and these should drive business decisions. For example, what level of customer traffic is needed on the Web site? What is the required close rate? What level of persistency is expected from that business? Then monitor e-business results against expected outcomes and those of competitors and revise the business model as needed as needed prn. See prn order. .

An e-strategy doesn't have to be set in stone. Unlike classic strategy e-business strategy is very dynamic. And it doesn't have to be perfect. The Internet is about testing and learning. Therefore, it is important to build things that have the ability to adapt and change. New things are happening every day. To respond to this new environment, a company must be customer centric. While the tactics may change, keep this as the guiding principle.

So even though the gulf is widening between insurers that have implemented successful e-strategies and those that have not, there is still time to act.

Just be sure to look before you leap Before You Leap is the autobiography and self-help guide written by Muppet Kermit the Frog. It was released in September 2006. External links
  • ABC News excerpt

Michael C Kim is a principal of Tillinghast-Towers Perrin in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
 and is heading the firm's e-business efforts worldwide. Dennis A. Steckler and Jean C. Miller are consultants in the Chicago office of TillinghastTowers Perrin, where Steckler is the insurance and technology practice leader for the firm and Miller specializes in insurance information technology.

Readiness Check

Many insurers undertake Internet initiatives without understanding what is required to tackle e-business issues--such as distribution channel conflict. These initiatives are often disconnected or implemented poorly. Most of these efforts are bound to fail.

To determine if the company is ready, take this simple test. Unless all the answers are "yes," it is likely that leaping into e-commerce would be a waste of time and energy with little likelihood of success.

* Is there an executive sponsor? Developing and implementing an e-business strategy without the support of a senior executive is very difficult, "E" has such an impact on all aspects of a business that only a senior executive has sufficient control to capitalize on Cap´i`tal`ize on`   

v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>.
 the opportunities. In fact, a growing number of chief executive officers in insurance and in other industries are sponsoring these initiatives.

* Is there a clear line of sight from vision to tactics? One needs clear alignment from the e-business vision through the business model, the required organization capabilities (including technology solutions and business processes), the tactical implementation activities and the expected financial outcomes.

* Are e-business goals and objectives shared across the company? Decentralized de·cen·tral·ize  
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities.
 e-business initiatives may create corporate impasses due to the difficulty of getting all departments on board.

* Has the expected return on investment Expected return on investment

The return one can expect to earn on an investment. See: Capital asset pricing model.
 been analyzed an·a·lyze  
tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es
1. To examine methodically by separating into parts and studying their interrelations.

2. Chemistry To make a chemical analysis of.

? Over the past two years, e-business spending by the insurers participating in an e-business survey increased 500% on average. Not surprisingly, the investment required was their major challenge. Many are focusing on new business processing and policyholder Policyholder

An individual who owns an insurance policy.
 services, identified as functional areas likely to generate the most significant cost savings from Web-enabling technologies.

* Is the company up to speed? Early movers enjoy a tremendous competitive advantage on the Internet. Companies must learn to compress the time from vision to launch from years or months to weeks. In a recent study of Silicon Valley start-ups, researchers determined that working at e-speed meant two things: making immediate decisions and developing the ability to multitask. Employees of start-ups did not work faster at a given task than those at traditional bricks-and-mortar companies. Rather, they worked on five to six tasks at a time, while their counterparts at traditional companies were working on one or two.

* Do employees have the requisite skills? Many employees lack the skills and capabilities needed to implement e-business initiatives. Respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy.  to the survey indicated that training and people development failed to bridge this competency COMPETENCY, evidence. The legal fitness or ability of a witness to be heard on the trial of a cause. This term is also applied to written or other evidence which may be legally given on such trial, as, depositions, letters, account-books, and the like.
 gap. Thus, companies may have to look externally for e-business knowledge, skills and experience.

* Does the company have access to skilled Web site designers? Customer experience defines the perception of a company's brand, and the user interface determines the customer's experience. The user interface must make it easy for customers to do business with the company. Therefore, it is essential to find the personnel and resources to create an interface that leaves an excellent impression. Be like, a company that delivers a great customer experience with a great user interface.

* Can the company deliver on its promises to customers? The promise created by the user interface must be fulfilled ful·fill also ful·fil  
tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils
1. To bring into actuality; effect: fulfilled their promises.

. An attractive interface and meeting customer expectations create the lasting impression of the company's brand. In the survey, customer care topped the list as the most important focus of a company's e-strategy.

* Is there a strategic partnership strategy? Success in e-business often requires alliances and partnerships. Given the need for speed and the existence of prebuilt pre·built  
Of, relating to, or constituting a structure or a portion of a structure that is constructed or assembled before being transported to its site of installation; prefabricated: a prebuilt home. 
 technologies, it is costly and unwise to develop proprietary solutions for all a company's needs. To fill in product and service gaps, consider alliances, partnerships, joint ventures or simply license solutions. Don't build everything from scratch, and don't go it alone.

* Can the company provide reliable, round-the-clock service? On the Internet, customers expect 24-hour, seven-day-a-week reliability. Recall the nightmare caused by the denial of service attacks An assault on a network that floods it with so many additional requests that regular traffic is either slowed or completely interrupted. Unlike a virus or worm, which can cause severe damage to databases, a denial of service attack interrupts network service for some period.  that crashed computers at Ebay, Yahoo and ETrade. A company could lose hundreds, even thousands, of dollars per minute. One's technology and organization also must be able to meet the demands of success. Success on the Internet can be almost as frightening as failure. For example, the Victoria's Secret For the Sonata Arctica single, see Victoria's Secret (song)

Victoria's Secret is an American retailer of high quality lingerie and beauty products.[2]
 Web site crashed during its first live Web-cast fashion show because of the high levels of Web traffic. Without scalability--the ability to deal with heavy traffic--success can create failure.
COPYRIGHT 2001 A.M. Best Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Author:Miller, Jean C.
Publication:Best's Review
Article Type:Brief Article
Geographic Code:1USA
Date:Feb 1, 2001
Previous Article:Strength in Numbers.
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