The Slow Lane of Online Traffic.

Insurers have a long way to go to equal the success of other financial-services providers doing business on the internet.

Insurers have spent heavily on e-business initiatives over the past few years to catch up with stand-alone dot-com competitors and other industry players who gained an early lead. While the failure of many dot-coms has diminished the threat from online-only players, insurers need to move forward aggressively to meet the threat from bricks-and-clicks competitors across financial services, according to Booz-Allen & Hamilton's Fourth Annual eInsurance study.

One major question mark for insurers has been whether they can attract as much online traffic as other financial institutions that sell products with higher purchase and transaction frequency. Experience to date suggests the answer is no. Based on joint Booz-Allen/Nielsen-NetRatings analysis, as of mid-2000, the top 10 insurance sites attracted roughly 5 million unique monthly visitors, as compared with 10 million and 18 million for the top 10 brokerage and banking sites, respectively. The average time a visitor spent on insurance sites (12 minutes and 45 seconds) is roughly one-third of that spent on brokerage sites and one-half of that spent on bank sites. With customers spending far more of their online time with other financial providers--all of whom are looking to broaden their relationships with these consumers--insurers face a significant threat.

In terms of quality, the reviews are mixed. Insurers' Web sites have improved. In a detailed assessment of insurers 'Web sites, 43% of those reviewed in the 2001 study were rated as having "advanced" functionality vs. 14% in 1999. But insurers often do not offer adequate customer support. In a test of 50 insurance sites, more than half did not respond to an e-mailed question within one day, and 28% did not respond at all--performance well below leading financial players.

The good news is that insurers are moving to expand their online offerings: 58% of respondents plan to sell term life on their sites (vs. 25% today), and 27% plan to sell variable life on their sites (vs. less than 5% today). Most insurers (88%) expect to use multiple online channels, including banks, wirehouses and online intermediaries, in addition to their own Web sites. But relatively few carriers envision building the complete businesses likely to be required to win online. Only 29% plan Internet-specific branding; 19% indicated the potential for Internet-specific underwriting; and 10% plan Internet-only pricing. This may represent an appropriate departure from treating the Internet as a separate business--but it also may indicate an unwillingness to consider some of the potential opportunities the Internet affords (e.g., an economical way to reach certain consumer segments).

Most companies view a consistent and seamless experience for the consumer (regardless of the channel or product/service) as the target environment. But survey respondents identified the complexity of updating legacy systems as the greatest impediment to achieving this vision. Furthermore, insurers will need to ensure that their agents and advisers are part of a consistent client experience. Quality of face-to-face distribution can be an important advantage for insurers over banks, although the smaller amount of physical traffic (as well as online traffic) vs. banks may prove to be a major drawback in terms of providing convenient multichannel access for clients.

Forming effective partnerships is another area of focus, since some points of contact with the client may be outside of the insurer's organization. For example, 59% of respondents have formed partnerships to expand distribution and 28% have access to other companies' insurance products. But insurers will need to strengthen their ability to manage partnerships--only 30% of respondents rated themselves as having adequate partnership-management skills.

Significant opportunities remain to leverage e-business capabilities internally and externally. The Internet will affect sales results, even if those sales aren't completed online. Furthermore, the Internet is likely to become a critical service touchpoint, providing the opportunity to increase customer satisfaction and drive down costs.

To tap this potential, insurers need to provide a choice of targeted client solutions, including innovative service capabilities and competitive products. They also will need to make all channels convenient and easy to use and provide the flexibility to work seamlessly online and off line. First, though, they must resolve the internal channel and branding issues that get in the way of serving clients. While the bursting of the dot-coin bubble has shifted the advantage back to "physical world" companies, only those companies that take full advantage of the potential of digital technology and the Internet will be long-term winners.

Larry Altman, a Best's Review columnist, and Gil Irwin are vice presidents and Paul Lockmiler is a principal in the New York office of Booz-Allen & Hamilton.