Underwriting Is Still Needed Online.

Electronic commerce might force underwriters to change their methods, but it won't ever eliminate the need for appropriate risk selection.

The increasing use of electronic media has changed and will continue to change consumer behavior.

The Internet offers an array of products and information, from the mundane to the outlandish. We have instant messaging, and the stores are never closed. No reasonable person could argue that the insurance industry will be exempt from the Internet's dramatic impact. So it becomes not a question of if, but of how.

Determining this impact begins with anticipating consumer reaction to insurance in the electronic age.

First, consumers that purchase life insurance on the Internet will see insurance as a commodity. Their purchasing decisions will focus more on price and convenience than on relationships and loyalty. In other words, a company's financial strength and product quality might receive less consideration than Web-site graphics.

Internet consumers also will expect an almost instantaneous acceptance of their application. They will have little tolerance for medical exams or anything else they perceive as a delay or complication.

Confidentiality is also an issue. Consumers might be reluctant to provide detailed medical and financial information online. Privacy and confidentiality have always been a concern, even with policies sold the "old-fashioned" way. But in the electronic world, these issues are magnified by the threat of hacker interception.

Our analysis of e-commerce must then address how these new behaviors affect the future of underwriting. Will the onset of e-commerce ultimately lead to its demise? I respond with a confident "no." Although the Internet changes how we do business, underwriting will still be an essential function in a system offering voluntary individual life insurance. The key lies in identifying the changes, preparing for them and then learning to use them to our advantage.

A few changes we expect:

* Specialized products. Most likely, the industry will begin to develop products specifically designed for electronical sale. These products will be simple, straightforward and easy to understand. Underwriting will be necessary, but limited to questions on the application only. To reasonably minimize a company's risk, maximum face amounts could be established. Pricing will reflect lower acquisition costs and higher mortality due to the reduced level of underwriting.

Not all consumers will be satisfied with this product pricing, and there will still be a significant market for products that require more traditional underwriting approaches. Underwriting is often the key to keeping insurance affordable.

* Faster underwriting. I believe this will enhance the risk-selection process. First, electronic methods improve communication with customers, reinsurers, paramedical facilities, laboratories and other vendors, resulting in quicker and better underwriting decisions. For example, information from an electronic application can feed into an expert underwriting system and--if no concerns are identified--a policy can be issued instantly. Policy output can be stored on a compact disk and mailed or downloaded from a secure Web site.

* Better information. The Internet will give underwriters access to more detailed and accurate underwriting information. Obtaining an applicant's medical records, traditionally the greatest cause of underwriting delays, could be simplified by scanning the records and sending them as an e-mail attachment or by downloading images of the records from a medical facility's Web site. Another possibility is searching a physician's database for diagnostic codes used for billing purposes and making an underwriting decision based on those codes.

In addition to its many benefits to underwriting, Internet technology gives consumers more choices in how they purchase products, and it offers methods for a variety of buying styles.

In a recent speech, Limra International's president and chief executive officer, Richard Wecker, spoke of the changes our industry has endured and how the future of individual life insurance is questioned at every juncture: Will group insurance negate the need for individual policies? Will government-sponsored insurance offered to U.S. military personnel depress the market? Will products like certificates of deposit and money-market accounts bring the insurance business to its knees?

Individual life insurance and underwriting survived then and will survive now. It's true that technology affects every aspect of our business and, therefore, may have a more dramatic impact than other changes faced by our industry.

We might have to change our methods, but the need for appropriate risk selection and premium classification will remain.

Greg Linde, a Best's Review columnist, is vice president and chief underwriter, individual underwriting, at the Principal Financial Group, Des Moines, Iowa.