The internet has revolutionised business, but online customers shop around more so the trick now is to maintain them. Richard Mason says businesses should get ready to tweak their processes
September saw one of the largest gatherings of members from the online insurance industry. They came together to attend a briefing by Forrester Research and to discuss the UK online insurance market as it is now and what it will probably look like in five years. Key issues for debate were: how fast overall is online financial activity growing? How is the web changing the way consumers buy insurance? And how can general insurance companies maximise online distribution?
In terms of the speed at which overall online financial activity is growing, the basic findings were quite positive about the state of the online insurance industry for the next five years. The fact that there are still several million people who, while they are now online, have yet to use the internet to research and buy financial products is giving rise to optimism among providers.
There are 27million users regularly accessing the internet in the UK today and, since 1999, 17million have come online and are now using it regularly. It is expected that this group will start to the use the internet to research and buy financial products more often over the next few years.
However, new user growth is slowing down and web penetration of home PC ownership is nearing saturation point. It is predicted that the peak in web usage in the UK will be in 2006 when there will be 33million users.
Despite this, those involved in the industry can take comfort from the news that users today are spending longer online, do more advanced tasks and are more confident in online security. These statistics lend weight to any strategy decision from a financial institution to invest more in the web as a distribution channel.
There also appears to be a typical path of usage on the internet when dealing with financial institutions - web users are tending to buy financial products after having been an internet user for five years. If we bear in mind that an extra 17million users have come online since 1999, coupled with the research finding that users are taking around five years to buy, the online insurance industry can expect phenomenal growth in the sales of insurance products online during the next five years.
When examining how the web is changing the way consumers buy insurance, the briefing by Forrester confirmed that the internet has become as important a research tool for consumers as the newspaper when looking for information about insurance products. But the big advantage the online channel has over print is the ability to generate real-time online quotations - the average user sources 3.9 quotes online before making a buying decision, which is higher than the average offline. For example, the number of quotes sourced by phone is on average 3.2 and this trend is expected to continue as it becomes easier to generate several quotes online at once in a shorter space of time.
What is particularly interesting is that despite the fact many people use the internet to obtain insurance quotations, consumers still feel it necessary to call the insurance provider and speak to a human voice in order to close the deal. Insurers that have the shortest process to search for a quotation online, and are linked to an effective telephone operation deliver the highest conversion rates of new customers.
And consumers who shop around for insurance online are more price sensitive and less loyal than offline consumers - they use the internet primarily because it is convenient and unobtrusive. Poor value products do not sell online, and this is why nearly all insurers offer discounts when a consumer buys online. However, in order to avoid price competition Forrester contends that insurers must demonstrate value beyond price in order to compete, such as an exemplary claims record.
How can general insurance companies maximise their online distribution?
Not surprisingly, the biggest brand names dominate the online insurance market in terms of traffic and sales, and this trend is expected to remain during the next five years. However, the bigger players have a smaller share of the online market due to the profusion of internet-based aggregator sites that have sprung up to offer consumers a panel of insurance products from different providers.
In order to maximise distribution, insurance companies need to make sure that they fix some of the design flaws that can exist within the application process, reassure customers about online security, and adopt a channelling strategy that enables a seamless service between multiple channels - in particular, internet and telephone integration.
If insurers are using price to gain market share online, they should also consider partnering with aggregator sites and use them as a distribution channel. The advantage of working with aggregator sites is that it enables multiple quotes to be compared to other insurers in real time. Insurers that remain the most competitive for that search criteria deliver the highest volume of traffic and sales as a result.
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