Insurance.Com -- January 15-16, 1998 -- Effects of Direct Writing

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by Doug Simpson

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How direct writing by phone, mail and the Internet has affected the traditional methods of product distribution and sales.

Direct writing via the Internet is so new in the insurance field that it may be premature to accurately predict its effects. To guess at some possibilities, we may extrapolate from years of experience of those who've been using more traditional media in the field of direct marketing.

Growing Share of Direct Writers and Continuing Strength of Agents and Brokers
Over the years, direct writers have steadily increased their market share relative to writers relying upon local agents, either exclusive or independent. They have done this by creative use of mail advertising and responsive telephone quoting and support, all supplemented by widespread television and radio advertisements and sponsorship of special television events. Direct writers also benefit from an expense structure that compares favorably to that of agency companies. That lower cost system can be passed on to consumers in the form of lower premiums. Direct writers have been particularly successful in those standard, commodity lines of insurance which are relatively simple for buyers to simple to and to underwrite, and which consumers see as "essential" lines such as auto insurance, homeowners insurance and term life insurance.
    At the same time, both exclusive and independent agents continue to have a significant share of the marketplace, because they offer a valuable service that may be irreplaceable in the minds of many insurance buyers. Many lines of insurance are complex to underwrite, price and administer, particularly commercial lines of insurance such as group life and health policies, workers compensation, commercial auto and general liability coverage. The complexity increases with the size and complexity of the buyer's business, increasing the value of an agent or broker specially trained and experienced in large commercial risks. Many buyers, particularly in the commercial lines arena, continue to value and require the assistance of a face-to-face agent or broker. The greater the complexity of the insurance product, the greater the perceived value of an agent to the buyer.

Net Capabilities A "Must Have" for Direct Writers
Those intending to maintain their market share in the direct marketing field will find an effective Internet presence as a neccessity to compete. Today, successful direct writers work ceaselessly to stay current with the latest developments in teleservices, and to develop new and fresh ways to get their TV and radio ads heard, and to get consumers to open and respond to their mail solicitations. They employ fresh, creative minds oriented towards results which can be readily measured by the response and sell-through rates on each variation of their ads, and sales packets and teleservice scripts.
    Direct writers will need to continue developing their creative resources to utilize the new Internet technologies for several reasons. One, because the Net offers such compelling economic efficiency both in marketing and in customer response fullfillment. Also, because an increasing percentage of their target audience now spends more time using a PC or online than watching traditional television. Assuming our counterparts at Microsoft/WebTV, Comcast, @Home and the like are not greatly mistaken, a broader and broader cross-section of the population will employ the Internet as a regular and important part of their news and entertainment participation. And will be an increasingly regular and important part of the advertising demographic for consumer financial services such as auto, home and term life insurance.

Agents and Brokers on the Net
Agents, both independent and exclusive, will find it increasingly vital to develop a visible presence on the Net. What discerning insurance buyer today would choose to do business with an agent or broker whose office did not have a telephone? A photocopier? Word processing? A fax machine? Very few. Such an office might be regarded as quaint, perhaps, but not modern or efficient. Yet, when first introduced, all of these now indispensable "technologies" were regarded as "new" and "untested" and even "impersonal."
    Consumers and purchasers of business insurance will increasingly expect the agent or broker to have a presence on the World Wide Web and to be comfortable with the communication capabilities of the Internet. To be able to communicate promptly and effectively by email, if that's what the customer wants. To be able to electronically transmit binary files like spread sheets or Adobe Acrobat policy forms, if that's what the customer wants. To be able to have their billing and payment interface through the Net with Microsoft Money, Quicken, Quick Books, and Checkfree, if that's what the customer wants.

Open Standards: OFX
Agents and companies not ready to do this own their own will need to find service providers able to get them "online" effectively and quickly. Overall, those using the Net in any niche of the financial services and insurance market will find many advantages in service speed and lowered cost over their competitors who are not utilizing the Net. Those who thoroughly integrate the usage of the Net throughout the sales and service chain, making seamless and electronic the "hand-offs" between each step in their process, will multiply their advantage. This advantage in integrating the entire process is a strong argument for agents and companies to adopt open standards that will work with the applications used by consumers and businesses. Microsoft, Intuit and the other companies who have embraced the Open Financial Exchange (OFX) standards are showing the foresight to press forward such standards.

Distribution Channels   ||   New Strategy   ||   Company Structure