Insurance.com: Notes : Irwin & Pollack

Capitalize on Net Revolution and Measure Your Return

Gil Irwin

Michael Pollack

Booz-Allen & Hamilton

The Net puts the traditional financial services industry at risk, according to Gil Irwin and Michael Pollack of Booz-Allen. For over 100 years, the insurance industry made money making, not selling, their products. Now, market forces are converging to offer special situations including:
    1. Product substitution;
    2. New distribution channels;
    3. A broader competitive field;
    4. Eroding economics.

"The agent is no longer economical in the middle and lower income marketplace," according to Booz-Allen's studies of the cost per sale, compared to sales on the Net . Yet, the low/middle income market is 60% of the policy count, so will be served through alternative channels such as group sites, affinity groups, banks and telemarketing.

Booz-Allen found that consumers did not have a high degree of trust in insurance agents, finding financial planners substantially more reliable and unbiased. Successful financial services companies will rely less upon vertically integrated sales, and focus more upon particular customer segments.

Booz-Allen sees the impact of the Net as being to:
    1. accelerate change;
    2. lower entry barriers;
    3. facilitate new competitors.

Insurance is very "bittable," so that its sale on the Net is inevitable, according to Booz-Allen.

Using the Net enables customer- sourcing, which shifts labor costs to the consumer while increasing perceived customer satisfaction, while reducing the consumer's cost of switching.

Booz-Allen found a significant contrast between what insurers reported consumers wanting, (instant online quotes, online policy and personal information change, agent locators) and what insurers were planning to provide.

Booz-Allen expressed concern over the possibility that significant parts of the industry would get caught in a downward spiral of loss of share to new entrants' market gains, falling rates, unprofitable insurers chasing shrinking share and loss of economies of scale. Net commerce both increases the pressure and offers the solution.

Booz-Allen urged that companies:
    1. Understand their target market and the way that they use the Net;
    2. Assure that their corporate strategy drives the chosen Net value proposition;
     3. Tailor their Net presence to customers' needs.
    4. Design a business system to meet these goals.