Nationwide offers online price quotations for term life insurance in the Eastern half of the U.S. but requires a prospect to initiate e-mail contact with an agent in order to get them. The particular term policy it offers in this manner is not currently available in all Eastern states. (It is not available in Western states either.) Nationwide Direct, Nationwide's Western operation, offers online auto insurance quotations. Nationwide's Eastern operation offers online auto insurance price quotations from agents in Texas. To obtain such a quotation, the prospect has to use Nationwide's agent locator and click on the agent's "Auto Quote Request" icon.

John Hancock has embraced direct sale of term life insurance via its primary Internet site far more aggressively than any other major U.S. life insurer. Its John Hancock Marketplace Web site offers the opportunity to buy term life insurance directly. It presents a multi-page questionnaire requesting information about prospect demographics, lifestyle, employment, family, medical situation, and ownership of other policies.

Here are some examples of the types of questions posed. Lifestyle questions cover international travel plans, practice of dangerous hobbies (scuba or sky diving, for example), tobacco usage, alcohol usage, narcotic usage, participation in alcoholics anonymous. Medical questions cover name and address of personal physician, date and reason for last consultation, weight loss, current medications, use of counseling for drug or alcohol use, mental or physical impairments, electrocardiogram results, and blood test results.

In other words, the John Hancock site offers a complete insurance application as well as a request for a price quotation. The prospect is asked to select payment method. After that, the prospect is told to expect a call from a John Hancock telephone representative who collects credit card or electronic funds transfer information. Then a telephone underwriter calls the prospect to complete the application based on the information provided online. The underwriter schedules a paramedic visit. During that visit, the paramed presents the completed application for the prospect's signature. If John Hancock accepts the application, it mails a copy of the policy to the prospect. John Hancock also offers an online variable annuity. Given the present lack of clarity regarding the legal status of electronic insurance applications and signatures, John Hancock goes as far toward direct sale of term life insurance as any company can currently go in the U.S.

The above insurers are not the only U.S. insurers that offer term life quotations on the Internet. A number of others do so through various insurance malls. For example, Western and Southern Life and Zurich Kemper Life do so through InsWeb. CNA, discussed above, does also. Allstate (and its Lincoln Benefit Life subsidiary), MetLife, Ohio National, State Farm, Transamerica, and Zurich do so through Intuit's InsureMarket. Prudential and John Hancock, discussed above, do also.

The Rationale Held

There are several plausible reasons for insurers' increased willingness to offer price quotations for term life insurance at their primary sites.

Life insurance industry conditions may be a factor. In many companies, the number of individual life insurance policies sold has decreased during the 1990s. The willingness of both Aetna and Cigna to part with their individual life units (while retaining their managed care operations) reveals a certain lack of optimism about the industry's prospects. The quest for additional capital through conversions to stock companies or mutual holding companies is a symptom of the industry's dissatisfaction with its current structure. In sum, many U.S. insurers are feeling significant pressure to operate differently. One way of operating differently is to use the Internet to bypass agents completely or use them significantly more efficiently (for example, by deploying them in centralized telephone centers to set up paramedical appointments for Internet applicants—as John Hancock has done).

Pressure from insurance malls may make a difference. This column has argued since its first appearance in early 1995 that insurance malls facilitate price comparisons among insurance policies and that successful malls could exert downward pressure on policy prices. No pricing evidence is publicly available at this time. Clearly, however, many leading insurers feel impelled to offer price quotations through insurance malls, a practice that makes direct comparisons possible. The number of insurers offering term life price quotations on their primary sites has grown as well. Thus, what is happening on the malls may be influencing what insurers do on their own primary sites.

It is obvious that even the most aggressive use of the Internet for direct life insurance sales does not produce a sales process that is as customer-friendly as the sale processes of banks, securities brokers, and mutual fund companies. This generalization holds true even if a prospect applies for life insurance on the Internet. The reason, of course, is the back end of the sales process, notably the requirement for a medical exam, the delays associated with providing it, and the delays associated with underwriting.

Consider what happened to an acquaintance of the author who purchased term insurance on the Internet. He filled out the required online form and transmitted his credit card number via the Internet. A day or two later, he received a phone call from a company representative who asked him the same questions he answered on the Internet. The representative scheduled a paramedic exam, which took place several days later. A week had by then elapsed since he filled out the application. The paramedic asked him the same questions he was asked on the Internet and by the company telephone representative. About 10 days later, he received the policy. This sort of back end process is a sales killer.

The major problem with the direct sale of life insurance on the Internet is not the Internet; it is the back end process. There needs to be some electronic method for a prospect who has received a medical check-up within the last year to route check-up results to the insurer electronically. The insurer's automated underwriting system would then analyze the results and reach an immediate decision.