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What's New in
Cybertalk?
by Jean Gora
October 1999
Note: CyberTalk is a
column that appears monthly in LOMA's Resource, the magazine for insurance and financial
services management. To see more contents of the magazine and to see how to subscribe,
click on Resource.
Expanding Online Distribution: Partnerships and Call
Centers
As companies gain more experience with the Internet, their managers become increasingly
confident about how to use it for insurance distribution. One thing many of these managers
do is integrate their Internet and call center operations. CyberTalk recently spoke to two
of them: Diana Scott, vice president of electronic commerce and direct distribution at
John Hancock, Boston, MA, and Dan Flahive, vice president of marketing and business
integration, The Midland Life, Columbus, OH. Both companies distribute their products
through a variety of Internet channels. One such channel is InsWeb, a leading Internet
insurance mall, which recently added a call center to its online operations.
John Hancock
John Hancock has made one of the strongest commitments to Internet distribution of any
large U.S. life insurer. It distributes through its own site; the two leading Internet
insurance malls, InsWeb and InsureMarket; the QuoteSmith Internet broker; and MSN, the
Microsoft Internet access provider and portal. John Hancock paid $7 million to be the
featured insurance provider on MSN.
Scott views the Internet as a wonderful technical tool to make it easier for a company
to do business with customers and business partners. The Internet allows companies to
improve their processes, reduce costs, and improve the customer’s buying experience.
The goal is to provide customers and partners with the right tools and information to make
transactions. John Hancock is building a single systems and business process architecture
that can serve any channel.
John Hancock initially viewed its relationship with MSN as a sort of advertising
relationship. Over time, it became much more, and it eventually allowed Hancock to learn
how to integrate content and messaging in a Web site.
The company has recently launched what it calls "Life Center," an Internet
community that runs on John Hancock’s own site but appears to be part of the MSN
site. The Life Center supplies information to parents on how to keep their children safe
at home, on the go, at school, at play, from peer pressure, from television and the Web,
and if the parent were to die.
The later section of the site is used to sell term life insurance. Banner ads appear on
child-related sections of MSN sites with links to the Life Center. The goal is to get
parents to consult the Life Center section of the MSN site whenever they have concerns
regarding the protection of their children. The idea is that parents will come to trust
John Hancock and, when they are in the market for life insurance, will refer to the site.
John Hancock asks visitors to the Life Center for their e-mail addresses and permission to
communicate with them to advise them of site improvements. Visitors to the Life Center can
e-mail their friends. In its use of the Internet to create an online community of
individuals interested in family issues, John Hancock is following an approach somewhat
similar to that of MetLife.
John Hancock believes that the Internet customer is looking for more than a company
selling products—he or she is looking for brands. As one of the most widely
recognized U.S. life insurance brands, John Hancock is able to profit by this consumer
behavior. By the end of the year, the company expects to have sold 30,000 policies online
and to have acquired 500,000 names and e-mail addresses with which it can communicate.
John Hancock expects to get 30 percent of its direct sales from the Internet. If
consumers who use the Internet for research but purchase by telephone are added to the
total, approximately 80 percent of the company’s direct sales will be
Internet-related. Direct sales still constitute a very small percentage—in the single
digits—of John Hancock’s total sales. The company has recently announced a
discount of 10-20 percent (depending on the risk class) for sales completed totally on the
Internet.
John Hancock has an extremely detailed Internet application. A consumer enters credit
card premium payment data when filling out the application. The company calls the customer
by phone to schedule a visit of a paramedic. The visit occurs on average seven to ten days
after the call. The paramedic takes a paper copy of the completed application when he or
she goes to collect fluids. The consumer then signs the paper copy.
Fifty percent of sales are final after four weeks; 85 percent are final after eight
weeks. The remainder are waiting for an attending physician’s statement, and John
Hancock has no control over the speed with which doctors fill out these statements. In
general, John Hancock finds that it successfully closes a greater percentage of sales
initiated by an Internet application than by a telephone application. Once a person goes
to the trouble of filling out John Hancock’s complex Internet application, he or she
appears to have a strong enough commitment to the purchase to wait one to two months to
get the policy.
In the intermediary channel, John Hancock’s objective is to make the company easy
to use. At present, John Hancock’s mutual fund company operates an extranet targeted
at brokers and dealers that allows them to track customer transactions and customize the
information they receive from the company to meet their own unique needs. John Hancock
plans to extend this practice to its insurance sales force as well.
John Hancock already integrates Internet distribution and telemarketing through its
call center operations and expects to expand this integration in the future. It plans to
add a "call me" button to its site. When the consumer clicks on that button, a
licensed agent in its sales center will respond. If the customer has two phone lines, the
call will come to the customer on a free line so that both the customer and the John
Hancock representative will be able to look at the same Web screens at the same time. In
the case of individuals who do not have two phone lines, a dialogue box will pop up
allowing the customer and the representative to use Internet chat to communicate. A photo
of the real representative will appear on the customer’s screen. When the bandwidth
of the Internet expands sufficiently, John Hancock will offer a live video connection
through the Internet.
The Midland Life
The Midland Life, Columbus, OH, with $1.2 billion in assets, is a significantly smaller
company than John Hancock, but it too is making extensive use of the Internet for
distribution. It sells through InsWeb, the QuoteSmith and SelectQuote Internet brokers,
and InsureRate, an insurance mall operated by HomeCom. InsureRate has an alliance with USAToday
and significant visibility on its Web site. The Midland Life is currently the featured
InsureRate insurance provider on USAToday. Like John Hancock, The Midland Life also
integrates Internet distribution and telemarketing through call centers.
Flahive says his company’s goal is to expand its distribution channels. That
expansion encompasses both the Internet and financial institutions. He believes there are
two keys to success in Internet distribution—distribute through sites that have a
proven ability to generate traffic and follow up Internet leads rapidly.
The Midland Life does not have the brand recognition of larger companies such as John
Hancock and Prudential. Therefore, it places particular emphasis on an Internet
partner’s ability to generate traffic. Flahive likes what both InsureRate and InsWeb
have been doing to generate traffic. InsWeb has been particularly active in establishing
alliances with Web sites that attract high traffic volumes.
According to Flahive, as these alliances have increased in number, traffic through
InsWeb has grown. InsWeb has an alliance with Wingspan.com, the Internet direct bank of
BancOne; that bank has been a particularly important source of traffic. InsWeb is building
its own brand awareness through national advertising and through its early summer initial
public offering.
Because The Midland is less known than some of the other companies that distribute
through InsWeb, it tries to offer a price advantage compared to prices charged by some of
its direct InsWeb competitors. InsWeb operates as a service bureau, charging transaction
fees for bona fide referrals. Some other Internet insurance malls, like InsureMarket,
operate as agents.
Flahive likes InsWeb’s underwriting matrix. The prospect fills out a questionnaire
that includes the typical questions found on an application. A list of insurers willing to
underwrite someone with that profile then appears on the prospect’s screen. The
consumer then chooses which company’s "store" to visit. When the consumer
goes to that company’s store, the company delivers a price quotation. The Midland
Life wants to avoid any possibility of being accused of bait-and-switch tactics and,
therefore, is always conservative in its price quotations.
As more evidence of the way Internet distribution is being integrated into
telemarketing, e-mail referrals received by The Midland from InsWeb and other third-party
sources (not affiliated with The Midland) go to a telephone center for fulfillment.
Licensed agents, who are required to respond to the prospect within 12 hours, staff the
center. The average response time is two hours. Agents respond by both Internet e-mail and
telephone. The phone center staff fill out any additional forms required and arrange a
paramedic’s visit.
The Midland’s Internet sales constitute only a small fraction of their total.
However, the company believes this percent will increase in the future as Internet traffic
builds. Its activities show that even a company without a widely known brand can use the
Internet brands of its partners to its own advantage. It can succeed by leveraging
competitive prices and fast response to boost sales.
Another Look at InsWeb
InsWeb is one of the most aggressive Internet insurance marketers. It distributes the
products of 39 insurers, including John Hancock and The Midland. Products distributed
include auto, term life, homeowners, renters, individual health, and short-term medical
insurance. InsWeb has alliances that generate traffic from 90 different Web sites. The
company made an initial public offering (IPO) of its stock in July 1999. In conjunction
with that offering, it disclosed significant information about its finances and
operations. Here are some of the highlights:
InsWeb generated $4.3 million in revenue in 1998, primarily from transaction fees
generated by referrals of prospective buyers to its insurance company partners. Its
operating expenses in that year totaled $26.2 million. In the first half of 1999, it
generated $8.3 million in revenue and $23.2 million in expenses (on an unaudited basis).
As of June 30, 1999, it had an accumulated deficit of $53.2 million.
Transaction fees on auto insurance referrals generated 75 percent of its revenue in
1998 and 84 percent of its revenue in the first six months of 1999.
Nationwide Insurance owns 11.2 percent of InsWeb’s common stock. CNA owns 8.8
percent.
InsWeb had 228 employees as of June 1999.
During the first six months of 1999, InsWeb generated 19 percent of its traffic through
its alliance with Yahoo!, one of the most popular Web portals. The company generated fully
45 percent of its traffic from all of its Internet alliances combined.
During 1998, 40 percent of InsWeb referrals went to State Farm, 16 percent went to AIG,
and 10 percent went to Reliance Direct. During the first six months in 1999, 31 percent
went to State Farm, 12 percent to AIG, and 11 percent to American Family.
The InsWeb IPO price on July 23, 1999, was $17 a share. In the third week of August,
the stock was trading at about $23 per share.
InsWeb is expanding its activities internationally and owns 25 percent of InsWeb Japan.
Softbank, a Japanese software company, is an important investor.
InsWeb typically takes between three and six months and between 160 and 2,000 hours of
work to add a new insurance company partner to its site.
InsWeb has been eager to expand its activities into the customer service area. One of
its insurance partners told CyberTalk earlier this year that it was reluctant to give
InsWeb greater control over the customer relationship for fear of losing the customer.
InsWeb now appears to have found a way to expand its activities in the service
area—albeit service in support of sales—without antagonizing its partners. As
the examples of John Hancock and The Midland Life make clear, Internet distribution is
rapidly being integrated with telemarketing, and call centers play an important part of
the fulfillment process. In some cases insurers run their own call centers; in others,
they use the call centers of third parties. In August, InsWeb entered the third-party call
center business in support of its Internet activity. The hope is that by offering
consumers the opportunity to ask questions by telephone, InsWeb will be able to increase
the referrals to its insurer partners. The call center is called eCare. Its initial
activities will focus on auto insurance, but over time, these activities will extend to
other products.
It will be interesting to see how eCare’s activities evolve. As the
examples of John Hancock and The Midland Life show, some insurers staff their call centers
with licensed agents. If InsWeb does the same, over time its business model could evolve
into one that more closely resembles that of insurance malls that impose agent rather than
transaction charges.
The finances of InsWeb reveal that it is one of many Internet start-ups funded
primarily by investors rather than customers (although in some cases the two overlap). It
has, however, been successful in building relationships with insurance companies, which
are in one sense its customers as well as its partners. If InsWeb itself is not yet
operating at a profit, its insurance company partners may be profiting from the
relationship. InsWeb’s pricing model means that policy size has no impact on revenue.
Thus, its relatively modest revenue stream could be generating important revenue for its
partners. InsWeb clearly affords its two largest investors, Nationwide and CNA, one of the
best views available into the world of insurance electronic commerce.
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