"Internet Selling's Limited Role Not Seen as Death Knell "

Permanent life insurance doesn't lend itself very well to Internet selling, an A.M. Best Co. analyst said today.

A.M. Best Assistant Vice President Michael A. Cohen said the Web's increasing influence on financial services doesn't spell obsolescence for life insurers.

Cohen made his comments before insurance industry executives and technologists gathered in Baltimore at A.M. Best's annual insurance information and technology conference.

"Selling on the Internet works best with simpler, more transactional products," such as term life, Cohen said. "Permanent life insurance--with many purchasers desiring expert advice as part of the sales process--is not particularly well suited to Internet selling."

Among the prerequisites for successful selling on the Internet, Cohen mentioned extensive links with other companies' Web sites and information aggregators. Such links are necessary, he said, for building enough breadth and depth to maintain significant traffic and economies of scale.

To date, he said, the vast majority of life insurers' Internet activity has been confined to "linkless" Web sites dedicated to a company's own business activity. These sites primarily provide quotes and referrals to agents, information dissemination and administration. Some also provide online financial-planning tools.

He also noted that "58% of life insurers' Web sites cannot respond to a customer's e-mail; 60% of life insurers recently queried have no plans to sell products on the Internet in the foreseeable future; and online sales (nearly all of which are term life) comprise less than 1% of total life sales and are expected to comprise no more than 15% by 2003."

By contrast, Cohen noted, Internet use for online banking has increased to 29% in 1999, compared with 13% in 1998; online investing, to 20% from 12%; and online purchasing of nonfinancial products, to 60% from 45%. He said he expects Internet use of these products and services to continue to grow significantly over the next few years.

Given the facts that only relatively simple life products such as term life are well suited to selling over the Internet, and that dramatically growing financial-services Web traffic is likely to bypass insurers' Web sites, will life insurers become irrelevant in the digital economy?

Cohen said he believes that won't be the case.

"Life insurers certainly will experience a decline in their overall share of the financial-services market," he said. "But the need for permanent life insurance is not going to go away. As long as the need for the product exists, so, too, will the need for expert advice and guidance that the Internet cannot yet provide."