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October 1 - 3, 2000, The Westin Providence, Providence, R.I.
Companies Looking for Online Success Must Move Fast
By Barbara Bowers, senior associate editor, Best's Review: Barbara.Bowers@ambest.com
Companies that want to succeed online must have the necessary technological expertise--or partner with someone who does--and be ready to move fast, establishing a strong presence early in the game, said Michael A. Cohen, assistant vice president, life/health division, A. M. Best Co.
"In the olden days, it was thought that the big will crush the small," Cohen said. "Now it's the notion that the fast will eat the slow." Thus, many companies are following a "strategy on the fly," he said, with the mandate to "get it mostly right, then fix it after rollout."
Cohen spoke at "E-Fusion: Where Insurance and Technology Converge," a conference sponsored by A.M. Best Co. held Oct. 1-3 in Providence, R.I. Full coverage of the event is available online at http://www.ambest.com/e-fusion.html.
Cohen, who also discussed the evolution of the Internet at Best's technology conference in Baltimore in 1999, told the Providence audience that numerous and profound changes had transpired in the Internet world over the last year and more lie ahead. "The only conclusion I can offer you is that extraordinary change is inevitable," he said.
Internet usage is expected to grow for the foreseeable future, he said. Last year, an estimated 42% of U.S. adults regularly used the Internet, up from 20% in 1998. By 2003, Internet users are expected to total more than 500 million, up from 100 million users in 1998. "Obviously, not all this growth will be in the United States," Cohen said. "There will be tremendous growth in Asia."
In financial services, examples of this trend include:
• online investing, which amounted to 12% of Internet usage in 1998, and is expected to reach an estimated 48% this year.
• online banking, which represented 13% of Internet usage in 1998, and could rise to 15% in 2000.
• online purchasing of any product was performed by 45% of Internet users in 1998. That category could reach 60% this year.
"Usage in transactional situations is growing broadly," Cohen said.
Internet financial-services marketers aren't so much concerned with winning over those who already purchase online as they are with the masses that will begin to do so in the next five years, Cohen said. "They see a vast upside," he said.
The Internet is causing companies to compete and operate in new ways, Cohen said. "Alliances and relationships are more important than ever before," he said. But those companies that have been trying to do and be everything are finding this particular approach a liability. "Too many companies are doing the same thing and not differentiating themselves," he said.
Insurers' activity on the Internet is generally confined to linkless Web sites, the analyst said. Insurance companies are making use of these sites for quotes, referrals to producers, information dissemination and customer-driven policy changes. They are also using their sites for administrating policies, thus breaking down the distinction between front and back offices and, to some extent, the field, Cohen said.
The cost savings are surprising, he noted. Policy administration costs for a basic transaction run $19 for an agency; $8 for a call center, and just 45 cents through the Internet.
"These are startling statistics in an industry that has been cost-challenged for as long as I can remember," Cohen said.
Projections vary considerably on how lucrative online insurance sales might be. Estimates are that from $2 billion to $15 billion of new life premium and from $10 billion to $20 billion of new property/casualty premium will be generated online by 2003, Cohen said.
But the dramatically growing financial services-Internet traffic may well bypass life insurers' Web sites, he noted.
"Will life insurers become obsolete?" he asked. "I don't think so. But only simple, commoditized life insurance products, primarily term, are expected to have meaningful sales over the Internet---and they have low margins," he said. The result isn't likely to lead to obsolescence for life insurers, but a "diminished overall financial-services market share," Cohen said.
He oversees a team of analysts that follows a portfolio of large multiline U. S. life and health insurers, evaluating the financial strength, operating performance and market profiles of these companies. He also serves on the Life/Health Division's Peer Review Committee that determines ratings for every U. S. and Canadian life and health insurance company. | 
