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E-Insurance: Analysis of the
Impact and Implications of E-
commerce on the Insurance
Industry
Anshu Arora
Dissertation submitted for the award of Msc in
Actuarial Management
Cass Business School
Faculty of Actuarial Science &Statistics
106 Bunhill Row
London
EC1Y 8TZ
May 2003
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ABSTRACT
The term 'e-commerce' has become widespread- a force that is here to stay. E-
commerce andthe Internet are increasingly becoming one of the most important
drivers of strategic change for business and national governments. Yet the insurance
industry has been lagging behind other financial services to embrace this new change
within its activities. The Internet has enormous potential, as it is a medium that
provides cheaper and more efficient communication links. This dissertation analyses
the current developments and trends within the insurance industry. It also assesses the
extent to which e-commerce affects the day-to-day activities of insurance companies
and examines some of the implications of e-commerce on the life insurance industry
and associated sectors.
As boundaries between businesses are reduced and a greater level of customer
empowerment is seen, the very nature of financial services may change. Four
postulated strategic business models arising from e-commerce are: intermediary
marketplace, work-site marketing, eyeball attractor and transaction processor. Within
the insurance industry, there shall be less of a distinction between short and long term
insurance products and product design and the pricing of such products shall
dramatically adapt to come in line with Internet selling methods. This however may
affect the long term financial stability of the insurance company with insurance
companies having to lower their profit margins to compete on-line and the dynamic
nature of e-commerce having valuation, solvency and appraisal implications, as well
as affecting the actuarial control cycle.
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ABSTRACT..................................................................................................................1
1 AN INTRODUCTION TO THE INTERNET .......................................................5
1.1 THE INTERNET WORLD WIDE WEB AND E-COMMERCE...7
1.1.1 The Internet.....71.1.2 Electronic commerce.8
1.2 CURRENT DEVELOPMENTS AND USAGE IN INSURANCE...8
1.2.1 Developments81.2.2 Usage .10
1.3 THE E-MATRIX 11
1.4 CURRENT TRENDS WITHIN THE INTERNET.14
1.4.1 Customer power..141.4.2 Boundary reduction15
1.4.3 Speed 151.4.4 The digital revolution.151.4.5 Connected Workforce.16
2 CURRENT ISSUES WITHIN THE INSURANCE INDUSTRY.......................17
2.1 NEW MARKET PLAYERS..17
2.2 GLOBALISATION.....17
2.3 R EGULATION AND DEREGULATION ..18
2.4 THE AGEING POPULATION...18
2.5 SOCIAL CHANGES...19
2.6 CHANGES IN THE TYPE OF TRANSACTIONS.19
3 THE INTERNET & LIFE INSURANCE: IMPACT AND IMPLICATIONS.20
3.1 CURRENT POSITION OF INTERNET USAGE BY LIFE INSURANCE COMPANIES... 20
3.1.1 Web Presence Stage203.1.2 Interaction Stage..20
3.1.3 Transaction Stage.. ....21
3.1.4 Enaction Stage.21
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3.2 IMPLICATIONS FOR LIFE COMPANIES..22
3.2.1 Survival of the fittest...223.2.2 Specialisation...233.2.3 A Niche scenario.24
4 THE INTERNET & OTHER MARKETS: IMPACT AND
IMPLICATIONS........25
4.1 IMPACT ON INSURANCEBROKERS.....254.2 IMPLICATIONS FORREINSURERS....27
5 BUSINESS MODELS ............................................................................................295.1 INTERMEDIARY MARKETPLACE MODEL.29
5.2 WORKSITE MARKETING30
5.3 EYEBALL ATTRACTOR32
5.4 TRANSACTION PROCESSOR33
6 FINANCIAL IMPLICATIONS OF THE INTERNET AND
INSURANCE..35
6.1 THE PRICES OF PRODUCTS..35
6.1.1 Competition for commodities..35
6.1.2 Dynamic pricing.356.1.3 Privilege Pricing366.1.4 Change traditional actuarial pricing models..36
6.2 IMPACT ON CAPITAL AND LONG-TERM FINANCIAL STABILITY..37
6.2.1 Capital costs...37
6.2.2 Reducing costs potential..376.2.3 Reduced Margin.s.38
6.3 IMPACT ON APPRAISAL VALUES38
6.4 IMPACT ON VALUATION AND SOLVENCY REGULATIONS..38
6.5 DOT-COM SHARE PRICES.39
6.6 IMPACT ON THE ACTUARIAL CONTROL CYCLE.40
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7 E-SECURITY WITHIN E-
COMMERCE...41
7.1 KPMG INFORMATION SECURITY SURVEY.41
7.2 THE WAY FORWARD42
7.3 THE E-COMMERCE DIRECTIVE & REGULATIONS..44
8 CASE STUDY: EAGLE STAR DIRECT...46
8.1 BACKGROUND OF SETTING UP THE WEBSITE..46
8.2 EAGLE STARDIRECT EXPERIENCE EXAMPLE48
9 THE ROLE OF THE ACTUARY..51
9.1 STRENGTHS51
9.2 WEAKNESSES.51
9.3 OPPORTUNITIES.52
9.4 THREATS54
10 CONCLUSION..57
APPENDIX..59
BIBLIOGRAPHY.60
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1. An Introduction to the Internet
The term e-commerce' has become widespread; a force that is here to stay. E-
Commerce and the Internet are increasingly becoming one of the most important
drivers of strategic change for business and national governments. Similarly, it is
beginning to have a significant impact on people's lives. Everyone from shops to
financial institutions is looking for ways to leverage the Internet for increased
revenues, improved profitability and greater customer/brand loyalty.
The spectacular returns on 'Dot Com' firms have made companies such as Yahoo!
and Amazon.com household names. In an article in U.S. magazine Fortune, it was
noted that Venture capitalists invested $5 billion in 1998 for Internet ventures a
533% increase since 1995, with an additional $2 billion invested in the first quarter of
1999.
Yet with the bright light shining on the future of e-Business, recent research by
Deloitte & Touche raises some disturbing facts for the insurance industry. Only about
10% of insurance companies believe that the Internet and online services are currently
very important in relation to overall information technology expenditures. That figure
only rises to about 50% when asked if it would be very important in five years.
Clearly, this issue needs addressing in depth as to why this is the case.
The main purpose of this thesis shall be to critically examine the impact of e-
commerce, with specific reference to the insurance industry. Firstly a brief
introduction to the Internet and e-commerce shall be given, considering the current
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usage, developments as well as characteristics of each type of e-commerce
transaction. The second chapter shall focus on issues currently surrounding the
insurance industry and how the Internet has changed these. Chapters three and four
shall discuss the impact of the Internet on the life insurance industry and other
markets respectively. Chapter five shall describe and evaluate some of the business
models that are currently forming within insurance e-commerce. Chapter six shall
examine the financial implications of the Internet and Insurance in terms of product
design and its pricing and the impact on capital and long term financial solvency.
Chapter 7 shall focus on issue surrounding the security of e-commerce useage,
examining the e-commerce directive and discussing KPMGs research into current
security.
Chapter 8 examines using Eagle Star Direct as a U.K. specific insurance company
case study and the issues surrounding the setting up of a successful insurance website.
Chapter 9 focuses on looking at how the role of the actuary fits can add to the e-
commerce environment in terms of the strengths, weaknesses, opportunities and
threats actuaries can create.
Finally, the conclusion shall link up the whole project, extracting the main
implications of e-commerce on the insurance industry and suggesting extensions for
further research.
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1.1 The Internet World Wide Web and e-commerce
1.1.1 The Internet
Originally created in 1983, the Internet was primarily intended for organisations in
defence-related research, namely ARPANET (Advanced Research Project Agency
NETwork), to provide a secure and reliable communications network.
Today the Internet is a global network, which connects smaller networks by the use of
a common addressing system, and communications protocol called TCP/IP
(Transmission Control Protocol/Internet Protocol).
The World Wide Web enables quick and user friendly access to various information
sites and saw an exponential growth rate during the 1990s, becoming the most
significant aspect of the Internet. The websites are connected to one another by
means of hyperlinks, which are written in a language called HTML (Hypertext Mark-
up Language). The user may gain direct access to that specific website by means of
typing in the allocated URL (Uniform Resource Allocator).
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1.1.2 Electronic commerce
Electronic commerce may be defined as being
Any form of business or administrative transaction or information technology
exchange that is executed using any information and communication technology1
With the growth of commerce on the Internet and the World Wide Web, e commerce
often refers to purchases from online stores on the Web, otherwise knows as e-
commerce Web sites. They may also be referred to as "virtual-stores" or Cyber
stores. Since the transaction goes through the Internet and the Web, some have
suggested another term: I-commerce (Internet commerce), or i- commerce. E-
commerce can be business-to-business (B to B) or business to consumer (B to C) and
two other variants of this. This shall be examined in further detail later.
1.2 Current Developments and usage in Insurance
1.2.1 Developments
Compared to other areas such as on-line brokerage and on-line banking, development
of the Internet in the insurance industry has been less extensive. The effect of e
commerce is the subject of intense debate in the insurance industry, although actual
translation into solutions is still in its early stages. In personal insurance (e.g. motor,
1Reference: e centreUK
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private liability and household contents), a recent Swiss Re survey predicts on-line
channels to have gained a market share of 5-10% in the US, and 3-5% in Europe by
2005. In the area of standard insurance products, where there is little need for advice,
traditional brokers are facing considerable competition because of decreasing
information costs. In the cases of more complex products (particularly pensions, life
assurance and health insurance products) competition has been less intense.
In Europe, three main companies dominate Internet insurance: the UK insurer
Prudential, Skandia of Sweden (Skandia Banken) and AXA, a French insurer that has
been very successful in the US with its DLJ Direct Financial Service. A Forrester
survey has identified the rise of virtual insurance supermarkets in response to
consumer demand for comparison, shopping for mortgages, insurance and funds.
Predictions say that these will dominate the market by 2005. A number of companies
are now selling life assurance over the Internet directly to consumers. This sector
looks sure to expand. (The launch of the NetBank and Insurance.com combined
website being a good example). Such sites will provide customers with information
and quotes on home, life, health and other insurance products.
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1.2.2 Usage
Currently, some 220 million people around the world are online and Internet usage is
projected to grow to 350 million users by 2005. According to Dataquest a US based
Research Company, worldwide retail sales over the Internet were US$ 31 billion in
1999 and will be US$ 380 billion by the end of this year (2003). Further research
predicts that electronic sales of financial products shall increase five-fold by the end
of this year to become the single largest service sold online.
Fig: 1.2.2: Prediction of growth pattern
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1.3 The e-matrix
Internet activities can be broadly categorised by the following matrix2
Business Consumer
B2B B2C
C2B C2C
2Source: E-Actuaries ibid. The Economist
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Business-to-Business (B2B) is where a large company invests all of its resources
within the Internet and its activities. Web sites that allow secure connections between
the companies internal web site (called the Intranet) and users who may be accessing
the facility from a remote location facilitate this. Such a system is called an extranet;
a good example being Cisco systems whose operations involve trade in computer
hardware. Cornall, Monica J et al (2000) mention that in 1999, B2B transactions
represented 85 percent of total e-commerce revenues.
One of the most recent developments has been the creation of B2B online exchanges.
Analysts predict that by 2003, over 35 percent of Internet transactions are completed
via these exchanges. Exchanges may be used to efficiently acquire a firms inputs
and sell its outputs to its targeted market. Commercial insurance and reinsurance are
examples of areas that are ideally suited to the online exchange concept.
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Business to Customer (B2C) is where having greater accessibility increases retail
market share and the customer has more awareness of the exact services and products
offered by the customer. An example of this would be Lasminute.com
Researchers believe that the gap between business to consumer (B2C) and B2B shall
widen at a dramatic pace over the next several years, with B2B growing by 100
percent annually, while B2C is only expected to grow by 50 percent per year.
Customer to Business (C2B) enables the customer to directly contact the business
more so than the other way around. For example
Customer-to-Customer (C2C) allows customers to deal with other customers through
an intermediary. For example, Names123.com allows customers to place a bid on a
particular web site name and keep track of their bid by the use of password account
information.
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1.4 Current trends within the Internet
1.4.1 Customer power
Owing to the accessibility, user friendliness and low barriers to entry customers can
readily compare offerings between companies and find the most suitable offer for
them within a relatively short period. As suppliers become increasingly accessible,
the market becomes more disintermediated. Sites that continually revise offerings to
customers facilitate commoditisation. However as such open competition there arises
the necessity for customers to regard branding as a key source of competitive
differentiation amongst businesses. Quality and price also influence market share in a
market where the customer expectations are continually becoming more demanding.
Indeed if customers collude together (C2C) this power increases even further. Poor
service quality becomes more significant as bulletin boards can spread news of such
and drastically effect business credibility.
As businesses target the customer directly, push-marketing strategies, whereby
intermediaries are more involved in the marketing of products, become increasingly
the key to success. The web enables consumer-purchasing decisions to be analysed
even on a one-to-one basis. However hand in hand with this advantage comes the
danger of violating personal information regarding a customer under the Data
Protection Act.
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1.4.2 Boundary reduction
As business boundaries reduce themselves, value network becomes more established
whereby other extra services in addition to a customers purchase are available. As
mergers and acquisitions between firms becoming increasingly common, each firm
can concentrate on its core activities and outsource other non-core components of
their business. Furthermore, extranets facilitate collaboration between customers
distributors and the firm.
1.4.3 Speed
The evolution of value chain into a value network speeds up the delivery of the
service to the customer. Factors of competitive differentiation such as price demand
and competition are readily available to a firm, which allows real, time dynamic
pricing. As simulation of business models is significantly easier and quicker on the
net than in real life and fewer barriers to entry exist on the net, maintaining an
innovative product becomes somewhat harder for companies.
1.4.4 The digital revolution
There is a transition from obtaining items, which are tangible to intangible products or
services at every stage of the buying process. This facilitates price, quality and
efficiency. A good example of this is the move towards the purchase of MP3 files
instead of buying a CD.
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1.4.5 Connected Workforce
Intranets within a company allow management to communicate with employees in a
fast efficient manner at fraction of the traditional cost. Moreover, employees can
communicate with one another, thus enabling virtual communities of the best staff for
a job to collaborate and provide the best solutions to the business needs, irrespective
of time, distance and language constraints.
With the age of this wired workforce comes the disintermediation of certain
management and other staff being given greater responsibility. The management and
implementation of knowledge in an efficient manner throughout the firm becomes a
key source of competitive advantage.
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2 Current issues within the insurance industry
A number of issues within the insurance industry need addressing. Where relevant
the impact of the Internet on these issues shall also be analysed.
2.1 New market players
Many new firms have ventured into the UK insurance industry to include banks,
building societies, and non-domestic insurance companies and privately owned
companies. These new entrants largely form allegiances with the traditional market
players. However, the major barrier to entry is distribution. The Internet overcomes
this and by having low barriers to entry encourages new players into the insurance
market. Moreover, it emphasises the significance of being competent in branding and
direct marketing i.e. company advertising.
2.2 Globalisation
Historically the UK insurance industry has been domestically based with little or no
international focus. Barriers to entry such as tax, legislation, government, distribution
channels and culture have meant that even a pan-European industry has failed to
flourish in the past. However, as economies of scale and comparative advantage lead
to global cost efficiencies and also partly due to the trend towards a standard
European currency, pan-European companies have more of a chance to be established
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thus facilitating globalisation. The Internet directly facilitates this globalisation and
allows a global distribution potential to exist, although the other barriers still must be
overcome.
2.3 Regulation and deregulation
In the past, the domestic insurance market has had little regulatory control, with the
emphasis being on freedom and openness. However to offer greater consumer
protection and to follow in line with other countries, the U.K. market has undergone
more stringent legislation and regulation to provide specific professional guidance.
Ironically, the reverse has also occurred with new market players encouraged to enter
the UK domestic insurance market e.g. Tesco Insurance. The Internet effectively acts
as a push mechanism for the government in providing solutions that are different
from those already in place (such as stakeholder pensions). In addition, it allows
regulatory change into place, emphasising customer focus and reducing the
boundaries between banking and insurance.
2.4 The ageing population
As the longevity of life increases and the birth rate falls, the burden upon government
social security schemes takes its toll i.e. the dependency ratio increases and there
arises the opportunity for private firms to enter the market, encouraged by the
government.
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2.5 Social changes
Changes in patterns of employment, such as flexi-time working, means a new type
of customer with different requirements. The Internet largely facilitates this by
changing working and living habits and allowing more working from home.
Consequently this has several implications for the type of insurance people want to
buy e.g. employees may not thus need longer term types of insurance; the risk and
rating factors may be reduced etc.
2.6 Changes in the type of transactions
It has been predicted that in the future business-to-business transactions will exceed
business to customer transactions as B2B transaction size and frequency is larger.
Moreover, business infrastructure will make way for enhanced consumer options and
increased consumer spending in the future. Due to the extensive supply chain (many
business supplying the customer being interlinked and interdependent) many systems,
databases and networks are incompatible and hence the insurance industry has
problems with sharing data. For example, many insurance brokers are not linked to
insurance companies themselves and hence are unable to upload or download
information. Another example is the lack of a systematic link between an insurer and
a reinsurer. Current changes to resolve this dilemma include building links between
supply chains e.g. a system that enables an insurer to obtain underwriting data from
information suppliers.
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3 The Internet and life insurance: impact and implications
3.1 Current position of Internet usage by life insurance companies
Stages of incorporation of Internet into existing businesses can be broadly categorised
into four main stages.
3.1.1 Web Presence Stage
To obtain on-line quotes on a contract that they may be interested in and the activities
of the company are largely targeted activities. However there is no processing of the
information past this stage and a customer must obtain an application form to process
the transaction any further.
3.1.2 Interaction Stage
This is where a company uses web pages to provide information about their products
and services i.e. corporate information, to include financial statements and balance
sheets. This stage is very basic and apart from raising brand awareness, there is no
real significant impact and incorporation into existing businesses.
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3.1.3 Transaction stage
This is where the company has enhanced information technology and may even have
facilities for customers to place orders and transactions
3.1.4 Enaction stage
Here the company has used the net and IT. to redefine their business and are known as
e-enabled businesses. The emphasis is on interactive customer relationship
management and full integration of Internet facilities into the company. An example
of such a company might be Cisco systems.
Currently most companies are in the interaction stage and thus need to upgrade their
business value by making the Internet an integral part of their business value and
despite the insurance industrys hesitancy to embrace the Internet as a channel for
distribution, the outlook over the next five years is very positive.
While the online insurance marketplace represented only about $1.9 billion in
premiums ($1.6 billion net-influenced sales and $0.3 billion online sales) in 1999, this
market is expected to grow to $11.1 billion in premiums ($7 billion net-influenced
sales and $4.1 billion online sales) by 2003. 3
3 Source: Forrester Research.
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A recent Gartner Group study indicated that 72 percent of insurers surveyed stated
they would provide online quotes, and 39 percent indicated that they would be able to
complete sales online by the end of this year.
Appendix A shows some of the major retail based websites available in the U.K.
toward the end of 1996.4 Although it may initially suggest Internet incorporation
within the insurance industry, it is important to appreciate that the level of this
Internet technology incorporation has been to the interaction stage.
3.2 Implications for life companies
3.2.1 Survival of the fittest
One possible impact of the Internet in the future will be the position whereby only a
small number of companies shall exist owing to economies of scale in
commoditisation. Having established a strong brand, their support services for their
products will be diverse and be innovative and technological. Inclusion a muti-
channel distribution strategy along with bundling a variety of secondary related
products will help them to provide insurance products for both the long and the short
term.
These companies will be the result of the merger and acquisition of several existing
financial companies and may be a global venture. Profit margins although
deliberately kept low will exist and the emphasis shall be on high volume, minimum
4
Source: Wire Ltd The Internet & Financial Services
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unit cost sales, with heavy investment of capital in advanced technology. The target
sector will be the average person who has relatively simple insurance needs.
Customers may find that loyalty discounts exists and they shall be quite happy to
purchase other products from these big market players.
3.2.2 Specialisation
Here each company will choose to concentrate on their core business competencies
outsourcing non-critical components and leaving the distribution of their products to
independent firms, such as supermarkets, who have a wider consumer base. There
shall be a trend towards a virtual office environment.
Communication between manufacturers and distributors (B2B) would be by using
extranet facilities and allow one to one marketing. It will be imperative, from a
competitive point of view, for insurers, to offer online transactive services and to
participate in B2B online exchanges. On the positive side, the expansion of this B2B
e-commerce should result in cost-savings for policy administration.
The industry would see a deregulation with branding and diversity of the distributors
customer base becoming key sources of competitive advantage. White label
products would become increasingly common as competition increases and new
players emerge. The resulting effects will be the demise of many small and medium
sized companies and a reduction in the number of Independent Financial Advisors.
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3.2.3 A Niche scenario
As the number of people surfing on-line increases every day and wealthier and more
educated customers display sophistication about them a niche market might develop
in the future to meet the complex financial requirements of such customers, who have
complex financial needs. These needs will include continual personal expert advice
through channels such as Independent Financial Advisors or a Direct Sales Force
Team as well as self-education support in the form of information available to the
customer on the Internet. As innovative products and quality of service become
overriding issues, administration becomes complex and expensive and indeed
customers may choose to forms C2C alliances to sell second hand endowments, for
example.
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4 The Internet and other markets: impact and implications
4.1 Impact on insurance brokers
The market in which insurance brokers operate is very diverse. Consequently, the
potential of e-commerce is also diverse. An investment broker will advise on which
type of investment product or investment fund matches a customers risk tolerances
and personal circumstances, including tax issues. These factors are variable and
hence the broker is, from a business point of view, in a good position.
Moreover, customers are aware that insurance is a necessity and not a luxury and
hence are prepared to take time to seek advice in relation to a lower-cost best value
approach.
Within the corporate market, brokers are aware of the importance of a best value
approach in terms of cost and creditworthiness. Brokers also advise on corporate
pension issues in terms of selection of investment managers and assessment of
solvency risk. Direct dealing insurers however, who promote cutting out the
middleman, are replacing the role of the non-life broker.
Moreover, the position of the smaller retail insurance broker is very different to their
larger competitors.
By a combination of web-based marketing sites and the facility of transmission of
data between systems using a standard interchange facility may facilitate low cost
electronic trading for brokers which may be paramount to the survival of the smaller
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broker. Web-enabled TVs would increase the potential market and thus provide even
greater savings.
Also Internet usage allows an alternative to the traditional manned claims desk by
allowing free exchange of information on claims procedures. All, however, face the
threat of disintermediation and broker commission rates are under threat. This has
been partially due to the Internet, as customers go direct with the underwriters.
Brokers have responded to this by increasing the range of risk management services
that they offer. However, this still does not deal with the issue of the Internet being
responsible for edging them out of the market altogether, as the development of a
Universal Electronic Data Interchange allows communication between customers and
insurers that is more direct.
Not all is bad news. Indeed the Internet can be advantageous for the broker in terms
of providing them with a faster more cost efficient method of transferring information
globally and hence enabling them to pass on the savings to their customers and hence
attract more business.
The Internet is also changing the role of the broker from an intermediary to an
infomediary who conveys information to the customer. As markets become
increasingly dependent on standardised information such as the FTSE indices, the
broker becomes the supplier of information that affects these indices.
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The Internets ability to improve the communications highway may stimulate
development of securities, thus making the market more complex but fruitful for the
broker.
In essence, the Internet could speed up trends that are already present in the market.
If this is the case then only those brokers, who are continually re-evaluating their role
and its changes due to the Internet, will be able to reap the full benefits. Indeed
ignorance of this technology may result in significant consequences.
4.2 Implications for reinsurers
This topic is somewhat difficult to address, as reinsurers have minimal Internet based
activity. The problems they face are different to brokers as they are not involved so
much in the transfer of information and they are more the risk bearers. The ease of
information sharing allows customers accounts to be continually monitored by
reinsurers. It will also mean that they are up to date, thus making renewal simpler.
Moreover, this data is easily manipulated and stored thus decreasing administrative
costs.
Within the London market this advantage is readily apparent with organisations such
as Lloyds enjoying the increased efficiency gain. However, the Internet facilitates
competitors in the reinsurance industry such as the Bermuda reinsurance centre.
These centres have benefited greatly from the impact of the Internet as distance and
location has been a traditional barrier to entry. Furthermore, such centres are in an
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ideal situation to postulate legislation for newer forms of e-commerce that would
complement their existing tax position and hence generate even further business.
These competitors have undoubtedly affected the traditional market share that Lloyds
enjoys and thus it is imperative that such points should be considered.
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5 Business Models
This chapter will examine some of the models that are evolving within e-commerce
5.1 Intermediary Marketplace model
This model is where the main body connects with an associated organisation that
allows an ever-increasing number of buyers and sellers to interact, based to B2C
transaction. It enables a commodity to be sold for the right price and the commodity
to be suitable for the buyer. The model emphasises consumer choice and power. As
customer awareness increases and competition becomes fiercer, intermediaries may
set up on the Internet. These companies may compile information search for the
consumer in relation to the best deal for them and based on this provide them with
link to the most suitable sites.
However it is fundamental to question, suitable for whom the customer or the
insurance firm? It is clear that such companies would generate revenue from
companies using their services as a push strategy for their own business. Indeed to
make full use of the Internet potential they should provide additional services for the
company such as online underwriting.
Note, however, that such a model would have a more profound impact on the retail
financial advisor market rather than the insurance market. It inevitably gives power to
the consumer whose expectations are continually rising, hence increasing competition
even further and decreasing profit margins.
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An example of such a model is InsWeb, which acts as a trusted third party between
customer and the insurance company. It provides a marketplace so that consumers
can research and shop from companies. From an insurance companies point of view
InsWeb provides a captive audience of pre selected, quality referral candidates.
The model is a relatively feasible one but it should be ensured that high competition
within the market exists. Success of this model largely depends on having good
suppliers, a large frequency of hits on the website and brand recognition.
Technology is also important in improving the flow of business and hence retaining
customer business.
5.2 Work Site Marketing
This model is a B2C model with a B2B delivery mechanism. The idea is to
effectively serve the employee benefit market especially potential buyers of financial
service products. The marketers of these model design products for this target group
via specific web or Intranet forums (see fig 5.2). Employees of the host company can
then, at no cost to the host or employee, manage their employee benefits (that have
been provided by the host) as well as purchase other optional items of insurance (e.g.
car insurance). Revenue is generated primarily through commissions from product
providers. Other revenue may be generated through advertisement.
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This strategy has potential as it serves a considerable sized market, which is
underserved. The main advantages of this model are:
It aggregates consumer buying groups which achieves market power and
discounts
Facilitates product customisation
Host Company receives good employee benefits management administration
at no cost to themselves, hence easing the burden on the human resource
department.
As the structure of the benefit is in line with the payroll system there are less
costs which means better terms for the employee
A current example of this model is AnswerFinancial
Figure 5.2: Work Site marketing for one company
Host Company
Work sitemarketin web
Employee Employee
EmployeeEmployee
Employee
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5.3 Eyeball attractor
This model is similar to the marketplace model. It is a B2C model which has an
extensive distribution capability. Its main purpose is to attract consumers from the
web for a predefined set of products and act as a reference site for link to
manufacturers that are recommended. An example would be if screened customers
visit the web site to try to find the cheapest holiday insurance and is then referred to
an insurer providing such a service. Revenue is generated from the referral stage.
C= Consumer
S= Supplier
Fig 5.3: Eyeball attractor model
S
S
S
Eyeball
Attractor
C
C
C
C
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This model is the cost commodity based out of all of the models and marginal value
will be difficult to obtain in the long run. Success is largely dependent of having
correct links to the manufacturer web site and a strong hit rate on the website.
Obviously considerable technology is required to maximise the efficiency of this
model. For example, if the web site is to ask a customer to fill in their detail then it
must e ensured that all details that are required by the manufacturer of the product are
correctly in place on the application form and that the technology for data transfer
between the eyeball attractor and the manufacturer is compatible.
Survival of the website shall largely depend on maintaining a high number of visits to
the website. Note that costs to gain customers in the first place might not necessarily
be recovered by customer loyalty.
An example of this model is InsuranceBenefits.com
5.4 Transaction processor
This model is B2B. The structure of the model is like a matrix whereby it has
exponential links to any number of companies along an industry vertical. These links
add value by using the web to increase the efficiency between supply chains, thus
reducing friction costs. For example, such a model would allow flows between an
insurer and a reinsurer through an electronic network. The benefits would be a faster,
real time communication within the network as well as a reduction in the
administration costs involved.
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Success in this model is largely dependent on innovative technology, business
recognition within the relevant industry and widespread usage amongst the industry.
The main goal shall be to become the industrys motorway and standard. Examples
include SelectQuote and CyberComp.
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6 Financial Implications of the Internet and Insurance
6.1 The prices of products
6.1.1 Competition for commodities
As the Internet facilitates price comparisons to be made very quickly and customers
expectations of quality service continue to rise, price competition increasingly
becomes a source of competitive advantage. As new players enter the market and
defy traditional systems of insurance, by using advanced Internet technology, they
intensify this situation. This could mean that the long-term solvency of certain
insurers could be at risk.
6.1.2 Dynamic pricing
Traditionally premiums have been calculated using pooling of risk and 19 th and 20th
century mortality tables. As customer expectations rise, they may expect offices to
update their premiums in line with their actual experience. The Internet not only
enables this but also theoretically could allows the calculation of a real time premium,
based on up to the minute claims experience. However, this might lead to a situation
whereby the customer demands that their premium is not used to subsidise someone
elses, who may have a higher risk exposure than them. This might mean that higher
risk customers may become excluded.
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6.1.3 Privilege Pricing
Insurers may choose to lower a particular premium if they know that it is likely that a
customer shall retain their custom with them over a long period e.g. a pension. The
way in which associated products can be targeted and marketed at that customer
makes the proposition have even greater economical potential. However, the cost for
getting it wrong can be all too high as well. Hence, lifetime value pricing becomes
paramount to success and the real time scope of the Internet enables such information
to be shared globally amongst insurers so that this complex process can be done more
accurately.
6.1.4 Change traditional actuarial pricing models
Historically premiums have calculated by working out the expense per policy. This
does not take into account the way in which volume of business decreases marginal
cost. Hence this may mean the traditional market players who base their premium on
the old model are charging more than their competitors, who have lower costs by
using Internet efficiencies. Hence, in the future companies must ensure that their
expenses are based on real life pricing techniques and are kept as low as possible to
attract as much new business as possible and indeed retain existing business. Indeed
other ways of generating revenue such as web space advertising and selling customer
information might change that final premium and hence attract business from their
competitors.
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6.2 Impact on capital and long-term financial stability
6.2.1 Capital costs
Although it is cheaper to build a web site rather than an office cost still exist. Initial
costs such as web site design and strategic and implementation design can accumulate
to a substantial sum. An example of this is Zurich financial services spending 100m
on the development of a global e-business exchange.
6.2.2 Reducing costs potential
The Internet facilitates cost reductions, especially in administrative terms by using a
straight through processing system. It also reduces distribution costs, as the Internet
favours pull rather than pull strategy. Figure 6.2.2 shows the policy administration
charges for the Property & Casualty insurance market. Clearly it can be seen that
the internet has considerably lower costs per policy compared with the agent/broker
and call centre.
0
5
10
15
20
Agent/Broker Call Centre Internet
$
perpo
licy
Fig 6.2.2 Policy Administration charges for personal lines Property & Casualty
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6.2.3 Reduced Margins
As customers expectations rise in terms of higher quality of service and lower prices
competition amongst e-insurance players will increase. This shall inevitably cause a
situation whereby competition is such that profit margins will be cut to gain a bigger
share of the market. Indeed, companies who do not advocate this philosophy may
suffer consequently. Retaliation of these companies by using one-to-one marketing
techniques, better customer relationships and cross-selling may work depending on
what extent these companies are prepared to invest in such techniques.
6.3 Impact on appraisal values
The traditional method old discounting Present Values of Future Profits at a risk
discount rate will become harder to calculate in a constantly changing Internet
environment. The Internet and one-to-one marketing techniques allow a company to
evaluate the value of a new business from existing customers. New business from
new customers could be evaluated more accurately if greater research was done into
the demographic market. These aspects together make the traditionally difficult
calculation of goodwill somewhat easier.
6.4 Impact on valuation and solvency regulations
As boundaries are reduced between e-financial services, the industry hasnt merged
in terms of regulation and tax treatment. This has lead to regulatory arbitrage to exist
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within the financial services. For example First-e is open to all UK customers but is
not regulated by the FSA. The web site allows more attractive rates of interest to be
offered to the customers, as it is not UK regulated. Customers can also benefit from
the differences in the valuation basis between countries and hence obtain a more
attractive deal.
In addition, e-commerce may impact the valuation basis in terms of generating
alternative business models. For example, consumer data selling or perhaps
advertising may dominate traditional mortality experience in terms of generating
income for the company.
6.5 Dot-com share prices
It is not a secret that many dot-coms have enjoyed high share prices for a limited
period and then seen their share prices plummet. An example of this is
lastminute.com. As there are few barriers to entry many companies see the business
opportunity and enter the market and within a matter of weeks see this all to common
story happen to them. From an insurance point of view this has meant that it has been
difficult to make a stock market valuation on a company using traditional discounted
cash flow techniques. Asset portfolio valuation, high volatility and yield basis in
discounting liabilities all become more complex issues that need consideration.
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6.6 Impact on the actuarial control cycle
The traditional actuarial control cycle, used to assess financial performance of an
insurance company, is difficult to implement in a dynamic e-commerce environment.
Instead of monitoring the past, a combination of prediction, action and reaction is
the key to controlling any e-commerce-based business. Consequently, sensitivity
testing and statistical analysis become crucial.
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7 E-Security within the E-Commerce
As insurance companies start to incorporate the web into their business plans, there is
growing concern that they expose themselves to greater risk than they envisage. The
Actuary Magazine5 (October 2002) reports on a trebling of hacking groups since
2000. Also they state that there are more than 6,000 hacker groups worldwide, with
increased sophistication in their operations and activities, with motives being often
political. Yet despite these alarming findings, insurers have responded with
confusion and uncertainty.
7.1 KPMG Information Security Survey
KPMG have conducted a survey (2000), published as the Information Security
Survey,in which 200 companies were questioned upon their views of e-security. The
report suggested that over 75% of the respondents were concerned that e-security was
the main obstacle to the use of the Internet for transactions, specifically referring to
issues surrounding confidentiality, viruses and e-fraud.
Despite raising these concerns it is shocking that only a minority of financial
institutions have taken sufficient action to tackle e-security. The survey highlighted
the fact that most of the respondents failed to meet the most basic requirements of
BS7799, the British Standard code of practice for information security management.
5
The Actuary Magazine, October 2002, p22
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In particular they rarely tested their websites for security risks and even if they did the
procedures for reporting security breaches were weak. Within any security system,
there are the most basic requirements of a firewall internal protection facility. This
was not even present in nearly a third of the respondents of the survey. Lack of such
basic requirements raises the question as to why such security is not in place.
Table 7.1 E-Security Risks
7.2 The way forward
In leveraging their business insurance companies must manage risks and be able to
mitigate these risks. Largely this shall mean reviewing their policies, procedures and
infrastructures. In addition, it is fundamental to ensure that any third parties are not
increasing their risk exposure. There are ranges of solutions to these new risks that
can be utilised. For instance, public key infrastructures help to increase privacy, data
integrity and authentication.
Some of the security risks of doing business over the web
Masquerading/spoofing, this includes other websites pretending to be alegitimate e-commerce site; individuals masquerading as legitimate customers,and employees pretending to be customers.
Message interception e.g. theft of credit card information
Accidental disclosure of customer information, leading to legal liability
Communications error leading to transaction corruption
Web server attack which brings a denial of service and/or a change in the webservers content
Email viruses caused for malicious reasons
Message repudiation whereby customers are denied use of transaction facilities or
sending messages to the website hosts
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Historically networks have often been the targets of attack, but with the advent of e-
commerce, this risk has been more threatening, as there is that much more to gain
from penetrating a network and obtaining sensitive information. What is paramount
is to remain updated with new security measures constantly as it is unlikely that the
risks will be able to be completely eradicated.
PKI represents an example of a type of new security measure called layered
security. Layered security uses non-independent security controls, which
individually provide limited protection of less than 50%, but together (e.g. 3-5
controls working together) can provide protection of up to 90%.
However where present, layered security has also been responsible for increased
security breaches, indicating a greater detection of security breaches, rather than less
security itself. This serves as a useful tool, as once a breach in security has been
detected then appropriate measures can be taken to contain the damage caused.
Indeed this suggests security breach recognition is key to staying one step ahead and
this layered security system seems to offer support in respect of this.
These new techniques and tools, however, are only part of the solution. The best way
forward is for security issues to be raised at meetings at board level and a pragmatic
approach be sought as a company, rather than leaving it to the techhies to sort out.
Success lies in being vigilant and strength in risk management. Many employees do
not appreciate the impact of the risks involved with their decisions and consequently
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simple controls, such as increased web domain security is often ignored, leading to
potential website hijacking. Reputation takes years to build but can be destroyed
within minutes. In this sense, another key source of competitive advantage has to
emerge from regarding e-security as a serious issue, to be addressed by all levels of
the insurance company.
7.3 The E-Commerce Directive & Regulations
The E-commerce directive 2000/ 31/ EC came into force in January 2002 and
endeavours openness in international European financial services. It serves as one of
the European Commissions action plan before the Lisbon European Council meeting
in 2005.
The first step is to smoothen the transition of current rules and regulations into the
new framework of legislation. Certain existing legislation such as the Third Life
Directive only partially allows cross-border activity. Within the UK the directive was
implemented in the form of e-commerce regulations and currently only 3 other
countries Austria, Germany and Luxembourg have implemented e-commerce
legislation which complies with the directive.
The E-commerce legislation stipulates that specific information about the electronic
service provider is disclosed, to protect the consumer. Specific information refers to
details such as the name of the service provider and their contact details (e.g. email
addresses).
Commercial communication must be made clearly and any special promotional offers
along with relevant conditions must be clearly presented. Once the service provider
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has accepted an order then it must be confirmed within a reasonable time period via
electronic means.
Specific information in relation to concluding an electronic contract must be disclosed
by the service provider.
The terms and conditions of any arrangement must be clearly accessible, easily stored
and reproduced by the customer.
Failure to comply with such requirements may result in the service provider being
liable for any damages and possibly regulatory action, which may allow the customer
to obtain legal court authorities to ensure compliance. In addition, they may have the
opportunity to cancel the contract.
Furthermore, the directive allows member countries to maintain rules in relation to
certain contracts and insurance directives. This may lead to abuse of any loopholes if
the host country has legislation that enables manipulation of the rules of the directive.
In summary the directive goes some way to establishing cross border activity.
However, problems still need to be resolved, such as if a service provider chooses to
confirm any electronic communication via post and thus send the customer a hard
copy. This would effectively make the rules and regulations of the customers
country applicable, compared to that of the service provider, if electronic
communication only was maintained. This may serve to limit cross border activity
and thus legislation needs to be designed to resolve this. Indeed a full and exhaustive
set of legislation needs to be present to allow unrestricted and dynamic international
e-commerce.
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8 Case Study: Eagle Star Direct
8.1 Background of setting up the website
Five years ago most insurance companies had an internet site that was nothing more
than a static marketing tool, advertising the companys services and products via a
standalone website. Consequently such site did not attract the hits that some of
todays website are commanding. Gradually, however, sophisticated images,
graphics, and sound were introduced to these basic websites that gathered more
interest from customers. Email further facilitated communicability and it was at this
point that insurance companies became particularly interested in the communication
possibilities offered by the Internet, as well as the ability to gather information, such
as risk and rating factors of the individual.
This latter was thought to be so efficient that perhaps one day a customer would be
able to obtain an on-line quote within a few minutes, and then consequently go onto
making an on-line purchase. This is the type of service that is now available with
companies such as Eagle Star Direct.
Bearing in mind that, on average, most companies telephone an average of 3.5
insurance companies before purchasing insurance, customers are equally likely to
approach a range of insurance companies on the Internet. A few Internet sites include
information from a number of different insurance sites in relation to obtaining
quotations.
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Examining the Eagle Star Direct Example we see that 60% of their business is
brokered6. Thus a push style marketing that is one providing advertisement from
various third parties is vital to the success of the company. In providing insurance on
the internet it would be much more cost effective for various insurers to collaborate
on-line and set up insurance marketplaces as described earlier.
Moreover insurance is, generally, not the most exciting of purchase for the customer,
with added confusions amongst many customers as to what a product is and
terminology confusion. With this confusion comes lack of trust and consequently
branding of product becomes the key source of competitive differentiation amongst
on-line insurers. Pushing a brand name directly to a customer is difficult within the
context of the insurance industry but pull type marketing is easier. For example, a
customer buying a car could clink on a link to the Eagle Star Website and the
customer would have something of insurable value that they want to insure by
clicking on this link.
Any future strategy would have to account for the direct channel, the broker channel,
the telephone sales channel and the Internet channel. Customer segmentation becomes
paramount to determine what propositions are going to be offered through which
channel, based upon their needs, requirements and behaviour within each channel.
As mentioned previously customers will compare and contrast various products
amongst various insurers, therefore it is important to focus on what shall be important
6
Source: Eagle Star Direct Website
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in web space. Finally initial strategy should be marketed through the medium most
suitable for the customers that are to be attracted.
8.2 Eagle Star Direct Example Experience
Eagle Star Direct exemplifies effective e-Insurance business as evidenced by over 1
million visits to the web site and over 200 000 quotes delivered7. Eagle Star Direct
initially chose a new start-up e-supplier company, as customer focus was strong and
they also offered to support Eagle Stars existing brands and advertising campaigns.
By focusing on identifying how customers behaved when visiting the site (e.g. at what
point they left and when they hesitated and/or had problems) and also maintain the
website with regular yet consistent updates, Eagle Star were able to gain market share.
Keeping the website simple and easy to understand, yet consistent also contributes to
success. For example the television advertising campaign of an inflating tyre was also
used on the website to maintain consistency. This campaign illustrates the general
public perception of Insurance as being boring. However, the campaign challenges
this perception by inviting customers to phone to discover that insurance can actually
be quite interesting.
By use of drop-down menus and postcode rating packages that automatically enter
addresses in, inaccuracy of customer information was minimised. As soon as
customers have the opportunity to enter information for themselves, there in arises the
7
Source: SCOR Notes: Insurance & the Internet p 86
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opportunity for errors. Moreover, the customers prefer this system themselves as it
means ease of use and less effort in completing forms, which invariably are
substantial in information required.
Having a website which allows the customer the power to obtain a quote, go away and
compare and contrast and then return to Eagle Star Direct also is another feature of
the website. This is allowed for by the way in which the design allows a 30-day
quotation save. As we have examined customer segmentation is a key source of
competitive differentiation for Insurers on-line. Eagle Star Direct have researched
that
Generally, people who use the site are mainly from high-income families, accounting
to more than double the average for this sector. Furthermore, 4 out of 5 people who
use our site are male. More than half the users are aged between 25 and 39.8
Eagle Star Direct have identified this information and are aware that these customers
are not only significant in these proportions but their premiums, due to their risk and
rating factors, make their premiums higher than average.
Significant market research as to when and where customers access the on-line
facilities allows business analysis and contributes to their success. Also
advertisement, whether direct or indirect, increases awareness of the site. For
example in the launch of the website in August 1997, the Financial Times did an e-
8
Source: Insurance and the Internet: Myth or Reality? p86
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commerce feature a few days before and Eagle Star Direct as an example, was a
significant section within this report.
From Eagle Star Directs point of view the website has been wholly a success and
Eagle Star have been vigilant in their approach to marketing and distribution; an
approach that has paid off. Attention to continual improvement of their website in
terms of rejuvenation to maintain interest, whilst maintaining stability and brand
image, has also been a successful strategy. Finally using the logic that customers who
have purchased something of insurable value will require insurance and consequently
advertising on such websites has been the most important single contributing factor to
their success. Any e-business should look at these ideas and incorporate them into
their on-line strategy.
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9. The Role of the Actuary
In light of what has been discussed so far it is natural to query the role of the actuary
within the e-commerce world. Actuaries range of skills and attributes can be readily
exploited within this new business market. A SWOT analysis shall enable effective
evaluation of the overall impact actuaries can make within the e-commerce world.
9.1Strengths
Numeracy and practicality being natural assets of an actuary serve to add value to the
e-commerce world. The Institute of Actuaries define an actuary as someone who
makes financial sense of the future9. Indeed this analysis of financial future, using a
range of statistical, analytical and mathematical tools, can be readily extended to serve
on-line business.
9.2Weaknesses
Actuaries, however, have been reputed to be slow reacting, over precise risk averse
and weak at communicating. Whilst this is largely a myth, but it is important to
realise this mediocre attributes within the dynamic e-commerce market.
9
Institute of Actuaries website
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9.3Opportunities
Actuaries set of skills may be exploited within the following e-commerce areas
9.3.1 Multi-disciplinary research topics
Current research topics within the world of e-commerce utilise practical, multi-
disciplinary models, using economics, finance, and statistics e.g. game theory. Within
the Insurance industry, actuaries could model customer behaviour as described within
the Chapter on Eagle Star Direct. Other areas might be to derive an on-line life table
from company data. This can then be used to more accurately predict mortality, thus
reducing risk of anti-selection.
9.3.2 Customer lifetime value
Predicting the Present Value of Future Profits (PVFP) on the basis of future cash
flows from current and future business, on the basis of an assumed current (and
possibly future) rate of mortality, interest, expenses and withdrawal rates, is a key
skill of an actuary that can be exploited on-line. Within the life insurance sector, the
long-term nature of the business deems embedded valuation techniques to be
plausible and indeed this serves to enable calculation of the potential lifetime
customer value of existing or new customers.
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9.3.3 Valuation of e-business
The above point could be extended to calculate the goodwill paid on acquisition of
subsidiary on-line businesses. This could be used to evaluate future business strategies
as well as websites on which to advertise.
9.3.4 Numerical evaluation of market opportunities
Actuaries involvement within statistics and demographics can be readily extended to
be utilised within a marketing framework, working out customer decision-making and
market segmentation analysis. This is a key source of competitive advantage on-line.
9.3.5 Non-traditional opportunities
The skills of actuaries can be readily extended to other areas of corporate interest. For
example the current strong nature of the mobile phone industry could provide
opportunities for actuaries to evaluate phone contracts and customer value, as well as
determine lapse rates etc.
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9.3.6 Further leverage of actuarial skills across the profession
The concept of a virtual community and sharing knowledge on-line can provide an
opportunity for the actuarial profession to extend their knowledge and share
information for the benefit of the profession overall.
9.4Threats
9.4.1 Lack of basic techniques
The key to using actuarial techniques in the e-commerce world is to combine them
with traditionally non-actuarial techniques. Although actuaries can quite easily
acquire these additional skills there may be barriers to them acquiring them e.g.
employers may not subsidise them as it as seen as too expensive.
9.4.2 Inability to encourage new students
The current long time taken to qualify (despite having exemptions) and poor job
market may mean that some graduates question whether it is worthwhile qualifying as
an actuary, or would it be better to seek other careers, within other interesting areas of
finance.
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9.4.3 Inability to innovate
Lack of diversity may make actuaries unable to see the larger picture thus posing as a
future threat.
9.4.4 Resistance to change / being complacent
Organisations may not be changing as rapidly as the very dynamic e-commerce
world.
9.4.5 Competition from other professions
Product simplification may make actuaries increasingly needing to justify their ability
to add value in comparison with other professions.
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10 Conclusion
It should come as no surprise that the conclusion of this project is that the insurance
industry must begin to aggressively embrace e-commerce. It has been somewhat
ironic that an industry that has focused such significant resources on the development
of information technology would be so far behind in implementing e-commerce
strategies. Indeed banks, securities brokers and investment companies all have a
strong head start on the insurance industry in implementing practical and effective e-
commerce solutions in their day-to-day activities. The Internet has made it much
easier for consumers and advisers to compare and contrast product designs and
prices/charges. This shall expose further the differences in regulatory and solvency
standards between life companies and unit trusts.
Hand-in-hand with the implementation of e-commerce shall inevitably come tougher
legislation in relation to regulation. One possible scenario to this might be that
companies in low regulated environments would have a competitive advantage over
those more strongly regulated competitors. However marketing considerations would
then require that each company display the badge of the regulator governing its
activities. At that point, regulators would effectively be in competition with each
other, which could effectively lead to the privatisation of regulation. Security and
privacy are not as weak as some believe but is a problem due to the accessibility of
the Internet from virtually anywhere. Having said that there are solutions to such
hindrances, such as data encryption, firewalls and virus protection tools. Combined
with a consistent and regular review of security policies these can be extremely
effective in dealing with the problem.
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As the information highway becomes more extensive and efficient more links
between the supply chains will be seen. The business-to-business sector in particular
shall reap the benefits of the Internet, as it continues to expand.
Also, as the Internet continues to become incorporated into insurance companies
activities five possible models may become apparent which are the intermediary
marketplace model, the work-site marketing model, the eyeball attractor model and
the transaction processor model. As the market incorporates e-commerce more
effectively, these models should evolve in line with it by being enhanced and refined.
Generally within the insurance industry, there shall be less of a distinction between
short and long term insurance products and product design and the pricing of such
products will dramatically adapt to come in line with Internet selling methods. This
however may affect the long term financial stability of the insurance company with
insurance companies having to lower their profit margins to compete on-line and the
dynamic nature of e-commerce having valuation, solvency and appraisal implications,
as well as affecting the actuarial control cycle.
A key source of competitive advantage has to emerge from regarding e-security as a
serious issue. Historically networks have often been the targets of attack, but with the
advent of e-commerce, this risk has been more threatening, as there is that much more
to gain from penetrating a network and obtaining sensitive information. What is
paramount is to remain updated with new security measures constantly as it is
unlikely that the risks will be able to be completely eradicated.
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As e-commerce revolutionises business of insurance a number of new research topics
in extension of this thesis emerge. Such topics may include exploration of the
strategic drivers for insurance-based e-commerce,
online modelling of consumer behaviour in interactive environments10 and design of
interactive customer decision making tools11.
Indeed eventually, some form of life-table could be researched into and constructed
for those using on-line facilities. Inevitably, with the introduction of new technology,
such as m-commerce the nature of e-commerce will continue to change and open up
new avenues for generating business. Only the technologically most up-to date shall
maximise their business in this dynamic market.
10
Dreze and Zutryder, A web-based methodology for product design evaluation and optimisation,
Marshall School of Business, University of Southern California.11Haubl and Trifts, Consumer decision making in online shopping environments. The effects of
interactive decision aids, Marketing Science
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APPENDIX
Company Product type Online quote
request
Online
quote given
Admiral Motor y n
AA Motor
Personal Accident
Property
Pet & Horse
Yacht & boat
Travel
N
N
N
N
N
N
AXA Motor Mechanical
Conwy motor policy
Severn motor policyVenture liability
N
N
NN
Barclays Travel Y N
Chatham Insurance
Brokers
Home building & contents
Travel & Holiday
Private medical
Working from home
Y
Y
N
Y
N
N
N
Churchill Motor
Household
Y
Y
N
N
Commercial Union Home Contents N
Cornhill Motor
Home
Wedding
Travel
Health
Life
Mortgage
N
N
N
N
N
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