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Tangled Web

The Net is luring more businesses online. So why have insurance companies resisted?

These days, you can buy virtually anything online. So why is it still hard to buy insurance over the Web?

Insurance companies are stepping gingerly, if at all, into e-commerce waters. And while Web sites that provide quotes to potential customers are fairly common, insurance companies' offerings are spotty and actual sales over the Web are scarce.

One obstacle to selling insurance over the Web is state legislation. According to the National Association of Independent Insurers, 30 states have residency laws that require insurance companies to be licensed in the state and have agents residing in the state in order to have policies approved for sale. The residency laws make selling insurance over the Web a no-win proposition for insurers because they must still support a network of local agencies. Because of this mandate, companies often see the Web as an added expense, one that does nothing to reduce the cost of selling insurance and whose revenue potential is still unproven.

The second roadblock is the nature of the insurance business itself, which requires much human interaction. Life and health insurance policies often require physical examinations; property and auto insurance often requires inspection of the goods before a policy is written. The virtual world of the Web simply can't provide an alternative to this need for real-world communication.

Perhaps the greatest obstacle is simple inertia. The insurance industry is a jungle of paperwork with a need for signatures and counter-signatures, and for every form to be filled out in triplicate. "In this industry, 18 cents on the dollar is spent on administrative costs," says Mitch Bishop, vice president of marketing at ChannelPoint, a company that plans to change this scenario by selling small group health insurance policies on the Web.

Providing a model that may help change the way insurance companies operate, ChannelPoint's business is aimed at cutting those administrative costs, giving entrepreneurs all the efficiencies of buying health insurance over the Web with none of its drawbacks. Insurance companies buy ChannelPoint's software and give it to their brokers, who can write and submit applications for online customers, completing in hours what used to take weeks.

ChannelPoint's approach still requires completion of electronic "paperwork," to keep it in line with state licensing and residency requirements. Entrepreneurs benefit by getting covered more quickly. And, in theory, insurance companies will be able to pass on administrative savings to their customers--although the concept is still new and no positive effects on insurance rates have yet been documented.

Claire Tristram is a business and technology writer in San Jose, California.

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Tangled Web.

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