Tangled Web

The Net is luring more businesses online. So why have insurance companies resisted?
Magazine Contributor
3 min read

This story appears in the May 1999 issue of . Subscribe »

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.

Personal Policies

Life insurance as a business asset.

Need money fast? There's an easy way for entrepreneurs to feed their cash flow needs: By borrowing on a life insurance policy.

"There's no reason not to look at your personal life insurance policy as a business asset," says David Schulman, chartered life underwriter and chartered financial counselor for Mass Mutual in South Florida. "Interest rates from borrowing on your life insurance policy will be lower than a rate from your bank." The process can be quicker, too.

If you're the sole proprietor of your business, a life insurance policy will make obtaining credit from any source easier. "Typically, creditors will be interested in making sure your debts will be covered in case something happens to you," says Schulman. You'll also accumulate a strategic asset that you can borrow from, or against, if your business experiences a cash flow problem later.

Contact Sources

ChannelPoint Inc., (719) 260-1232, http://www.channelpoint.com

Mass Mutual, (954) 938-8800, fax: (954) 351-2468.

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