Tangled Web The Net is luring more businesses online. So why have insurance companies resisted?
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These days, you can buy virtually anything online. So why is itstill hard to buy insurance over the Web?
Insurance companies are stepping gingerly, if at all, intoe-commerce waters. And while Web sites that provide quotes topotential 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 statelegislation. According to the National Association of IndependentInsurers, 30 states have residency laws that require insurancecompanies to be licensed in the state and have agents residing inthe state in order to have policies approved for sale. Theresidency laws make selling insurance over the Web a no-winproposition for insurers because they must still support a networkof local agencies. Because of this mandate, companies often see theWeb as an added expense, one that does nothing to reduce the costof selling insurance and whose revenue potential is stillunproven.
The second roadblock is the nature of the insurance businessitself, which requires much human interaction. Life and healthinsurance policies often require physical examinations; propertyand auto insurance often requires inspection of the goods before apolicy is written. The virtual world of the Web simply can'tprovide an alternative to this need for real-worldcommunication.
Perhaps the greatest obstacle is simple inertia. The insuranceindustry is a jungle of paperwork with a need for signatures andcounter-signatures, and for every form to be filled out intriplicate. "In this industry, 18 cents on the dollar is spenton administrative costs," says Mitch Bishop, vice president ofmarketing at ChannelPoint, a company that plans to change thisscenario by selling small group health insurance policies on theWeb.
Providing a model that may help change the way insurancecompanies operate, ChannelPoint's business is aimed at cuttingthose administrative costs, giving entrepreneurs all theefficiencies of buying health insurance over the Web with none ofits drawbacks. Insurance companies buy ChannelPoint's softwareand give it to their brokers, who can write and submit applicationsfor online customers, completing in hours what used to takeweeks.
ChannelPoint's approach still requires completion ofelectronic "paperwork," to keep it in line with statelicensing and residency requirements. Entrepreneurs benefit bygetting covered more quickly. And, in theory, insurance companieswill be able to pass on administrative savings to theircustomers--although the concept is still new and no positiveeffects on insurance rates have yet been documented.
Claire Tristram is a business and technology writer in SanJose, California.
Personal Policies
Life insurance as a business asset.
Need money fast? There's an easy way for entrepreneurs tofeed their cash flow needs: By borrowing on a life insurancepolicy.
"There's no reason not to look at your personal lifeinsurance policy as a business asset," says David Schulman,chartered life underwriter and chartered financial counselor forMass Mutual in South Florida. "Interest rates from borrowingon your life insurance policy will be lower than a rate from yourbank." The process can be quicker, too.
If you're the sole proprietor of your business, a lifeinsurance policy will make obtaining credit from any source easier."Typically, creditors will be interested in making sure yourdebts will be covered in case something happens to you," saysSchulman. You'll also accumulate a strategic asset that you canborrow from, or against, if your business experiences a cash flowproblem later.
Contact Sources
ChannelPoint Inc., (719) 260-1232, http://www.channelpoint.com
Mass Mutual, (954) 938-8800, fax: (954) 351-2468.
