Floundered e-wausau.com points to challenges of Web insurance sales
Will small business insurance join pet food on the list of things that shouldn’t be sold on the Web? Maybe.
So say insurance industry insiders asked to give a quick postmortem of Wausau Insurance’s short-lived attempt to use an interactive Web application to sell insurance to small businesses. The site — ewausau.com — went up in October of 2000 and was down by May of this year.
While consumer auto policies might be easily handled through the Web without human interaction, experts said business coverage is more complicated, and there is more at stake for the insured.
Those who bought coverage through the site are now being served directly by personnel at Wausau’s parent company, Liberty Mutual.
According to Ray Hall, who managed ewausau.com and is now involved in other Wausau Insurance Web-based initiatives, the decision to close ewausau.com had to do with the position of the company in the market as well as sales results.
“There were really a couple of reasons,” Hall said. “The company has reorganized and decided to look more at our traditional groups, mainly the middle market and up. We were looking at the small commercial market. I really feel we were ahead of the market. We were growing each month — but it wasn’t growing quick enough to know how long it would take to mature.”
Hall said that, in future years, as younger people raised with the Web become decision-makers, Web-based commercial insurance sales might work.
“From a technological perspective, we were ahead of the rest of the industry as well,” Hall said. “We were giving bindable quotes — and the others weren’t. Or they had a back room that was doing it manually.”
According to Hall, the workflow engines and artificial intelligence that ran behind ewausau.com will be leveraged for Web-based tools aimed at the agents Wausau works through in some states. While Hall said Web-based business insurance sales might catch on in future years, the company would have to make a strategic decision whether or not to re-enter the small business market at that time.
Agents still important
One wholesale insurance broker, who did not want to be named, said that attempts to bypass the middleman for the sake of cost-effectiveness tend to backfire, and agrees with Hall that interactive tools are effective in the channels of distribution.
“We are wholesalers — not retailers,” he said. “The best use of the Web is in sites designed for use by agents — not the general public. They are designed to allow agents to deliver applications. Insureds require hand-holding in the sales process, but the temptation is still there on the part of the insurer to cut out the agent.”
While Wausau stated in media releases that it thought industry agents were having trouble spending enough time servicing small businesses because of the low commissions involved, the wholesale agent said the firm likely spent an exorbitant amount on site development — well out of proportion to the resulting sales.
“I’ll bet they paid tens — even hundreds — of thousands of dollars,” the wholesaler said. “You can pay a lot of commissions with that kind of money.”
“To me, the big lesson is that the role of the independent agent is still critical in advising the client what is the best product for their particular situation,” Brett Blizzard, director of communications for Acuity — formerly Heritage Insurance — of Sheboygan said. “Small business owners — or any policy holders — tend to do their research on the Internet, but they still need that trusted advisor when it comes to purchasing their policies.”
Blizzard said that as far as the business consumer is concerned, the Web has more value for servicing policies than selling them — a trend that will continue in the future. He agrees that the Web’s role in the sales process is limited by the need for human interaction — because human interaction can be expensive. Unlike Wausau, which sells most of its policies direct, Acuity works through about 6,500 independent agents in 11 states.
“I think pretty obviously that was what they were trying to get at — reduce the cost of the sales process,” Blizzard said. “But they are also looking for alternative forms of distribution. I applaud them for trying it — but I don’t think the evolution of Web-based business is at that point.”
Business policies in particular are a poor choice for Web-based interaction, Blizzard said.
“Personal auto — people are somewhat familiar with that,” Blizzard said. “But when you get involved in commercial line products, there is some ignorance on the inner workings of a product. You rely on the agent to provide that guidance. A good agent is every bit as valuable as a good lawyer or a doctor — you need people you can trust in these positions.”
According to e-business consultant and University of Wisconsin-Milwaukee business professor Hemant Jain, who serves as the director of the UW-Milwaukee MIS Consortium, choosing to make the Web the center of any business model needs to be considered carefully.
“As with any business decision, the decision to go on the Web or sell on the Web should be based on a detailed and critical analysis of business conditions, a competitive analysis and financial analysis,” Jain said. “The Web should be treated as another medium of doing business like other established medium such as face-to-face, retail stores, catalog/mail order and telephone. Some companies exclusively use one medium for doing business — for example, retail stores — while some others use multiple media such as retail stores and catalog sales. When companies use multiple media, they will need to worry about conflict between those media — for example, catalog-pricing versus retail store pricing. Sometimes those conflicts between the multiple distribution channels become the most important factor and needs to be handled very carefully.”
Jain suspects that for Wausau, choosing the Web as a sole means of product delivery was a problem.
“The decision to select a specific single medium should be based on analysis of how that medium helps service customers — and provides convenience, time and cost savings for the company and its customers.”
In fact, cost saving was perhaps the sole factor in choosing the Web as a delivery device, according to Hall.
“The one thing that we have found is that, typically, with regard to smaller policies, you really need to cut your expense,” Hall said. “You can’t touch it or your expense is too high. One reason that we didn’t do smaller policies in the past is that the expense is too high given the premiums. The Web allowed us to automate that process and — get into that business.”
Wausau ignored complexities
Laub & Horton President Doug Henderson said Wausau’s small business site fell flat because it did not recognize the complexity of the business insurance market. Laub & Horton is the Wisconsin-based entity of The Horton Group, a multi-line insurance brokerage serving the Midwest.
Henderson said the site was designed to allow businesses to actually design and purchase a policy without interaction with a living, breathing person.
“Wausau tried this and they folded after a few short months,” Henderson said. “It didn’t surprise me when I heard that. I gave them credit for coming up with the system that would create an online rated policy without any intermediary or consultation.”
Wausau’s sales organization was such that it could undertake such a project without making waves, according to Henderson.
“Wausau is unique in that it has its own captive sales force,” Henderson said. “It is a direct writer. But it was the first company to try this — which does not surprise me.”
Henderson suspects the system of online forms was not diverse or flexible enough to accommodate the many variables small business people face in choosing insurance — and that that lack of flexibility was part of the program’s downfall.
“It is probably because they started to field a lot of inquiries and questions,” Henderson said. “One size does not fit all. Although there are a lot of similarities between businesses, there are a lot of differences that would make things different for a computer application, leading to a lot of phone calls and interaction. But the whole idea there is to cut back on the number of people touching a policy or touching a customer. People like to talk to someone and have that hands-on consultation. Particularly with small businesses — you have entrepreneurs putting their financial lives on the line and they want to make sure they are protecting their assets.”
Henderson said that each business has very specific needs. For service companies, errors or omissions exposure may be more important — and depending on what is going on in an industry, a company may need to be underwritten more. In the meantime, a manufacturer or distributor may be exposed to product liability, and will need help identifying threats and appropriate insurance protections.
“I think that’s part of it. Commercial insurance is a little more complex,” Hall said. “But realistically, when you go into an agent and describe your business, they are going to listen — and then tell you what they think the right level of coverage is going to be. The difference between the agent and online is a perception more so than a reality. As you move up in to higher premiums, that becomes more of a reality than a perception.”
Hall said that his definition of small encompasses premiums of $1,000 to $3,000 and companies with five to 10 employees.
Technology has its place
But while Henderson does not think the Web is the right delivery mechanism for business insurance, he does think it is an appropriate tool for qualifying prospects and for communicating within the channel of distribution. The agency already has a lead generation tool that allows prospects to enter data for a quick quote. Data arrive at Laub-Horton in the correct format for the firm to forward it electronically to insurers for quick turnaround.
“What the Internet provides us with is the capability to more efficiently turn around proposals,” Henderson said. “We have online access and capabilities with a myriad of insurance companies to get the best product and the best price. We can turn it around in hours, while in the past we might have to fill out papers and wait for three or four weeks to get our quote back.”
So for now, the qualification phase is where the Web belongs, according to Henderson.
“We are very much into technology,” Henderson said. “But for most business owners, the exposures they face are a little more complicated than homeowners and personal auto insurance, and they generally want a little consultation and advice with their policies. Avoiding human contact does not work in our industry.”
Carriers as well are not keen on making insurance available directly over the Web, according to Henderson as a tight market and profitability issues make insurers more risk averse and careful about whom they insure.
But in the future, the role of the Web could grow, Henderson said — particularly for existing clients.
“We are already using it to filter information back to the client,” Henderson said. “Once they are clients, they have access to information and can report changes in address and other items through our Web site.”
Service, computer literacy barriers
According to Dawn Somerset, special accounts manager for Milwaukee insurance agency Fitzgerald, Clayton, James & Kasten (FCJK), the Web’s effectiveness in the industry is hindered by the nature of both the product and the clientele.
“It all depends on the knowledge that the small business owner has,” Somerset said. “If it is someone very familiar with what he or she needs and how it all works — it could be slick.”
But apart from an understanding of business insurance, those purchasing insurance online would also have to be comfortable with the Web, according to Somerset.
“The older business owner may not be knowledgeable enough to use it because it is not an X-the-box type of thing. They may not be real computer-savvy,” Somerset said. “The middle-agers who are really into the Web and electronic stuff might be able to get through it — but they may not realize that there are specific coverages out there for their industries. Younger, newer business owners may have the computer savvy but not the knowledge of exactly what coverages they need.”
Jain agreed with Somerset that comfort with the Web is a factor in getting a Web-based sales tool to work.
“In the early days of the automatic teller machine (ATM), people were not very comfortable about doing transactions on ATMs — specifically deposits,” Jain said. “I think we are at a similar stage in terms of the Web. Currently, some customers are comfortable doing some simple business transactions on the Web, but prefer to do more complex transactions differently. This may change with time. In the early days, more routine and simpler transactions are more appropriate.”
Hall echoed Jain and Somerset’s concerns as well.
“In the short term, we are going to see more of a service aspect,” Hall said, indicating the face-to-face interactions will be the norm. “That is short-term. If we look out to 2003 to 2005, we will see more general acceptance of commercial insurance being sold on the Web, with that taking off in more of its own right. As people buy more insurance on the Web in the personal line — that will bleed more into commercial. As more younger, Web-savvy people become decision-makers, that will cause it to take off as well.”
Somerset said the most effective use of the Web to date has been in the qualification of prospects.
“I believe that The Hartford and others have sites that allow you to put very basic information in and someone calls back and goes through the sales process with you,” Somerset said. “I can see it for the savvy insurance purchaser, but not for a lot of the smaller business people who are not well-versed on everything that needs to be done.”
Of course, by their nature, insurance agents would not be big fans of direct sales of insurance on the Web.
“Interactive tools should be more for qualifying than actually putting a policy together,” Somerset said, adding as an aside “… because then they wouldn’t need us insurance agents.”
But regardless of her perspective, Somerset’s argument that Web-based sales systems do not provide the consultative approach an agency does is a powerful one.
“You wouldn’t have any of the value-added services,” Somerset said. “Our agency has a 24-hour claims number where you can call us at any time of the day or night with a claim. That’s a lot different than calling an insurance company direct where someone answers the phone and writes it down and says someone will call you in the morning.”
Agencies would have a hard time using the Web for the complete sales process as well — particularly if they wanted to deliver a decent level of service. Somerset said FCJK is not what is known in the industry as a “dip and a dump” — an agency that dips into a bag of insurance company products and dumps them off on the insured.
“Agencies like that are not making sure they are getting the proper coverages,” Somerset said. “And when there are claims, are they going to have any human contact? Is there any relationship there that can help get things handled?”
New day coming
While effective use of the Web is limited in the industry now, those interviewed foresee it having a more extensive role in the future.
While FCJK’s use of the Web is currently limited, Somerset does see a day when more interactions with clients will take place online.
“The Web is inevitable — I can foresee it happening,” Somerset said of the medium’s advancement into insurance sales. “The computer generation will use it because they have more of a sense of wanting things instantly. I can see some of the business owners not liking it because it is not the way they want to operate. In the intermediate term, it will be used more as a qualifying tool than a way to assemble policies.”
Somerset said FCJK’s use of the Web was more in the area of new business and automated relay of information than actual sales.
“We use it a lot to do rating of the policies and get premiums back from the company,” Somerset said. “A lot of the insurance companies have online applications where we can do the ratings and get instant quotes back. They give us access to a lot of information — like if an insured has a claims history. We can go onto various Web sites and streamline a lot of our paperwork.”
Somerset said FCJK is currently revamping its Web site.
“What we have now is basically an informational tool,” Somerset said. “We are now trying to expand it by providing additional newsletter information and adding a qualification tool.”
“I foresee a day when clients can view their policy and billing information through our Web site,” Henderson said. “We typically try to use our Web site as a link to carrier data for customers to view, making the site a one-stop shop.”
Privacy and regulatory concerns would make that a challenge, however, specifically the Gramm-Leach-Bliley Act which became law in November of 1999. The act contains numerous regulatory provisions regarding banks and insurance companies, including privacy provisions, which became effective immediately.
Henderson said that sensitive data including auto insurance records, worker’s compensation records and other data would require extensive security measures.
“So an insurance company spends a lot of money to firewall its data,” Henderson said. “But what it is trying to do is cut expense instead of add expense, and increase its profit margins.”
Blizzard agrees with Henderson that security is a serious issue when providing information on existing policies on the Web.
“Without a doubt, security and privacy issues are the No. 1 consideration when it comes to providing policies over the Web,” Blizzard said. “That is the reason that at this point you don’t see more of it. We are in an information-intensive industry, and privacy is a primary consideration.”
But still, Blizzard feels information on individual policies held by businesses will soon be easily accessible online.
“Businesspeople may want to use the Web to make a payment. Rather than go through the agent,” Blizzard said. “It may be possible to complete that transaction over the Web. A policy holder may want to take a look at endorsements that are available. They may want to check their loss or payment history.”
Blizzard said Acuity does not currently offer such a level of functionality on the Web, but is looking into it. Acuity’s ability to deliver interactivity on that level would be helped along by the fact that, according to Blizzard, the company is on the forefront of a new technology. Blizzard said Acuity is “heavily into” a version of XML –eXtensible Markup Language — that will allow insurance companies and agents to seamlessly share data on policies across the Web. The release of the XML system is pending from ACORD — which develops standards for the insurance industry. A version of the system for the property and casualty insurance has already been released according to ACORD’s Web site.
Already Acuity is, according to Blizzard, “one of only three companies nationwide able to provide quotes through the Warp Agency Management System.”
The Warp Central system from Applied Systems provides a Web conduit between agents and insurers to streamline the quoting process.
August 31, 2001 Small Business Times, Milwaukee
