Insurance Numbers Don't Add Up

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According to "Insurance OnLine Marketing Report," there were 8,349 insurance-related Web sites as of November as identified by Yahoo.


Pretty good news for an industry that remains paper-based. However, the e-commerce news is not encouraging for the Internet.


According to an Aug. 21 report in USA Today, the dropout rate for the Internet in 1999 doubled from 1998. Twenty-nine million U.S. adults stopped using the Net.


The statistics get even more gruesome: 108 million Americans have no desire to get on the Internet, outpacing the alleged 77 million that do use it. The "rejecters" outnumber the 10 percent annual growth rate of Net users, according to Cyber Dialogue, New York.


Part of the problem, according to the article, is a growing aversion to technology and the ever-increasing pace of technological change, a sort of "technophobia" among adult Americans.


It appears the news is less than wonderful for the Internet as well as for the companies that support the technology revolution.


IVANS, Greenwich, CT, conducted a remarkable 1999 study of 1,017 adults -- 504 women and 513 men -- living in private households. Of those surveyed, 58 percent had Internet access from home or place of business. Yet only 8 percent of those surveyed had searched the Internet for information about purchasing insurance.


By doing a bit of simple arithmetic, the marketing "universe" for online insurance consumers is about 6.1 million people -- 8 percent of the 77 million Internet users previously cited. In 1998, a report issued by Cyber Dialogue -- based on a telephone survey of 1,500 U.S. residents -- placed the number of insurance online shoppers at 6.7 million. However, only 1.3 million applied for insurance online, or 19 percent. And none could conclude a purchase of insurance online.


It is fair and logical to say that the Internet population is 77 million users. About 6 million to 7 million shop for insurance, 17 percent to 20 percent of those apply for insurance and 1 percent actually purchase insurance over the Internet.


Several other research studies have indicated that 25 percent to 70 percent of Internet consumers are interested in purchasing insurance online. But these numbers are considered wildly optimistic.


Not surprisingly, the IVANS study also revealed that among various age groups, the 18- to 25-year-old segment was most likely to purchase online, at 52 percent.


The most significant thing about this survey, however, is that it did not ask the tell-all question, "Have you applied for, paid for and received an insurance policy over the Internet?"


In March, the U.S. government released the first official figures for e-tailing. Retail electronic commerce, according to the Department of Commerce, totaled $5.35 billion in the last calendar quarter of 1999.


The figure was just 0.6 percent of the total retail sales figure of $821.2 billion for the period. And, what is much more important, it is about 50 percent less than the estimates provided by Forrester Research, Cambridge, MA, which estimated that sales on the Net would reach $10 billion for the quarter.


Why is this discrepancy significant to the insurance industry? First, it demonstrates that estimates of sales over the Internet are, at best, an ephemeral exercise -- suffering from a lack of uniform methodology. Second, it shows a real weakness in terminology: the clear definition of a "sale."


Normally, in the real world of commerce, a sale is concluded when the goods or service is delivered to the consumer and is paid for by the consumer.


As noted, insurance companies "think" they are selling their services over the Internet. Wild and woolly figures are bandied about concerning the intensity of those sales. In one case, Datamonitor, New York, estimates that the sale of automobile and homeowners insurance will reach $2.4 billion by year's end. In another case, The Industry Standard concludes that such sales will reach $3.2 billion by 2003.


Conning Corp., Hartford, CT, in its 1999 study "Direct/Tech-Middle Market Distribution: Will It Close The Gap?" said the Internet accounted for $200 million in life insurance premium in 1998. Seventy-five percent of the premium, according to the study, generated leads, not policies. Twenty-five percent was attributed to policy sales, which is about $50 million.


The problem is that from 1996 through 1998 the technology to execute a sale (as defined above) over the Internet really did not exist, except in the most primitive form. Consequently, insurance companies sold zero policies over the Internet.


It is hard to grasp how this industry segment reached any kind of policy sales figure -- especially $50 million in life premium -- or how it will reach those numbers this year, or in three years. The 1998 estimate of insurance sales over the Internet is zero dollars. The 1999 estimate of sales over the Internet is about $1 million. The 2000 estimate is a bit rosier -- about $2.5 million in insurance sales will be attributable to the Internet. In the aforementioned Conning study, the 1998 figure for lead generation -- $150 million -- is reasonably credible. But these are Web-assisted sales, not sales. And they follow the online/offline integrated business model.


In "1998 Online Shopping Report," from Jupiter Communications, New York, an insurance category does not even appear. Similarly, in a report issued by The Industry Standard in 2000, the insurance category is not included. Therefore, logically, how can insurance sales reach $3.2 billion, as projected by the same magazine, if the category is not identified as selling anything in 2000?


Confusion, definition, ambitious projections and assumptions characterize the insurance landscape on the Internet. It is still promise, but it is not performance.


• Donald R. Jackson is chairman of the Jackson Consulting Group Ltd., Odessa, DE. Reach him at djack98489@aol.com.
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