Marketing insurance products on the Internet is often limited by not being able to bind policies without sending a written document for the customer to sign. Recent legislative actions appear positive that more financial transactions will be able to be completed entirely on the Net.
The federal Electronic Signatures in Global and National Commerce Act suggests that electronic signatures would be able to make underwriting information provided by customers legally enforceable, enabling the entire policy application process to be completed on the Internet.
So far, most insurance policies offered on the Internet involve the underwriter defining a quote for a prospect and then mailing that prospect a form to sign. In some cases the prospective customer can download documents to sign and then mail them back to the underwriter. Requiring a two-step process creates a loss of 30 percent to 50 percent of business, limiting the profitability of the program. Obtaining the right to bind coverage based on information supplied by the customer from the Internet relationship would increase sales.
Earlier this month, the U.S. House and Senate agreed on a joint version of the Electronic Signatures in Global and National Commerce Act, which is expected to be promptly signed by President Clinton.
The act sets regulations for states that have not passed state regulations for electronic signatures. It defines changes in the Securities Act of 1934, which required that agreements be in writing, and directs the secretary of commerce to promote the concept that “Free markets and self regulation rather than government standard setting should govern development of electronic signatures.” The act states, “Electronic signatures in a form acceptable to the parties should not be denied legal validity on the ground that they are not in writing.”
The Uniform Electronic Transaction Act, UETA, is a model act passed by 17 states including California, Florida and Pennsylvania. It is designed to create a uniform commercial contract for computer software, databases, online data and other products.
“UETA, developed by the National Conference of Commissioners on Uniform State Laws, could have a major impact on the much wider application of electronic signatures to insurance sales,” said attorney Brian Casey of Atlanta law firm Morris, Manning and Martin. “Since there are very few cases or precedents to look to so far, the legislation is very important.”
Early opponents of the federal bill, such as the National Conference of State Legislatures, were able to offer final support of the federal legislation, favoring the Senate version, which maintained states’ rights to regulate insurance and consumer privacy, assuming they pass UETA.
“The report approved by the conference committee provides for the legal equivalency between electronic and written signatures and records without the massive pre-emption that permeated some of the earlier versions,” said Joanne Emmons, who chairs the Michigan state Senate Finance Committee.
Electronic signatures are various forms of evidence that a customer has committed to providing information valid for producing a quote and binding a policy into form. The wording of the legislation suggests an electronic signature carries several characteristics:
• Intent to signify agreement among parties.
• Capacity to verify the identity of the person using the signature.
• Linkage to electronic record in a manner that prevents alteration of the record after signature.
Many Web users like the potential convenience of electronic signatures. “Nearly one-third of Internet-connected households favor the adoption of electronic signatures,” Velvet Beard, Quicken Insurance vice president of product management, said at a seminar on May 18 in Washington.
Quicken already can bind auto insurance policies online by billing the initial premium payment to a credit card, said Intuit spokesman Harrison Liu, who added
“E-signatures have the potential to dramatically increase life insurance sales on the Net.”
The electronic-signature issue is similar to what the telemarketing industry went through to market insurance products during the late 1980s. Until that time, supplemental insurance was primarily marketed through direct mail. Programs involving telemarketing insurance were required to have two steps, with a telemarketing presentation followed by a letter requesting that a signature be provided on a document returned to the underwriter for the policy to be placed into effect.
American Bankers Insurance Co. (now Assurant Group) and its attorney, Nathaniel E. Butler of Washington law firm Kass and Skalet, in 1989 obtained precedents to justify insurance marketers accepting enrollments on the telephone for products such as credit insurance, which led to major growth in bank-sold supplemental insurance programs.
Industry pressure to pass enabling financial service legislation seems to be overcoming the longstanding rivalry between state and federal regulators. A breakthrough such as the one that propelled telemarketing appears near.