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Do Insurance Industries Lag Behind The E Commerce?

3094 words - 13 pages

Overview:Shadow Insurance Regulation Committee (2000) mentioned that Electronic commerce is quickly emerging as a particularly visible and spectacular incarnation of globalization. The rapid expansion of electronic transactions constitutes an unprecedented opportunity for trade and development. The growing importance of Electronic Commerce (E-Commerce) represents a watershed event for insurance markets and institutions, as it does for most industries.The E-Commerce revolution:Shadow Insurance Regulation Committee (2000) pointed out that:qThe rethinking of the relationship between insurers and clients on how to take advantage of the internet to offer tailor made products at low administration ...view middle of the document...

McAdam (1998) noted that the insurance industry is highly information-intensive. Insurance providers rely on large quantities of data and information to identify, assess, and price risk in the marketplace. The back-office operations of insurance companies are almost all computerized and operate on an electronic commerce basis. Accounting, financing, investment management, funds transfers, underwriting actuarial work, product development, and claims support are done electronically. In addition, the vast majority of transactions between insurers, other insurers, agents and brokers, reinsurers, banks and other financial institutions, are carried out by electronic means.Is Insurance industry adequately utilizing e Commerce?According to McAdam (1998), for years there have been in place industry standards for electronic interchange that govern back office data use and the exchange of data between players in the market. Standards networks such as IVANS (domestic property/ casualty insurance) and RINET (global reinsurance) have been in place for more than 10 years. These standards complement electronic funds transfer networks that banks have had in place even longer.The insurance industry is gradually using electronic means more to market and distribute their retail products to customers, either directly by insurers or through agents. The Internet is the most obvious example, although insurance sales are still in their infancy. One study puts 1997 premium sales of personal auto, homeowners, and life insurance on the Internet at about $200 million, or 0.1 percent of industry premiums. This is projected to grow to $6.3 billion, or 1.6 percent of industry premiums by 2006. Another study estimates that Internet sales for personal auto and homeowners insurance totals only 2 percent of the U.S. market in the year 2000. Experts agree that the insurance industry is lagging behind banks and other financial institutions in exploiting the Internet's capabilities. (Ibid)Also, compared with their competitors, insurers are well behind the intranet curve. A recent study reveals that insurance companies have the lowest intranet usage of any major U.S. industry, with only 10 percent of companies using intranets, compared to 33 percent for all U.S. business. In addition, some large competitors that are entering the insurance business have a big head start in deploying web technologies. Reasons given for the insurance industry lagging behind include top executives who are "technically challenged" and afraid of new technology, complacency, and heavy industry regulation. (Ibid)How Insurance sector can be benefited by E-Commerce:McAdam (1998) claimed that there are factors that would seem to make both the Internet and intranets a natural for insurers; notoriously high administration costs; national and international consolidation; and legions of widely scattered agents and brokers. Even more important is the gathering invasion of banks, brokerages, and other financial...

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