The Internet is often defined as a network of networks and within a few decades of its debut as a means of communication it has revolutionized business networking in the financial services industry (Birch and Young, 1997). This is particularly true for the banking and insurance sector which has found the Internet to be both a bane and a boon at the same time. For many insurance companies, the Internet has undoubtedly speeded up their ability to replicate and transfer advertising and financial information cost effectively (Buhl and Will, 1998). Since this sector banks mostly on highly tangible, information based content, it is the perfect candidate for interactive media advertising online. This also means that the ease and access with which an insurance company can advertise to and communicate with a potential consumer base means that there is great potential of relationship building with in this sector in the managerial context (Quelch and Klein, 1996).
The negative impact has been the saturation in competition in the insurance services industry as well as the likelihood of Internet fraud and “phishing” by dubious foreign companies. Other complications have emerged in the form of money laundering problems, unreliable consumers and a wave of cutthroat pricing competition between insurance companies (Buhl and Will, 1998).
The Internet revolution has also caused a change in the way the insurance client interacts with his insurance broker/agent/company. Many sceptics of the Internet complain that it has made the services industry unreliable and impersonal (Foley et al, 1999). Furthermore, the lack of regulation by the financial services authorities until recently opened the way for misleading advertising by insurance fraudsters thus giving the sector a bad reputation. However, recent measures post the sub prime crisis have actually paved the way for better regulation of Internet fraud in insurance matters (Quelch and Klein, 1996).
Recent regulatory measures pertaining to financial services have brought about a merging in the banking and insurance sectors (Dannesberg, 1998). This has changed the way insurance brokerage is conducted as many commercial banks are slowly moving towards insurance and stock brokerage. Insurance businesses owned by banks thrive better with their online services due to the fact that they already have a solid “bricks and mortar” infrastructure to support it.
There have been privacy, spamming and data protection concerns as well ever since insurance became one of financial the services to be offered and sold online. Moreover, there has been much litigation on both sides of the Atlantic concerning the privacy of the personal details of customers with the accusation that these details are shared with other banks without permission. Another issue that has risen in recent years has been the outsourcing of agency and management functions to third world countries. This controversy came from the setting up of online call centres and supplying the employees abroad with the personal and financial data of customers. The Internet has undoubtedly allowed cost cutting through outsourcing functions to cheaper locations, but the legal implications of the same are now coming to the fore (Dannenberg and Kellner, 1998). For example, companies in the finance and insurance centre now collect email addresses, telephone numbers and in some cases even credit history, and supply it to data controllers abroad. Such information amounts to personal data under the Data Protection Act 1998 and the EU Data Protection directives. Under the eighth Data Protection principle (Directive 95/46/EC, Art. 25 (1)) there is a strict prohibition on passing on any financial and personal information of an individual by a data controller (in this case an insurance company in the UK) to a non-EEA country or any country, which does not have adequate data protection standards in place. Therefore the “Indian Call Centres” controversy caused much litigation sometime back as such sensitive financial information was being transferred to India from EU countries, which put the customers at risk of having their personal and financial details, compromised.
From a business point of view, the Internet and technology have permeated insurance functions to a large extent as many of the insurance clientele finds themselves using software packages to manage their finances and insurance payments. The use of the Internet has also encouraged the development of financial software, which allow the clientele of financial services to organise and maintain their financial information online for better personal and corporate financial management. Such online software allows for account integration (Quelch and Klein, 1996).
It has to be noted, however, that with the changing nature of the insurance industry due to the internet, these insurance organisations are now competing “online” in terms of website design, downloading speed, the presentation and content of their insurance advertising, as well as network integrity and security. So, in the virtual world there are simply no bricks and mortar building with heavily armed security personnel stopping thieves and bandits. In the virtual world, the website is the office window which leads to the virtual world, the bandits are the hackers and the security personnel are replaced by security software and software engineers who work to maintain the security of the website and effectively the insurance company.
In conclusion, the Internet has given the insurance consumer more freedom of choice than ever before. In addition to this, protective consumer-oriented legislation in the UK means that the financial services industry has to compete in making itself known and available to a customer through many virtual means, thereby allowing consumers to have better knowledge of their rights and choices. There have been phenomenal changes in the working environment of the insurance sector due to the fading constraints of geographical boundaries (Buhl and Will,1998). The insurance industry has seen and will continue to witness a change in consumer behaviour, and there will be a need to cater to these changing needs and preferences. The online consumer has access to better information as well as a choice of better offers when searching for an insurance deal online. Thus, it can be safely predicted, will decrease consumer loyalty to a certain insurance institution as more customers will be able to switch between financial institutions and insurance packages.
For many analysts of the insurance sector this is not good news (Foley et al, 1999). This is because, in their bid to launch a cut-throat price competition, such insurance providers might find themselves making less profit due to increased discount packages and spending on the maintenance of online services. Essentially, when loyalties will start changing at the click of a simple button online to another insurance provider, it can be foreseen that cartels might start emerging in the online insurance industry which share consumer information, and like the banking industry there may be more mergers in the insurance sector in the coming years. Last but not least, there is currently an ongoing change in the required aptitudes of insurance industry staff, and with more use of computers there might be an overall decrease in the staffing levels of the economy.
In this way, the Internet has brought the good, the bad and the ugly to the insurance sector where the trusted personal insurance broker might find himself replaced by the online intelligent interactive insurance services. Either way, this is an inevitable consequence of the take over of the “network of networks” for the insurance industry and many similar financial services industries.
References
- Birch, D., Young, M.A (1997), “Financial services and the Internet – what does cyberspace mean for the financial services industry?” Internet Research: Electronic Networking Applications and Policy, Vol. 7 No.1, pp.120-8.
- Buhl, H.U, Will, A (1998), “Economic aspects of electronic commerce in financial services and advantageous steps to extended offers”, Proceedings of the 31st Hawaii International Conference on Systems Sciences, Hawaii, USA,
- Dannenberg, M, Keller, D (1998), “The bank of tomorrow with today’s technology”, International Journal of Bank Marketing, Vol. 16 No.2, pp.90-7.
- Foley, P, Sutton, D, Jayewardene, C (1999), “Forecasts and trends for electronic commerce”, in Khosrowpour, M (Eds), Managing Information Technology Resources in Organisations in the Next Millennium, Idea Publishing, London, pp.241-7.
- Quench, J.A, Klein, L.R (1996), “The Internet and international marketing”, Sloan Management Review, Vol. 37 No.3, pp.60-75.