Insurance e-commerce is expected to have a certain impact on global insurance premiums. In marked contrast, a significant volume of business between major insurance industry operators has been transacted over proprietary electronic networks since the mid eighties. An insurance transaction requires a high volume of two-way information transfer between insurance operators (insurers, re-insurers, agents or brokers) in sector
business to business trade. Similar high volumes of data are exchanged between insurance operators and their clients, be they corporate or individuals, in direct insurance purchases. The insurance sector in developed
countries is therefore a natural contender for adopting ecommerce practices.

The e-commerce revolution in insurance is:
The rethinking of the relationship between insurers and clients on how to take advantage of the Internet to offer tailor made products at low administration costs, through automating the motions of quote generation, contracting and processing claims;
A migration from expensive closed proprietary network systems to low-cost Internet based systems for EDI;
The 24 hour world-wide and always accessible insurance business;
The development of the Internet enabled the development of software for conducting insurance operations electronically, both for use internally in an insurance operator’s offices, as well as for enabling business and communications among insurance operators.

Often cited problems hindering progress in the insurance industry include:
The need for establishing a common standard for authentication and data encryption on the Internet,
A lack of investment in Internet capabilities: what is spent focuses on marketing, customer support and
intermediaries’ support rather than on establishing Internet sales,
Poor expectations of generating significant premium incomes through the Internet - even if there is an increase in the number of policies sold, clients expect a trickle down of new cost economies through lower rates,
Product complexity and Insurance e-commerce is expected to have a certain impact on global insurance
premiums. In marked contrast, a significant volume of business between major insurance industry operators has been transacted over proprietary electronic networks since the mid eighties. An insurance transaction requires a high volume of two-way information transfer between insurance operators (insurers, re-insurers,
agents or brokers) in sector business to business trade.

Similar high volumes of data are exchanged between insurance operators and their clients, be they corporate or individuals, in direct insurance purchases. The insurance sector in developed countries is therefore a natural
contender for adopting ecommerce practices.

The e-commerce revolution in insurance is:
The rethinking of the relationship between insurers and clients on how to take advantage of the Internet to
offer tailor made products at low administration costs, through automating the motions of quote generation, contracting and processing claims;
A migration from expensive closed proprietary network systems to low-cost Internet based systems for EDI;
The 24 hour world-wide and always accessible insurance business;
The development of the Internet enabled the development of software for conducting insurance operations electronically, both for use internally in an insurance operator’s offices, as well as for enabling business and communications among insurance operators.

Often cited problems hindering progress in the insurance industry include:
The need for establishing a common standard for authentication and data encryption on the Internet,
A lack of investment in Internet capabilities: what is spent focuses on marketing, customer support and
intermediaries’ support rather than on establishing Internet sales,
Poor expectations of generating significant premium incomes through the Internet - even if there is an increase in the number of policies sold, clients expect a trickle down of new cost economies through lower rates,
Product complexity and the insurance e-commerce revolution. The outcome will hopefully be a situation where the Internet allows suppliers to put out different products and see which one takes.

Clients want to design their own (insurance) products around their own risk profiles (and) insurer have to respond to this. Preconditions for success include high Internet penetration and a large market, as sales
are likely to be small in the first instance but will still have to justify the necessary additional expenditure on IT infrastructure to investors. Once an Internet sales facility is established, costs are quickly transferred to the consumer who then does the work of entering data to generate a quote and finances the connection cost, which are steadily decreasing with the liberalization of the telecoms market and through competition between ISPs.
Supervision and regulation of insurance e-commerce The implications of insurance e-commerce for a country’s
insurance supervisor and its office are threefold. First and foremost, it must address concerns about the retail of insurance services on the Internet. Secondly, it may review its practices and decide to adopt the Internet as a medium for conducting its own supervisory business.

Finally, recognizing the borderless nature of the Internet, supervisory authorities may wish to initiate a change in the current insurance regulation(s) and supervisory regulatory system to reflect the new realities for all
parties to an insurance contract.

In contrast to insurance retail, the purchase of insurance by big corporate clients is less suitable for e-commerce as the policies are negotiated and tailored to specific risk profiles and lack similarity in substance and structure. Today, it is still difficult to envisage a petrochemical industry or an airline obtaining an insurance quote by filling in a form on the web.

Many of the concerns about the general protection of consumers buying on the Internet apply to insurance as
well. It may be an important task for the supervisor to inform the insurance consumer about electronic contracting and assist her to foresee problems and advise on practical solutions. The discussion below does not exhaust the subject matter but merely attempts to describe several concerns.

A fundamental issue is the continuity of commercial presence of the insurer. Unlike other products or services, an insurance contract subjects the insurer to an obligation of performance for a certain, determined and prolonged period after the contract document has been signed and the premium remitted. Therefore the permanent and continuous commercial presence of the insurer is fundamental to the delivery of eventual
claims’ re-imbursals. If the insurer decides to withdraw from e-commerce or change its Internet address, regulatory requirements need to be in place keeping the consumer informed about the insurer’s virtual or physical relocation.

This in turn brings up the issue of licensing and supervisory purview, which like taxation, has relied on geographic domicile in determining the rights and obligations of all parties to an insurance contract. Electronic
signatures are important not only in confirming the existence of contract but also in specifying the start of the purchased insurance cover.

Contract validity and effectiveness may be influenced by failures in data transmission: the consumer may be under the impression that a contract is in place while the insurer may have received damaged data that does not allow cover to be issued.

The problem is not obvious until the insured attempts to claim under the non-existent contract. While not receiving, on time or at all, a parcel of books, garments or consumables is discomforting, being uninsured due to signature or data transfer problems and experiencing a total loss due to a house fire may be extremely
disruptive.

Other issues of concern to supervisors are advertising and the use of a client’s profile data on file with the insurer because of previous contracts, choice of transaction suits, fraud and methods of payment. Individuals and industry should have access to the Supervisor’s offices through the Internet and supervisors are steadily
adopting the Internet as a standard communications tool with policyholders, beneficiaries and industry. A number of supervisory authorities have already established a web presence with varying degrees of interactivity. A general overview of the extent can be had by visiting the members page of IAIS.

Insurance supervisors may use the Internet to offer advice to consumers through an FAQ (frequently asked questions) web page. It may use its web page to receive individual messages and complaints and refer consumers by e-mail as to possible options for action in the events of misunderstandings or conflicts of interest.

Information on the operating license, rating and quality of service and financial data on insurers and intermediaries, as well as current legislations, may be provided to the consumers. Supervisors may wish to take full advantage of Internet communications in their work with the insurers. Some possibilities may include:
Providing information (compliance, licensing, fees),
Receiving reporting information on electronic forms,
Direct monitoring of Internet sales and business solicitation,
Communicating with supervisors in other states and countries and sharing information on licensed or problem insurers or intermediaries,
Providing reliable information to insurers about agents or brokers they wish to engage.

In the production and delivery of insurance contracts insurance regulations world-wide will certainly have to be adjusted to account for borderless insurance e-commerce. There are many benefits to be had for consumers, insurers and supervisors and therefore the initiative for change should be consensual and tripartite.