Internet re-aligns insurance market

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 03 Mar 2008

The Internet will likely overtake contact centres as the preferred medium for client-insurer interaction within the next decade, says MiWay CEO Ren'e Otto.

Otto, an Outsurance founder and its former CEO, says 20 years ago nearly all insurance went through brokers. "Then Auto and General came with a direct offering and others followed, obviously eating into that broker market. Today, it's 70% direct. Internet-based insurance is less than 1% at the moment, but what about 20 years from now?

"It is difficult to predict and anyone's guess, but I expect brokers to die out. It sounds harsh, but their children have adopted to the direct way [contact centres] and now the Internet way," he says.

The MiWay CEO expects the broker share of the market to shrink to 20%, contact centre-based insurance to contract to 30% and the Internet to hold the other 50%.

"We say there is a market for this already. The future of self-service is bright. There is the type of person out there who wants to do his own thing. My brother-in-law is one of them... He is a SAP consultant and an introvert so he doesn't want to speak to anyone. He wants to play around with the figures until he likes the premium. That gives him comfort...

"The world is changing; people now do airline bookings online, along with many other things."

Otto says the Internet option brings convenience and creates a facility for people "to do things in their own time".

He adds that "there is an obvious business rationale for us; it is much cheaper to us if you manage your own policy, write your own policy and make your own amendments. It gives the consumer convenience and us a more profitable business model."

Otto says technology is all about functionality. "What does it facilitate me to do and why do I want that? Does it suit my business model and does it suit my clients from a convenience and service point-of-view," he asked rhetorically in an interview to mark the launch of his Web-based financial services company.

MiWay, he says, will rely heavily on the Web as that is the logical thing to do. He adds this was not practical 10 years ago when he was involved with Outsurance. Then there were only 350 000 Internet users in the country "so it wasn't worthwhile to build a system that catered for that market". Today, there are more than five million users, "so you are going to stay behind if you don't enter that market".

Rivals fall behind

Asked about likely competition, Otto said conventional insurers were so certain Outsurance would not work, they failed to follow its lead "long enough for Outsurance to get critical mass and then they started to copy some of the critical concepts".

"That won't necessarily happen today," Otto adds.

He says the problem for the competition lies in their intellectual property. Several insurers have worked out highly proprietary and confidential models to determine risk. They have almost made it a science. But allowing clients to work out their own premiums allows others to determine how you calculate risk. "You can reverse-engineer their model and then their IP is gone."

MiWay will initially focus on short-term insurance, motor warranty, credit life and home loans. It plans to expand its activities to a full range of financial service products within 12 months.