How Online Insurance is affecting the insurance industry in US

29.07.2019
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Introduction

Term insurance without any doubt is one policy every family needs to have thanks to the combination of low premium outgo for a decent high-value cover. Post the emergence of e-commerce, financial products too are being made available online and that too with great ease. So in case if one wants to go for a term plan, they have the option of doing it the online way. Buying a term insurance plan online is the cheapest way to buy insurance as it not only saves your time and also money. There are some factors which can be considered while deciding to go for online insurance or local insurance.

1. Premium Cost:
Online term plans are on an average are 40% cheaper than the offline options. This is primarily because there is no intermediary involved in the process. You are directly connected to the company via their website, hence there is no room for any commission to broker or agent. In an offline plan for every premium paid, a certain percentage goes to the broker.

2. Sum assured:
Online plans offer high sum assured for a lower premium given the low mortality risk and reduced servicing costs. The plans available range from Rs 5 lakhs to Rs 5 crores and beyond. Even though the same plans are available offline, applicants are generally seen settling for lower sum assured, solely due to the high premiums to be paid.

3. Disclosures:
While applying for online term plans, one has to give detailed disclosure regarding oneself and one’s health as online plans can be termed as a contract between the company and you on the basis of good faith. Details about the present and past medical history, personal and family health information, lifestyle habits are all sought. Any fraudulent details provided on these fronts may prove too costly at the time of claim settlement. When it comes to offline mode, most of the time, the forms are filled by an agent/broker. There are times when certain details are not filled honestly and sometimes certain columns are left blank intentionally or unintentionally, which may all lead to claim rejection years later.

4. Customer Support:
In case there are any doubts while filling the form online, most of the companies have helplines where one can call and rectify their doubts. Even at the time of claim settlement, one can coordinate with a pre-designated call centre and get the work done. This is one point used by most of the brokers to dissuade people from buying online scheme. They promise that for the claim settlement they will do the running around which is required. Financial planners note that there no running around required for the initiation of the claim settlement process.

5. Claim Settlement:
With regards to claim settlement, there are certain guidelines set by the insurance regulator, the Insurance Regulatory and Development Authority (IRDA). For any claim within the first two years, insurers have a timeframe of six months to investigate and settle the claim. For policies older than two years, there is a 90-day period during which the settlement has to take place. Hence, it doesn’t matter whether you have taken the policy online or offline, the claim settlement will undergo the same scrutiny. There is no broker magic here. Also, there is no data till date that will support the often-heard broker claim the number of online policy rejected during settlement is higher than the offline ones.

Finally, the only pitfall of going online is that there will be no broker calls to remind you that its time for premium renewal.

How Online Insurance is affecting the Insurance Industry

To date, current electronic commerce typically involves the sale of goods as opposed to services, such as insurance. This disparity can be tied to a variety of issues, including technology acceptance by consumers, security and regulatory concerns surrounding insurance sales on the Internet. Unlike the sale of a book or article of clothing, the sale of an insurance policy involves complicated contractual language, the transmission of sometimes confidential information and a relationship of good faith on behalf of the buyer and the seller.

Industry Advantages

The most significant advantage of the Internet to industry is the ability to communicate and transact business electronically which could substantially reduce administrative costs, and increase profits and bring more innovative and less expensive services to a wider audience.
Insurers will also have the ability to communicate and deliver marketing materials to their producers electronically, including rate manuals, underwriting guidelines, applications, company procedures and advertising guidelines. to name a few.
Consumers who commonly use the Internet or similar electronic providers for the purchase of other products and services could search for competitive insurance quotes and seek out an agent or insurer that best fits their personal needs. Consequently, the Internet could substantially enhance marketing potential for those agents and insurers willing to be on the cutting edge of this new marketing opportunity.
The industry will also be able to electronically access most state insurance regulators to obtain compliance information such as license applications and guidelines, applicable fees, interpretation of certain state laws, communicate by e-mail with insurance department staff and respond to consumer complaints in a more timely manner. There are those in the insurance industry who believe the Internet will enhance their ability to improve regulatory compliance and reduce exposure to potential market conduct violations.

Industry Disadvantages

An issue for the insurance industry is remaining in compliance with insurance regulations while engaging in Internet-based sales and services. The Internet is global, and therefore insurance offerings can appear anywhere, including states or countries where the insurance company or agent may not be authorized to do business. Thus the insurance industry needs to be cognizant of state regulatory requirements in regards to licensing of agents and insurers, approval or filing of insurance products. In most states, insurers may only issue a policy through a licensed agent. Insurers, are expressing concerns that their producers may be offering policies in states where they are not approved, Insurers, therefore, need to make particularly sure that their web sites clearly disclose where their products are intended to be offered, to insure they are only soliciting business or making representations where they have authority to transact business.
Some in the insurance industry have also expressed a concern that without an agent present in a face-to-face contact with the consumer, it may become more difficult to qualify the applicant for insurance. Inadequate medical records and other sources of information about the consumer may impair an underwriter’s ability to determine eligibility without actual contact and verification by the agent. The rapid growth in development of Internet websites for agents leaves some insurers with concerns regarding specific state advertising laws and regulations. Agents may be advertising specific insurance products and services without authority from the insurer and in violation of these laws and regulations. Furthermore, in a recent NAIC survey of state insurance departments, Internet advertising is considered subject to regulatory approval in many states.

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