Global Online Insurance Industry
The global online insurance industry witnessed 5% expansion between 2007 and 2012, according to research from IBISWorld. The industry is forecast to grow 9% in 2012 to generate $17 billion, fuelled partly by the growing number of services online.
Though most consumers still like to deal with an insurance agent to complete their insurance policies, most begin the process online. Actors in the online insurance industry include independent agents and companies serving as an intermediary to liaise between insurers and consumers by way of websites and online web portals. Intermediary bodies can charge insurance carriers a commission, and may also charge fees for value-added services.
Challenges & Competition
Many consumers feeling the pinch of the economic recession looked for new ways to cut down on spending. As the level of disposable income fell, individuals sought to spend less on insurance. Similarly, declining profits led companies to do likewise. As home and car ownership rates fell, consumers required less related insurance products. IBISWorld underlines the reaction among industry players consisting of a reduction in premiums to attract customers. This lowering of premiums limited commission, which constitutes online insurance brokers’ main source of income.
A trend has also emerged among larger insurance carriers of selling directly to consumers. This has allowed them to circumvent online insurance industry operators, creating a more competitive market place. Due to the more intense level of competition, the industry has seen a decline in profitability. Profit margin does, nonetheless, remain higher among online brokers than brick-and-mortar brokers. This is mainly due to the advantage of lower overhead costs. Insurance carriers are expected to witness an increasing degree of competition over the next five-year period, intensified by new entrants to the market.
Regional Market Share
- India’s online insurance sector is showing relatively strong growth, partly due to internet penetration and also a growing customer base of working middle-class professionals. The number of insurers continues to rise in India, with only four insurers operating insurance policies online in 2010. In 2012, this number has risen, with 10 life insurers providing customers with online term plans, and six outfits offering health and motor insurance online. In 2011, the monthly rate of policy sales in India reached around 35,000, up from a monthly rate of 10,000 policies the previous year. According to Aegon Religare Life Insurance, online policy sales represent savings of between 20% and 25% for insurers compared with offline policy sales. As online sales are directed only by policy-buyer decisions, the medium is also advantageous and convenient for customers. India’s online platform holds vast growth potential for the insurance industry. Insurance carriers are expected to increasingly avail of this channel to distribute various insurance policies in the years to come.
- More than a dozen insurances agents and brokers provide online insurance services in China, according to the China Insurance Regulatory Commission (CIRC). Close to 10 insurance companies count as disclosed businesses on close to 30 websites, following the January 2012 Regulatory Measures of Online Insurance Business by Insurance Agents and Brokers. CIRC is also expected to undertake investigation and eventual prosecution of illegal online businesses moving forward.
Leading insurance carriers currently operating in the global online insurance industry include State Farm, Geico, Nationwide, Allstate Insurance Company, Esurance and Progressive.
A growing number of consumers are set to complete policy purchases online moving forward. IBISWorld predicts yearly revenue will climb, fuelled by consumers adopting the online channel. Economic recovery and US healthcare reform are two other factors likely to drive growth in the online insurance industry.
The industry will not fully witness the ramifications of the US healthcare reform legislation before 2014, at which point online insurance exchanges will be implemented. The implementation of the insurance exchange, which makes individual health insurance mandatory, will push consumers to purchase insurance online. Subsidies provided for lower-income households will also fuel online insurance industry growth.
Leading Industry Associations