Ask any product provider why they want to adopt e-commerce and one of the main reasons you will almost certainly get is to reduce costs.
Yet, for reasons I have never been able to fathom, give most life offices the chance to cut away vast swathes of what by now should be unnecessary expenses and almost all of them shy away.
For nearly a decade it has been possible to get online illustrations for a wide range of life insurance products. In 1992, its first year of trading, The Exchange delivered around one million illustrations. By last year, this had risen to 50 million – and that is just from one service provider.
The emergence of competition in the provision of online quotes via AssureSoft, Misys and Synaptic is likely to lead to further such explosions. More and more products from more insurers can be illustrated via more service providers.
Yet, at the same time as all these additional services are arriving, hardly any insurers have cut back on the volume of conventional marketing material they generate.
All too often, I talk to IFAs who happily admit they use online services to get initial illustrations and then ask the life office for the “glossy” to send out to the customer. Maybe I could understand this a few years ago when the quality of printouts from online systems was limited but, increasingly, these documents are being created to provide high-quality printouts. Provided you have a suitable printer, these can be printed in full colour.
I am not denying for one second that the glossy material produced by life offices is of even higher quality but, if you are advising someone to buy a long-term investment, which is more impressive to them – a life company that spends millions a year on glossy brochures, few of which will ever be read, or that one uses the latest technology to cut costs and reduce product charges?
Personally, I have long questioned what actual value glossy brochures deliver to the consumer.
At the beginning of the 21st Century, there is a wide range of multimedia tools that can deliver high-quality information to customers to explain policy terms and conditions without eliminating acres of rainforest. Discounting any environmental benefits, there are sound business reasons why brochures as we know them should be eliminated.
It should not be forgotten that every document produced today begins its life on a computer of some kind. In practice, multimedia tools are far more suitable for explaining complex products to customers with diverse levels of knowledge of financial services. Macromedia Flash and its Shockmachine player are perfect examples of such high-quality tools. To download the Shockmachine player, go to www.shockwave.com.
My favourite download of the moment is Internet killed the Video Star by e-studio.com. For a rather more industry-focused example of what this technology can do, look at Axa Sun Life's IFAline service (www.ifaline.co.uk) where Flash has been used to create a downloadable explanation from UK group chief executive Mark Wood of its proposals on orphan assets.
With the industry's New Business E-Commerce project reaching the delivery stage, there is one area on which negligible progress has been made – products that recognise the investment that has to be made by IFAs to be able to deliver savings to insurers by submitting business in a way that will cut processing costs.
I understand from several major IFAs that those life offices – many of which are announcing yet another year of improved profits – are pleading that they do not make enough money on bond products to be able to incentivise electronic products. It has long been recognised that product providers achieve the greatest savings from such moves.
In the long run, I have no doubt we will arrive at a situation where providers in the life and pension market will emulate moves in the general insurance market where, some years ago, a number of providers announced in the middle of the year that, from the beginning of the following year, any business that was not submitted electronically would receive 50 per cent of normal commission.
Against this background, not surprisingly, companies which had not moved to electronic trading suddenly found a real motivation to change their business practices.
This is in everyone's interests – consumers, IFAs and life offices – but the onus must be on those who will gain the most, the product providers, to create products which give a real incentive both to the customer and adviser to move away for the way they have done things in the past.
That this will work in the life and pension arena has already been demonstrated. Some years ago, General Accident proved that if it priced a product attractively, it could cut back on the level of traditional support documentation by completely withdrawing its branch illustrations for a term product that was available electronically. Its market share did not suddenly plunge – on the contrary, it jumped.
Insurers will only achieve savings through e-commerce by removing outdated paper and manual processes. Those which insist on maintaining old ways of working guarantee that they can never achieve their full potential. Had more insurers followed General Accident's lead when it abolished branch illustrations some years ago, as an industry we would already have saved millions if not tens of millions of pounds.
There is a real advantage to be gained by being among the first to deliver true electronic products, priced accordingly, and I will be fascinated to see which providers take this advantage. I believe there is a real appetite for them among some significant IFA firms.
Ian McKenna works as a consultant for industry organisations such as Origo, life offices and technology companies, including Microsoft, Assuresoft and The Exchange.
He is a consultant and director of The Financial Technology Centre. He can be contacted by email at: IanMcKenna@msn.com Tel: 0207-359 5656.
Fax: 0207-359 2858.