Do virtual insurers dream of electric premiums?

Tomorrow’s insurers may become virtual companies that interact electronically with customers, while driving down costs and improving speed to market, a leading business futurist predicted at the opening of the U.S. Insurance Services Office Inc.’s (ISO) InsTech98 Conference.

Dr. Bill Bruck, futurist and author, made this and other predictions about new technologies that will reshape how insurers interact with customers, distribute new products and services and compete in a “wired world” in his keynote speech before more than 700 property/casualty insurance executives attending the three-day conference.

Bruck cited Amazon.com as a potential model of electronic commerce that the property and casualty industry might follow. Amazon.com is an online bookstore which has transformed the retail book-selling business by interacting with customers exclusively over the internet. Amazon.com isn’t just a great use of technology — electronic commerce — but an entirely different way of selling books, Dr. Bruck observes.

Business-to-business electronic interaction is enabling companies to sharply reduce fixed costs and move to a variable-cost model, and to improve speed to market, Dr. Bruck says. At its extreme, the electronically-enabled variable-cost model is the virtual insurance company. Such stealth companies are silently growing market share and changing the economic model of the industry, he notes.

Dr. Bruck cites a European insurer who captured 17% of the market over the past two years with hardly having being noticed by the competition. The company buys nearly all its capabilities from low-cost quality producers and operates at a cost structure 50% lower than an integrated firm by outsourcing distribution, underwriting, administration and investment functions. In the next millennium, more companies are likely to do business this way, he notes.