Insurance Comparison and the Internet

Online Insurance Comparison: Today’s internet is the largest source of information. Information has become almost commodityized. The only thing that is important is to know what information to look for. Internet has played a major role in creating a more efficient market place by removing information asymmetry. Insurance is an area where the internet’s power can be used to its fullest, allowing potential buyers to compare different insurance policies online.

One of the most resentful things about the insurance industry is that customers have bought insurance blindfolded. This leaves them completely dependent on the agents who push products to make the highest commissions. Distribution costs in insurance are high and the system is inefficient. Like any other channel, commissions can be very high. There are many layers and sub-layers of distribution. The final cost is borne entirely by the customer. The internet can help bring the buyer and insurance company closer and ultimately lower the purchase price.

The recent trend in India is that people are using the internet to search for insurance before purchasing. Although insurance purchasing via the internet is still in its infancy it is only a matter time before it becomes mainstream. The internet’s potential to increase in popularity is only possible with broadband penetration expected to rise beyond current levels of 10 million connections. The internet’s efficiency is principally in the ability to allow users to compare all features, including price, through individual companies’ websites or through aggregators. Aggregator sites have a huge responsibility to provide accurate information. It is another matter entirely whether that is actually happening. Insurance is rife with misselling. The internet has helped to reduce mis-selling by selling regular premium policies as recurring bank deposits, guaranteed products as guaranteed products, and direct debit mandates from unsuspecting customers. In any price comparison of insurance policies, it is important to remember that the savings from lower premiums are not just for one year but also continue on each subsequent renewal. An insurance policy for health that is 40% cheaper than one from another company will likely cost 40% less each year. As you can see, the power of accrued savings is enormous.

One disturbing trend is also being observed on aggregator websites. Comparing products that are not comparable is a growing trend. One example is the pensions product. The variable that has perhaps more than 90% weightage refers to the fund performance of the company. We still find comparison sites that use the assumed rate 10 % and 6% of return. If a company’s fund management fee is lower than that of another, it doesn’t matter if the fund performance of the other company has fallen by even 1%. The best products to compare are car insurance, health insurance and term insurance. This is due to the fact that there is an immediate price comparison and direct feature comparisons. The additional features can also be assigned a monetary value so that the user can analyze whether the overall price equation makes sense. It is difficult to compare products such as child policies, pensions, and investment products on the price front. And, more often than not, the comparisons are meaningless.