The Split of Insurance Products and Services in the Marketplace

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The split of Insurance Products and Services in the Market Place E-1600 Economics of Business Professor R. Wayland Authors Steven Washburn Glenn Tam Derio Chan Anupam Raman Robert Rothschild Varun Malhotra Tiffany Hart December 9, 2014 Hypothesis On several levels, the Internet and related advances in technology have significantly affected financial services broadly, and insurance markets more specifically. When combined with globalization and regulatory reform, these advances have forced the insurance industry to become more competitive. We will discuss here specifically the split or disruption in the insurance business with a focus on the auto insurance product and less complex personal insurance products. These…show more content…
Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. The existence and success of companies using insurance agents is likely due to improved and personalized service and relationships. With regard to the traditional Automobile insurance, the product itself has become standardized primarily due to government regulations and lender requirements. There really isn’t any further “product innovation” that takes place. This has led to extreme process innovation and, combined with the velocity of technological change, has allowed the non-specific auto insurance product to split from the traditional insurer. Transaction Cost Advantages for Internet based Insurance “Insurance companies selling and servicing over the Internet will have a cost advantage over traditional insurers in the range of 58% to 71% over the lifetime of a customer. Savings are driven by reduced sales costs, cheaper and better information capture.” (Booz-Allen & Hamilton, 1997) Personal Auto insurance has become nonspecific or generic, where computers and software can handle the entire transaction, from start to finish. Increasingly predictive modeling technology is being used by personal auto insurance carriers to augment or automate the rating/pricing and
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