Money: Insurance on-line

Stephen Pritchard looks at the potential of the Web for making policies easier and cheaper to buy

COMPETITION in insurance means keen prices, but there's little pleasure in ringing round for insurance quotes or traipsing from broker to broker in search of a good deal. Insurance firms admit that household, motor and travel policies - called general insurance - are bought mostly on price.

The market is relatively lightly regulated - unlike life or pensions policies - and there is often little to choose between insurers. This makes general insurance one of the easiest products to sell on the Internet. Most of the large UK insurers now have detailed Web sites which at least set out their stalls: Norwich Union, Royal & SunAlliance, Legal & General, Commercial Union, Eagle Star. There are also smaller specialists, such as Admiral for car insurance, or WorldCover for travel.

The insurance market changed dramatically when companies such as Direct Line introduced the phone as the way to buy a policy. Rivals quickly followed. The market, insiders believe, will change again as the Internet makes its presence felt. As yet, few insurers actually sell anything through their Web sites. They offer on-line quotations, descriptions of products and claims information. Royal & SunAlliance even gives tips on preventing storm damage. But completing the sale means using the phone or the post.

Analysts who study Internet shopping have a model of the sort of goods that suit it. Anything bulky, specialised or made to order is out: the delivery costs are too high, the volumes too low. Simple items, where the buyer knows what he or she wants, are ideal. Books and CDs are proving popular on-line purchases. The shopper likes the author, or the band. Where they buy the product is decided by price and convenience.

Home, car or travel cover is a little more complicated than a CD, but current technology is perfectly capable of producing a policy quote from details typed in on a Web page. There is little difference between the customer completing the form on-line, and someone in a telecentre typing the same information into the insurer's computer. Persuading the customer to do the work has the added advantage, for insurers, of cutting costs.

This should lead to significantly lower prices for policies. And, because the Internet should make it easier to compare prices and features, the theory is that insurers will work to keep their costs down. This is good news for consumers but, for it to happen, many more insurers need to sell in volume over the Net.

In the US prices have fallen because of Internet competition, but the UK lags behind. "I don't think that the virtuous circle has started in the UK yet," suggests Neeta Patel, head of electronic commerce futures at Legal & General. "I don't think we've sold enough policies to see how it is affecting distribution costs."

For now, most insurers see the Net simply as a pre-sales tool. Legal & General's site, for example, gives the option of submitting a fairly lengthy form to the insurer, and waiting for a postal quote. As an alternative, clicking the "contact us" button gives the option of e-mailing a phone number to the firm. This results in a call back from an agent. This is pretty efficient, with responses in less than 10 minutes.

On-line quote forms are popular with insurers: they appear on sites of Commercial Union, Royal & SunAlliance, Norwich Union and the travel specialist, WorldCover, among others.

One criticism is that the forms help the insurers more than the customers. There is no standard format, and entering the same details over and over again runs up phone bills for time on the Net. It is a pity more insurers are not willing to give indicative premiums on-line - such as those calculated by the Co-operative Insurance Society's site, or by Royal & SunAlliance - or e-mail the results back the same day. Waiting for a postal quote defeats the object of using the Internet in the first place.

Better still, insurers should give firm prices on-line to customers, who can then pay for the policies using a card. One of the few insurers to do this is Eagle Star Direct, which sells motor policies in this way. The site is well-designed and easy to use. If the quote is acceptable, you can buy it there and then. Eagle Star says its policies bought this way are 15 per cent cheaper than those bought over the phone.

q Contacts: Commercial Union: www.commercial-union.co.uk; Co-operative Insurance: www.cis.co.uk; Legal & General: www.legal-and.general.co.uk; Norwich Union: www.norwich-union.co.uk/direct/; Royal & SunAlliance: www.royal- and-sunalliance.com; WorldCover: www.worldcover.co.uk; Eagle Star: www.eaglestardirect.co.uk.

q The author can be contacted at stephen.pritchard@dial.pipex.com