Consumers Increasingly Go Online For Auto Insurance
7/15/2006
Dow Jones Newswires - Chicago Bureau

By Lavonne Kuykendall Of DOW JONES NEWSWIRES CHICAGO -(Dow Jones)- The chief executive of 21st Century Insurance Group (TW) wants to free American drivers from their reliance on agents to help them buy insurance. 'Consumers should not be afraid to lose the agent,' Bruce W. Marlow, 21st Century's president and chief executive said in an interview recently. 'They will probably save money and even more than that, will get better service.' His advice flies in the face of how auto insurance is commonly purchased today, with the help of an agent who becomes the point of contact for customer service needs, from reporting an accident to changing coverage limits or requesting a copy of a policy. But consumers' growing reliance on the Internet for financial purposes will eventually become a 'wave coming down this industry,' especially as coming generations reach driving age, Marlow said. Consumers seem to be taking Marlow's advice. In 2005, the number of online insurance policy purchases jumped 29%, according to a February report by Internet researcher comScore Networks.

Several insurers are taking heed and have decided the time is right to allow consumers greater leeway to buy online. 'We know an increasing number of consumers are choosing to shop for and purchase their insurance online, and we simply have to be more consumer-centric,' Paula Rosput Renolds, chief executive of Safeco Corp. (SAFC) said following the release of the Seattle insurer's first-quarter results in May. 'We believe that smart insurers will follow the path laid out by our financial services brethren in banking to serve their customers online, or where and when they want to be served.' The Geico unit of Berkshire Hathaway (BRK) and Progressive Corp. (PGR), two of the leading auto insurance providers, have long focused on marketing directly to consumers, either over the phone or the Internet. At its annual investors meeting earlier this month, Progressive, which has marketed policies on the Internet since 1995, reported that even within its independent agent network, a growing percentage of its price quotes are initiated by consumers shopping on the Internet. In its direct segment, which includes phone and Internet sales, the Internet is the most significant source of new business activity, and continues to grow, according to the company. Not Everyone Convinced The trend toward online auto insurance sales hasn't caught on everywhere. State Farm Mutual Automobile Insurance Co., the largest U.S. auto insurer with around an 18.6% market share, allows potential customers to price shop on its Web site, and in 44 states allows customers to complete their purchases online.

By the end of the year, it plans to have online purchase capability nationwide, but will still match Web purchasers with an agent in their area, a spokeswoman said. 'We strongly feel that selling insurance is not like other products like books, because insurance has particular elements that are dynamic and changing and require counseling from a State Farm agent,' State Farm spokeswoman Xochitl E. Yaqez said. Marlow, the 21st Century CEO, believes auto insurance is undergoing a transition from an agent to a direct distribution model, with younger drivers in particular moving toward the Internet to shop for and buy auto insurance. That trend works to the detriment of insurers that have big investments in agent networks. There is the 'potential for those to be eclipsed by more nimble insurers that operate online,' said Marlow, who previously held high-level positions at Allstate Corp. (ALL) and Progressive.

Marlow said traditional insurers pay up to 20% of a customer's premium to the insurance agent who sold them the policy, year after year, which allows smaller companies like 21st Century, which is active in 12 states, to undercut their prices. Agents will continue to have a role to play in the future, 'but not 85% of the market,' he said. At the end of 2005, 21st Century insured around 1.5 million vehicles. For the first quarter its direct premiums written dropped 3.8% to $338.6 million, primarily due to soft market conditions, the company said. Through various subsidiaries, American International Group Inc. (AIG) owns about 62% of 21st Century's stock. Role Of Agents Online applications may end up being less costly for insurers to serve because the applications tend to be more accurate than those submitted by independent agents, according to data collected by Quality Planning Corp., which conducts research for insurers. 'People tend to be more honest on the Internet than the data acquired through the agency system,' said Bob U'Ren, Quality Planning Corp.'s vice president of underwriting and business development.

U'Ren said correct data is essential for insurers to properly price insurance policies, and it is an ongoing problem that some data is particularly hard to verify. One example annual mileage, which U'Ren said is frequently under-estimated. 'It is less underreported by a fair amount if someone is answering questions (online) versus what is told to the company by an independent agent,' U'Ren said. But Madelyn Flannagan, vice president of education and research for the 300,000 member Independent Insurance Agents & Brokers of America, said that agents can help potential customers get the information right. 'You might get honest answers, but are you getting accurate answers?' she said. She said some shoppers have trouble answering questions and could end up being unhappy with their coverage if no one walks them through the application.

She said agents are not particularly worried about being displaced by the Internet, and that even if younger customers shop online for auto insurance, they usually turn to an agent once they become homeowners or require life insurance. As consumers approach these milestones, 'they want face-to-face contact with agents,' she said. -By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141; lavonne.kuykendall@dowjones.com Corrected July 14, 2006 15 23 ET (19 23 GMT) (END) Dow Jones Newswires 07-10-06 1636ET Copyright (c) 2006 Dow Jones & Company, Inc.