Self-Service Life Insurance

Q: CAN YOU BUY LIFE INSURANCE ON THE INTERNET WITHOUT THE ASSISTANCE OF A FINANCIAL PROFESSIONAL?

A: MAYBE, BUT IS THIS A GOOD THING?

Along with advertising for automobiles and beer, there are several commercials in heavy rotation on cable TV channels for insurance. One ad features an animated “virtual world” where consumers can meet all their insurance needs with a click of a button on their computer. Another ad shows a make-believe insurance “grocery store” with consumers choosing their products off the shelf and paying at a check-out counter where they are met by a perky cashier.

One of the driving ideas behind both commercials is that the internet is changing the way people get insurance. Consumers can shop nationwide for the best coverage, without the help of an agent to do it. At the beginning of this self-service wave, offerings were mostly for auto and homeowners insurance, however, we’re seeing an ever-increasing shift to life insurance options.

The internet is definitely changing consumer habits–so can the average person really buy life insurance as simply as they buy groceries? The answer, unfortunately, is probably not. While technology can certainly change what drives customer decisions, some of the factors required to obtain insurance, particularly whole life insurance, are not affected by technological change. While complex underwriting decisions can be made more efficient with the use of technology, evaluation by a human is still required to complete some aspects of a personalized insurance policy.

The Economic Impact of the Internet—What It Affects, and What It Doesn’t

Internet technology changes the limits of geography.

Before the internet, the ability to conduct a nationwide (or worldwide) search for many products and services was impossible. As an example, most people wanting to buy a car checked with their hometown dealers or scoured the classified ads in local publications. Because shopping for rare or unique automobiles often required finding specialty brokers or people who had insider connections, most buyers were limited to what was locally available.

Today, even local automobile dealers use the internet to offer a nationwide search and delivery of vehicles to their buyers. In theory, it is now possible for every for-sale automobile to be available to every prospective buyer in America. The local and national marketplaces are one and the same.

Internet technology causes commoditization. 

Commoditization occurs when a product or service reaches a point where there are no features that differentiate various brands, and consumers buy on price alone.

As a Wikipedia entry puts it, with commoditization “a product is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper.”

You can see commoditization in play while watching the aforementioned commercials because low prices are the driving factor in their message. In other words, “auto insurance is auto insurance,” and the “best” auto insurance policy is the one with the lower premiums.

While this isn’t true with all types of insurance, it is sold that way… however we’ll come back to that thought.

Internet technology “simplifies” purchasing by eliminating brokers and distributors. 

One of the selling points of internet commerce is the “direct-to-you” aspect. Want to find the cheapest price for a hotel room? You can negotiate your own deal without the help of an agent by communicating directly with the innkeeper. Or you can enlist the help of a web service like Kayak, Trivago, or Expedia and compare prices and rooms with ease.

Similarly, if you want a price for automobile insurance, just enter some information online, and within minutes you’ll receive quotes from several companies via email. This means brokers (such as insurance agents) are no longer serving as gatekeepers and interpreters of unique or specialized information.

How does Internet Technology Affect the Purchase of Life Insurance?

The prevalence of the internet and personal computers may make it possible for a consumer to access a torrent of information about individual life insurance programs. Still, it’s questionable whether that information can be processed effectively if it is not accompanied by professional assistance.

Consider the following:

1.) Term insurance is much simpler to get online

Term insurance is insurance that covers you for a term of your life. In other words, it is not permanent insurance; it is temporary insurance. Many new parents seek term insurance to cover a period of time where their family is at most risk, which can be extremely useful. However.....

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