The internet today is the most vast source of information. Information is almost commoditised , the only important thing being that one should know what to search for. The greatest role of the internet has been in removing information asymmetry, leading to a more efficient marketplace.
And insurance is one area where the power of information through the internet can be harnessed to the maximum. One of the biggest gripes about the insurance industry has been that users have been purchasing insurance almost blindfolded, completely at the mercy of the agent who unabashedly pushes products where he earns the maximum commission. The costs of distribution in insurance are massive, and there are significant inefficiencies within the system. As with any other channel where commissions are unrealistically high, there are many layers and sub layers of distribution, the ultimate cost of which is borne by the consumer. This is where the internet can step in, getting the buyer and the insurance company much closer, and thus ultimately leading to lower purchase price.
In India, the recent trend has been that people have started using the internet extensively to compare policies before buying insurance. Insurance purchase through the internet is still in its infancy, but it is a matter of time before things catch up. With broadband penetration set to surge beyond the current levels of 10 mn connections, the use of the internet can only increase. The efficiency that the internet has brought in is primarily in terms of allowing the user to compare all features of the insurance company including price through the individual websites of the companies or through aggregator sites. In that sense, there is a tremendous responsibility on aggregator sites to provide unbiased information. Whether that is happening or not is a different matter altogether. The level of mis-selling that is there in insurance is of epic proportions. Regular premium policies have been sold as recurring bank deposits, non guaranteed products have been sold as guaranteed products, direct debit mandates have been taken from unsuspecting consumers...even if the internet can reduce the level of mis-selling a bit, it would have more than served its purpose.
The important factor to note in any price comparison of insurance policies is that the savings through lower premium is not only for a year, but this benefit is passed on every year on renewal. A health insurance policy bought at a 40% lower price than a policy of another company is likely to cost 40% less on each subsequent renewal. The power of accumulated savings is thus huge, as we can see.
At the same time, there is one disturbing trend that is being seen in aggregator sites. We are seeing that products which frankly do not merit comparisons are being compared. A case in point is pensions product, where the variable with perhaps more than 90% weightage is fund performance of the company. Yet we still find aggregator sites providing comparisons using the assumed rate of return of 6% and 10 %. A .25% lower fund management fee of one company is irrelevant if it underperforms the fund performance of another company cumulatively by even 1%.
Insurance products that lend itself the best to online insurance comparison are health insurance, car insurance and term life insurance. This is primarily because there is a direct price comparison, and there are direct feature comparisons. Additional features can be attributed a monetary value, and the user can then do an analysis whether the overall price equation makes sense. Products like child policies, pensions, or for those matter investment products are very difficult to compare on the price front, and more often than not the comparisons are meaningless.
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