Making the Connection: e-Books and Life Insurance?
Just as electronic distribution is altering the publishing industry, the electronic policy applications are set to alter insurance.
Insurance Networking News, 09/01/2010
The Wall Street Journal recently offered an interesting article on e-Books and the effect they are having on the publishing industry. It made me think about e-Apps and the effect they are having on the insurance industry.
Currently, electronic books comprise 3% to 5% of all book sales. However, those sales are estimated to increase to 20% to 25% of all unit sales by the end of 2012. Many analysts estimate that the percentage of unit sales could be much higher. e-Books are having a major impact on companies such as Barnes & Noble and Borders, who have a traditional brick-and-mortar infrastructure.
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As unit sales move to e-books, book companies must change their approach to what they sell to make up for the lost profitability from the volume declines. Today, a $25 hard cover book yields Barnes & Noble $12.50 in profit. Most e-book prices are $12 to $14 because they don't require paper, printing presses, storage and distribution. The profit to a book seller of an electronic book is $3.90. So, if a bookstore loses half their volume within two years, they need to reinvent themselves quickly if they are to survive as a company. The message here is a company that has dominated the bookstore retailing business could easily be out of business in two to three years. So how does this relate to the insurance industry?
The Adoption Curve
Most executives in the publishing industry didn't believe that e-Books were economically viable until recently. Likewise, many executives within the insurance industry question the economic viability of e-Apps. With the arrival of the iPad and Apple's eye on the 125 million iTunes customers as potential e-Book customers, it's not hard to see where this is headed and how fast markets can change.
We currently estimate adoption of life insurance e-Apps is at 2% to 3%, and believe that within five years e-Apps will comprise 60% of all life insurance applications being processed annually.
Many people in the industry don't believe this will occur, but what will move the adoption needle faster in the industry are two things-revenues and profits. And the carriers, distributors, agents, direct writers and financial institutions that move the fastest will obviously make more money.
Tallying the benefits
Carriers can save between $50 and $250 processing an application electronically. Sales cycles can be reduced by 50%, thereby increasing placements and accelerating cash flow to the entire distribution channel. We see many participants in the industry continue to take a wait-and-see approach to the e-App, while many of our customers (carriers, distributors and agents) using the next-generation technology currently are succeeding and driving up their revenues and profits.
So, who out there, among carriers, distributors and agents, would like to be the next Apple in the insurance industry?
Tim Wallace is CEO, iPipeline, Exton, Pa.
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