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Insurance and pension funding sector

Download the full study reports:

Qualitative report: Economic background and key e-business issues
(July. 2002, pdf, 0.6 MB)

Quantitative report
(Feb 2003, pdf, 2.2 MB)

Profile & Background

The insurance and pension funding sector (IPFS) covers long and short-term risk spreading activities with or without a savings component.

In 2000, about 4,800 insurance companies were active in the EU-15, a 3.8% decrease compared with 1992. These companies provided jobs for about 890,000 people (Eurostat/DIW).

After the completion of the Single Market for financial services, a wave of mergers and ac­quisitions took place in the European IPFS, mainly between companies in the same country. Today, there is a trend towards large insurance, or financial groups, operating on a European level. The market is dominated by large firms. About 85% of the sector's employees work in companies with more than 250 employees. In a worldwide context, the EU accounts for 30% of global insurance premiums (European Insurance Committee, 2001).

E-Business Activity

ICT offers enormous opportunities for insurance companies and has a great impact on the sector due to the nature of the business:

  • The insurance business is largely based on processing information.
  • The business is organised in a highly de­cen­tralised manner and a constant challenge is to optimise communication pro­cesses bet­ween headquarters, agencies and sales­persons. ICT offer perfect instru­ments to achieve this goal.

As a result, and because of the dominance of large companies, the IPFS is among the most intensive users of ICT.

ICT applications are important in all phases of value creation, with two main objectives and application areas standing out:

  • Internal workflows: the objective of imple­menting a paperless work-flow in the internal processing of insurance policies and claims.
  • Marketing and sales: considerations of how to best use CRM and the Internet for cust­omer acquisition and service.

For marketing purposes, customer relation­­ship manage­ment (CRM) presents an important ICT based opportunity. Insurance companies normally possess abundant customer data which can be exploited for improving customer service.

As regards online sales of insurance policies over the Internet, a broad variety of business models has already emerged. The strategy of pure online-players is to reduce human resource  (sales-person) costs and thus to compete on price. Internet insurers are likely to become particularly important within personal insurance, such as motor or home­owner insurance.

The majority of insurers, however, have either ad­opted a multi-channel distribution model or use the Internet purely for information purposes. Their strategy is to put more emphasis on per­sonal customer service, considering that a trusted relationship with customers can outperform price as a critical success factor in this industry.


ICT and electronic business activities have had a signif­icant impact on the insurance value chain. The industry is a leader in using ICT for internal work processes and for marketing and sales.

The Internet has enabled the development of new business models.  As in the banking sector, a rivalry between newly established, pure online-players, and the existing large in­surance comp­anies has emerged, although initial expect­ations about e-commerce volumes have not yet mat­er­ialised. Direct contact with salespersons is still important for a majority of customers.

In contrast to other sectors, e-business does not necessarily benefit large firms more than smaller ones. For SMEs, e-business offers the opport­unity to network with uniform standard interfaces, for example XML, and to compensate for disadvantages of scale. SMEs may even be able to transform their rel­atively small facilities more quickly and more cheaply into new systems.

Policy Implications

The European legal framework is probably the main issue of policy in this sector,  with direct impacts on e-business developments and is being dealt with in the context of the European policy road map towards an internal market for retail finance.

Policy has to carefully weigh consumer protection issues against the need to facilitate cross-border trade and thus enable the single market. Some insurance regulations may appear to be overly strict, requiring firms to explain contract conditions in precise legal terms at the expense of comprehensibility.

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