Analysis of SAFECO’s Internet Strategy John Ray-Keil Cheryl McRae John Hoffman Donjin Choi

AGENDA Insurance Industry Overview Traditional Insurance Business Models Impact of the Internet SAFECO Background SAFECO Internet Strategy SWOT Analysis Recommendations

Insurance Industry Overview Property/Casualty market is $282 B (1998) Private passenger auto Homeowners and renters Business owners General liability Life and Health market is $444 B (1998) Life insurance Annuities Health insurance

Industry Overview (continued) Fragmented market, but some big players 2,485 P&C insurance companies in US Top 5 accounted for 30% of industry revenue Very highly regulated Regulated by states Drives inefficiencies

Traditional Insurance Business Models Independent Agent Companies Ins. Company Independent Agent Customer Ins. Company Value Proposition: Agent represents customer interests, does the shopping around. Personalized service-relationship.

Traditional Insurance Business Models (continued) Captive Agent / Direct Writer Customer Ins. Company Employee Agent Value Proposition: Relationship, local presence, understand customer needs. Lower cost structure than independent agency company.

Traditional Insurance Business Models (continued) Direct Response Carriers Ins. Company Customer Value Proposition: Convenience, Low Cost

Traditional Insurance Business Models (continued) Personal lines consumers shifting buying behaviors from independent agency model to direct writer & direct response models. 1988 IA model = 43.9% of revenue 1998 IA model = 33.1% of revenue Commercial lines consumers still want relationships and advice from agents. 1988 IA model = 75.4% of revenue 1998 IA model = 71.0% of revenue

Impact of the Internet New e-companies e-banks, e-insurers, e-financial (Wingspan) E-intermediaries aggregators, e-brokers (Insweb) ASP’s claims, agency (ClaimsDesk.com) Niche companies communities, event mediators (autobytel.com) Traditional insurers trying to catch up Very few insurers selling anything

Impact of the Internet? Harvard Business Review - March-April 1998 "Companies such as...InsWeb, which offer insurance, could become customer magnets for entire industries."

Impact of the Internet?

SAFECO Background Life & Health Insurance (7.2% of revenue) Started in 1923 in Seattle as P&C Company Always dedicated to independent agent system Become a diversified financial services corp. P&C insurance (88% of revenue) Life & Health Insurance (7.2% of revenue) Credit Company (2.3% of revenue) Asset management / Mutual Funds (.9% of rev.)

SAFECO’s Internet Strategy Focus on independent agents. Help with the servicing so agents can sell more (Many other companies are going to blended distribution - selling still through IA’s, but also selling direct. By 11/01/2000 consumers can buy auto and term life). Safeco will sell policies online. If it comes through an agent's website, Safeco will issue the policy, assign the customer to that agent and pay the agent a commission. If the sale comes from someone on the web who doesn’t have an agent and came directly to safeco.com, the company will issue the policy, assign it to an agent located near the customer and pay the agent a commission. Change the value proposition of the agent. Leverage independent agents and help them become financial services counselors. Target less price-sensitive consumers and deliver high service quality and breadth of product offerings. Create strategic alliances to assist in customer acquisition. Concur Technology - An aggregator for small businesses allowing them to purchase in bulk discount. Safeco will be exclusive insurance provider. Sharebuilder - Safeco customers can purchase shares or partial shares of stock through regular payments.

SAFECO’s Plan Provide assistance to all agents in creating a web site, acquiring minimum platform, etc. Customers can access through agent web sites or Safeco.com Will begin offering auto and term life on Web Continue strategic alliances

SAFECO’s Plan (continued) Safeco will provide service and answer questions from customers who buy via Web All customers will be assigned an agent at time of purchase Agents will receive reduced initial commission for customers attained on Web -Full commission on renewal -Full commission for other products sold to that customer

STRENGTHS Time & Resources -Corporate $ -Waiting for industry to shakeout Helping agents create sites which ensure similar brand experience for consumers Good strategic alliances with potential for more Dedication to independent agency system should increase agents’ loyalty to Safeco

WEAKNESSES Doesn’t allow price comparisons with other companies Relies on agents changing the way they do business and the value they bring The process inserts an agent when some customers may prefer to only deal with Safeco.com

OPPORTUNITIES Personalized web pages and value-added services -View accounts, pay bills, report claims, get other consumer information Ability to sell other products to the consumer -Recommend products that meet all of customers’ financial needs

THREATS Uncertainty of future of the agency system -power shifts to agents Banks or other financial services firms may offer the same value (financial consultants) to the same target customers as Safeco

RECOMMENDATIONS Narrow and clearly define target customer Be aggressive on product innovation to fit target market Develop marketing programs to help agents drive business to their sites Integrate customer database to support relationship-building and cross-selling Offer as many services as possible on the web -report claims, pay bills, etc. Concentrate efforts on a subset of agents who have the potential to successfully shift their value proposition.

QUESTIONS?