Electronic Distribution and cross-border trade in Insurance Service

communication. Later on electronic connections have been established to other financial institutions and to major business customers. The SWIFT network managing international payment transactions established in 1973, is an early example of this. A major barrier towards development of a full digital circuit, which includes all steps in production and distribution, has been the lack of an extensive electronic information infrastructure covering both business and residential customers. The Internet has created a new information infrastructure, which connects an increasing share of both businesses and private households. This opens up for electronic ordering and delivery of a wide range of products. This opportunity has been taken up by a large number of business actors providing goods and services via the network. There are great expectations to the market for online insurance services. Data-monitor expects insurance to take up 5% of European online market (Information Strategy, May 1998). This will make insurance one of the most visible services provided on the net. Insurance services can be fully digitalised and therefore not only sold but also distributed via the telecommunications network. Thereby the major technical barrier towards cross border trade is removed. However, tradability depends on technical as well as economic and political/cul-tural factors (Table 1). Trade must also be economically and legally viable. Cost advantages derived from economies of scale and scope may not be sufficient to justify the increase in transportation and transaction costs related to cross border trade, or regulation may limit or even inhibit cross border trade. Insurance products are information products that can easily be converted into a digital format. Hence there is an obvious potential for electronic commerce in the insurance industry. So far IT-based innovations have focused on internal processes of production, while marketing and distribution still rely on personal contact with customers. However, insurance companies are becoming more visible on the Internet and it is possible to buy certain types of insurance directly on the web. This will make cross-border trade much more viable than today, as services can be delivered directly to the customer without involvement of a local subsidiary. This paper will highlight some of the drivers and barriers towards electronic delivery of insurance services and its impact on interna-tionalisation of the insurance market. Due to the limited possibilities for transporting many services, the level of international trade in services has remained limited compared to trade in goods. New telecommunication services and data …