E-Signature Legislation Takes Effect; Industry will be Slow to Change

It was the dawning of a new era in e-commerce Oct. 1 as the U.S. digital signature law went into effect. But much of the insurance industry is still stretching, scratching its head and rubbing its eyes, trying to determine just exactly what the day might hold.

For now, at least, it looks to be a boon for just the technology sector, which has been scrambling around like the proverbial early bird, looking for ways to capture a sizeable chunk of this newly emerging market. It may take consumers and industry a few years to catch up and catch on. And for some segments, it could never happen. But one thing is certain: the way Americans do business is going to change.

The law, passed by President Clinton in June, is designed to make consumers and companies feel more secure in consummating deals without a paper copy signed in the conventional way. It is faster, cheaper, less cumbersome for maintaining records and, many say, less vulnerable to fraud.

Some companies in the financial services sector, such as Charles Schwab, have already quietly implemented the technology in some offices, though the service is not yet online. Others, such as Allstate Insurance Co., which traversed into the financial services sector just a few months ago, are still weighing their options.

“At this point we haven’t seen a lot of interest from consumers,” said Allstate spokesman Travis Carter. “But we will continue reviewing the matter.”

Proponents of the legislation say it has opened the door to a whole new world of business dealings. And it won’t be limited to just online business. Transactions that used to take a week can now be completed in a matter of minutes; couriers, copies and filing will become obsolete, and transactions will become more secure than even a face-to-face contractual signing.

How does it work?

There are still a number of digital signature systems in the works, but essentially, they work through encryption. The systems available today from companies such as Entrust Technologies, VeriSign, PenOp and Communication Intelligence do this through technology that can capture a picture of a signature, then measure how long it took for the individual to sign her name and how many strokes it took.

Another technology uses a smart card—a credit card-sized device embedded with a code and other data unique to the user that can be plugged into specially equipped computers.

There are also biometric technologies—eye lasers, voice recognition, face scans, fingerprint pads—that confirm the individual is who she says she is. It’s the stuff of science fiction, and it could take some time to be widely accepted.

“The intrusiveness of the technology will have a hard time getting off the ground in light of the growing privacy backlash,” Gartner analyst Joe Pescatore told CNET news. “If someone steals my credit card number, I can always get a new one. I can’t get new fingerprints.”

Another hurdle in implementing e-signature technology will be what Norma Garcia refers to as the “digital divide.”

“There are still a lot of people that don’t have a computer,” said Garcia, deputy commissioner of legal and compliance for the Texas Department of Insurance and member of a special e-signature committee.

“We have to wonder about whether or not they are also going to be able to purchase those products.”

Garcia is comforted by the knowledge that companies have made their products available to all consumers so far, not just to those with computer access, especially in the insurance industry. “It might remain that way because people want to talk to their agent,” she said. “I think people probably have a greater comfort trading stocks online than they do deciding what coverage they need for their home or their auto.”

Jack Ellis, president of the National Auto Agents Alliance and president and owner of Auto Advantage Insurance in Houston, said he doesn’t think the technology will ever be implemented on a large scale in the nonstandard auto market.

“Probably 20 percent—tops—of my clientele have a computer,” he said. “As computers get cheaper, like TVs, you’ll probably see an increase in that, but still, the underwriting in nonstandard is very stringent. I just don’t think it will happen in this market.”

Where the technology stands to play a large role is with insurers who have already made the leap to providing services online.

“We have been following the e-signature thing very closely,” said Chris Rooker, communications manager for Higginbotham and Associates in Fort Worth. The company paired with InsureZone.com earlier this year to open an online insurance marketplace.

Rooker said the company has no short-term e-signature goals, but could begin utilizing the technology in another 12 months or so.

“We don’t feel, really, that e-signatures will make a big difference for our customers at this point,” he said. “It’s going to take a while for the people to adjust.”

Some companies and some consumers could conceivably never adjust to the idea. And that’s okay. The legislation includes provisions for consumers and businesses to choose how they sign contractual agreements, meaning the pen will be around for at least a few more years.

“There’s always going to be a need for the face-to-face meeting, but I think people will become more comfortable with not having a wet signature,” Garcia said. “And e-signatures are definitely not going to do away with the insurance agent. People are always going to need an agent to talk to.”