More insurers are selling commercial policies online, while also exchanging data with policyholders and brokers on the Internet and making coverage and claims information available via secure Web sites.

But a wall may be looming to wider use of the Internet for commercial insurance.

Online sales to date have been limited mostly to smaller policies and involving only a few lines of coverage. This might not dramatically change, as most observers say that large commercial lines policies are too complex to sell over the Internet.

In terms of underwriting, the most common use of the Internet has been for exchanging information. This typically consists of policyholders posting risk data on a secure Web site and allowing brokers and insurers access to the information.

Once rare, this type of electronic data exchange is growing in popularity and is becoming an accepted practice, said Jackie Hair, corporate risk manager for Cisco Systems Inc. in San Jose, Calif.

Using the Internet more while relying less on paper is the wave of the future, said Brandon Sweitzer, president of Marsh Inc. in New York.

''It is the way business will be done,'' he said.

Befitting its role as a leading Internet technology company, Cisco has been at the forefront of using the Internet in creating its insurance program. A few years ago, the company for the first time sent information to its insurers over the Internet to help underwrite its multiyear directors and officers liability insurance program (BI, Feb. 23, 1998). The process worked well and the company also is using the Internet for renewal of other coverages.

''Almost every day some aspect of renewal takes place through the Internet,'' Ms. Hair said.

Ms. Hair sends about 80% to 85% of Cisco's renewal information to its insurers through a secure Web site for which only its broker, Aon Risk Services Cos. Inc., and its insurers have access. Using the Web site saves the risk manager time and money while also eliminating the need for mailing huge piles of paper to the broker and insurers.

''It makes the process so much more efficient,'' she said.

The open exchange of information also helps to strengthen the relationship between the company and its insurers by creating a constant flow of information.

''Once the system is set up, then there is no reason that access has to be only once a year,'' Ms. Hair said.

The flow of information also does not have to be one way, as the Internet can just as readily provide policyholders access to information held by brokers and insurers.

For example, Michael Kierig, risk manager for NEC Electronics Inc. in Santa Clara, Calif., said he can view claims and loss data maintained on an Internet site created by his broker, ABD Insurance & Financial Services, at any time.

In addition, Mr. Kierig can put his company's own information on the same Web site, such as technical data for underwriting purposes. So, rather than having senior management at NEC call Mr. Kierig with a question about a claim, for example, that person can go to the Web site and get the information directly. This frees up Mr. Kierig's time to focus on more strategic thinking.

Using the Internet also can save policyholders money, said Bruce Magwood, senior vp-insurance and risk for industrial services provider Philip Services Corp. of Hamilton, Ontario. Because information submitted via the Internet, or on a CD-ROM as Mr. Magwood does, can be analyzed more readily by the insurer's own systems and tailored to its needs, fewer questions exist, he said.

''Any time you can take the guesswork out of what an underwriter is doing, you get a better price,'' he said.

Beyond the information exchanges, the Internet also can be used for underwriting policies.

One insurer that has been aggressively moving into electronic underwriting has been Reliance National Insurance Co. In 1997, the insurer unveiled CyberComp, a site that allows agents to quote and bind workers comp insurance over the Internet.

The online site, www.cybercomp.com, has grown quickly and will write more than $100 million in gross premiums in 1999, said Mark Benson, executive vp for CyberComp in Lawrenceville, N.J. The program is geared for small accounts, generally up to 50 employees, and averages $10,000 in premiums per policy.

A computer program takes in information supplied at the CyberComp Web site by an agent, provides a quote and binds the business. The entire transaction generally takes between five and 10 minutes, Mr. Benson said.

Using the Internet provides advantages to both the policyholder and insurer. For Reliance, the program ensures the quality of the underwriting by eliminating potential variances between different underwriters and providing uniformity, he said.

''Underwriting discipline is built in,'' he added.

Also, the company has higher profit margins using the Internet because once the system is in place, each quote costs the company virtually nothing.

For policyholders, the main benefit is speed.

''You're going to get an answer you can depend on and you're going to get it quickly,'' Mr. Benson said.

CyberComp has been so successful, Reliance National has just launched another site, Umbrella Online, for purchasing small business umbrella policies. Like CyberComp, the system is designed so that agents enter the information at the Web site, www.umbrellaonline.com, and obtain a quote and bind the insurance.

In five to 10 minutes ''it's a done deal,'' said Catherine Kelly, a senior vp at Reliance in New York. As the program is designed for small business, policy limits will be up to $10 million, she said.

With online underwriting, ''the idea is to get it as intuitive as possible,'' while still obtaining enough information about the risk to make accurate underwriting decisions, she said.

Chubb & Son Inc. has also entered the field of Internet underwriting. The subsidiary of Chubb Corp. this month launched its On-Line Builders Risk product from its Web site, www.chubb.com, to sell builders risk insurance over the Internet to small home and commercial builders. The policies will have limits up to $1 million for residential builders and $10 million for commercial builders and coverage must be procured by an agent or broker.

When designing the system, the object was to make it so sophisticated that it was simple to use, said Richard Soja, assistant vp and worldwide manager of inland marine operations for Chubb & Son in Warren, N.J. The final product puts 90% of its functions into only five different computer screens.

''If we made it much more difficult than that, no one would use it,'' he explained.

Agents and brokers using the system answer a series of questions. If the risk is accepted, a quote is presented for the risk that the user can either accept or reject. If accepted, the computer binds the policy and mails it within hours.

''So a human being never has to touch it,'' Mr. Soja said.

Seeing great potential to sell insurance over the Internet, Chubb plans to expand its product offerings beyond the builders risk policy. Any line of coverage that is ''predictable, low-level and routine'' can be successfully underwritten over the Internet, he said.

The success of such Internet insurance sales also points out its limitations.

Sales to date typically are geared for small risks with limited variables. To underwrite more sophisticated risks, however, will require a much more sophisticated system.

Despite the growing role of the Internet, therefore, it's doubtful it will replace people when it comes to underwriting large, complex risks, insurers and brokers say.

''Anything that rises above the routine is likely to involve expert counsel, and people will continue to be important,'' Mr. Sweitzer of Marsh said.

Chubb's Mr. Soja said he doubts whether selling large policies over the Internet will ever be cost-effective, as it will take huge sums of money to create a system so sophisticated to handle all the possible variables.

''The return on investment will be better spent elsewhere,'' he said.

If a system is not sophisticated enough to make Internet underwriting easy, it won't be useful, he added.

''The minute an agent or broker says it's easier to call someone, then we have been ineffective in our system,'' Mr. Soja said.

Deb Bronson, senior vp and electronic commerce manager of Chubb, agreed. ''You have to put so much thought and complexity into it to consider all the pertinent computations and permutations that when you get done you probably won't have enough risks to pump through the system to get your money back,'' she said.

Also, it will very difficult to change tradition and eliminate the role of people in underwriting.

''It's still a personal business,'' said Mr. Magwood of Philip Services. ''I don't think you will ever replace that electronically,'' he suggested.

What could emerge is a three-tiered system of Internet use, similar to what has occurred with Internet stock brokers, said David Tweedy, national insurance principal for IBM Global Services Inc. in Barrington, R.I.

On one tier will be policyholders wanting a no-frills approach and they will buy policies over the Internet. While providing no services to the policyholder, this method will also eliminate any broker or agent costs, he noted.

At an intermediate level, a policyholder could ask a broker for some specific advice and then make the purchase directly from the insurer over the Internet, Mr. Tweedy said.

The third level would be full service from a broker that both advises and places the coverage. In this level, both the broker and policyholder could use the Internet to transmit data or communicate with each other and the insurer, he said.