The addition by BAT unit Eagle Star (www.eaglestardirect.co.uk) of home insurance to the products it sells online will be followed soon by many of its competitors, who after a slow start are snapping at the heels of this pioneer of the virtual frontier.

Leading British direct telephone insurers such as DirectLine, Churchill and Admiral are likely to be among the front-runners, and life insurers are set to add a new dimension by selling life and investment products online.

Falling margins on mass market policies for cars and homes mean that insurers have to use the most cost effective distribution channels if they are not to be left behind. The telephone as a transaction tool has revolutionised Britain's personal insurance market in the past decade and the Internet is now poised to do much the same.

Having already overturned many traditional links with agents, brokers and independent financial advisers by adopting direct telephone selling, many insurers will have no qualms about embracing web technology, market observers say.

Technology, in the form of digital television, is the magic ingredient which will push web purchases of insurance from a minority activity into the mainstream.

"These will have a profound effect because it is now in the sitting room, it has gone beyond the PC in the study, and it has immediate response," managing director of Dublin based FMS Jim Maher, a virtual sales channel automation company, said.

Affordable set-top boxes will hit the British market in volume in the run-up to the year end, giving an impetus to all kinds of Internet retailing, including financial services.

That view is shared by Eagle Star, which claims to have been the first to sell insurance on the Internet, as opposed to simply using its website as a shop window or providing E-mail quotes as a growing number of insurers do.

"I certainly think it's going to be a huge growth area and we are already seeing healthy growth as more people get to know what they can do on the Internet," Eagle Star spokesman Andrew Baud said.

"The key to it all is the new digital communications with digital TV or the new ways the Internet will become available to consumers. That will be the key to the success of E-commerce."

Although Internet sales of insurance are tiny now, the evidence from the United States, combined with market pressures on insurers to cut costs, suggests very rapid growth once the technology is widely available and consumers are used to it.

Direct Line (www.directline.co.uk), market leader in telephone insurance, acknowledges the potential of the Internet and reports considerable interest in its online presence, even though it does not promote its website as a selling channel.

"Every insurance company that has any sort of Internet presence is finding that it is growing inexorably and therefore must be taken seriously," said Direct Line spokesman Adrian Webb.

"We're not promoting our site, people just know us from our offline brand and, because of the image we have, they also assume rightly that we're an online brand as well."

Eagle Star's new found reluctance to divulge figures on its Internet sales is a sign that the market is maturing rapidly.

In the 10 months to the end of April, the company said around 1,500 motor policies were bought through its Internet site.

Since then, it has taken the line that such information is commercially sensitive -- a sure sign that competition is hotting up -- and talks only in terms of the number of quotes issued online.

Direct Line is similarly coy about the number of E-mail quotes requested from its site, which industry sources put at around 2,000 a week.

"We have built our site up gradually. We are developing it organically rather than big bang and the level of response we're getting is increasing day by day," said Webb.

The Internet is also expected to be used by life insurers as a major channel for selling their products, an area where the telephone has had limited success compared with non-life insurance.

Legal & General (www.legal-and-general.co.uk) already offers its customers product management facilities for mortgages and investment products such as unit trusts and personal equity plans (PEPs) on its website.

Some 20 per cent of its flexible reserve mortgage customers have signed up to use the website facility and 35 per cent of those use it on a monthly basis.

"The take-up was much higher than we expected. We are also excited about the number of users of our website, which is currently running at about 20,000 a month," L&G's Kate Harding said.

In the longer term, L&G is also considering selling products such as Individual Savings Accounts (ISAs) over the Internet, although until the government provides more details about this tax-free savings vehicle, the insurer has no firm plans to do so.

Scottish Widows (scottishwidows.co.uk) is another life company eagerly developing sales opportunities on the web.

Its website went live at the end of June. At the moment, the site is interactive, but not transactional. Customers can download product application forms and E-mail the company.

However, Scottish Widows sees the Internet as an excellent route for selling low margin products such as the proposed Individual Savings Accounts.

FMS's Maher too is confident that the Internet will come into its own with ISAs.