Selling without pressure: insurance brokers have attracted an underserved segment of Americans to their Web sites for individually underwritten term life insurance by helping them objectively survey the market.

Life insurance brokers that prospect through their Web sites and represent many insurers have carved a solid niche in term-life sales over the past decade. Most observers would agree they have changed the way insurance is sold, at least to a segment of the population, by making pricing more transparent.

Selling life insurance, of course, is different from selling other financial products. Some people make a hobby out of watching their investments. Others like to keep an eye on real estate markets or antiques. But when it comes to life insurance, there aren't many self-directed buyers, hardly anyone makes a hobby of following or understanding the life market.

Term insurance, however, is simple enough to bring out the self-directed prospect in a consumer. In 2005, individual term products accounted for about half of all individual life insurance sales, according to research firm Limra International last year. The vast majority of those sales were by agents prospecting for business in traditional ways. But a small proportion of purchases--about 10% of term sales, according to online brokers--came through the online broker business.

New Way to Sell

This niche has changed the industry by making life insurance less mysterious. "What we created was an alternative distribution system," said Charan Singh, founder and chief executive officer of SelectQuote. "We would advertise in the Wall Street Journal saying we represent many companies. ... We created a centralized source where somebody could buy life insurance on an unbiased basis, fully underwritten, through the mail and over the phone." Formerly an executive at Charles Schwab Insurance Services, Singh became a pioneer in direct-marketed term life sales by founding SelectQuote in 1985.

The coming of the Internet in the 1990s provided brokers a more efficient way to attract self-directed prospects. One of the companies to take advantage was Quotesmith, which Robert Bland founded in 1984 after leaving his father's insurance agency. Quotesmith changed its corporate name on Jan. 8 to Insure.com, which it had previously bought. Bland recalled asking while working at his father's agency why the business had no computers. "My father said we don't use computers in this business, so get back to work," recalled Bland, who agreed he was ahead of the times. He added that being ahead of one's time "means you have a lot of arrows in your back." but he predicted a bright future for self-directed life insurance sales as sold by his company.

Insure.com currently employs 115 workers at its headquarters in Darien, Ill. In 2005, it generated $17.1 million in revenue, up 7.5% from 2004 and 75.6% from 2003. The company generates revenue from commissions on its life sales and from advertising revenues paid by property/casualty and health insurers for the ability to generate leads and provide quotes on Insure.com's Web site. However, Insure.com, a publicly traded company since 1999, has consistently operated at a loss.

Bland said one of the mistakes his company made but has corrected was an online business model that provided quotes, but no access to licensed representatives on the phone. "We thought everyone was going to want to buy on the Internet and not talk to anyone," he said. "But insurance is still a complex purchase. There are moving pieces, questions to be asked and answers to be sought. People want the reassurance of having a highly trained licensed agent at the other end of the phone, which is what we give them. Insure.com now offers a choice of applying online or talking with a licensed employee.

"Our model gives the user the choice," Bland said. Visitors can order an application online, go through the question sets and even book their own paramedical exam. "That's a radical pro-consumer model, but we think it's one whose time has come."

Of prospects who actually apply for insurance, about half execute their applications completely online, while the others seek help on the phone.

Insure.com's typical customers are in their mid-40s, buy a $500,000 policy, and are in very good health, Bland said. They have bought three or four policies in their lives and know about A.M. Best ratings. "They're highly confident, insurance-savvy, self-directed buyers," said Bland, who added that brand names are also important to them.

Insurance 101

SelectQuote, a privately held company, claims to sell more policies than any other online broker. Headquartered in San Francisco, it employs about 250 and has offices in San Diego, Houston and Jacksonville, Fla. Its business model is to provide an estimated quote online, and then have a licensed employee of the company guide the client the rest of the way.

Singh said SelectQuote's job is "to go to bat for our customer." Early in the company's history, premiums for the same coverage could vary by as much as 80% or 90%. What has since happened is that the life business is more in the open, is more competitive, and has become more efficient through better technology, he said. Today, with pricing more uniform, SelectQuote Finds the company that provides the best value for any given customer through its knowledge of how insurers underwrite such factors as cholesterol, cancer, hypertension and smoking, Singh said.

SelectQuote's customers are primarily between 25 and 55 years old with an average age of 47. The typical policy face amount is $400,000. "This is really for basic Americans who have kids and mortgages," Singh said. "They just want to make sure when their children are young that if something should happen, they have protection for their family. It's Insurance 101."

AccuQuote, another privately held company, reported selling about 15,000 policies a year, behind only SelectQuote and possibly one other company. Byron Udell, the founder, CEO and sole shareholder, has about 130 employees at the company headquarters in Wheeling, Ill., and at a second office in Colorado. AccuQuote provides quote estimates to Web-site visitors and then follows up with a phone call from a licensed company agent. Udell has been in the life business for about 20 years and hired his first employee in 1994. He said his volume of business in the company's early years was growing at 50% annually. Currently, the growth rate is about 15% to 20%, he said.

Challenges of the Business

One of Udell's concerns today is the cost of lead generation. "Back in 1999, it was easier to make money," he said. "The cost of getting someone to say they're interested in life insurance was less. Leads that came to us were a bit more reliably responsible and more likely to follow through. The leads cost more now, and they're actually less reliable." Udell advertises on radio, television, print, online and through interviews for published stories.

Udell said that of prospects who obtain a quote, say they intend to buy, provide answers about their health histories during 15- or 20-minute phone calls with a company representative, and agree to a health examination by a professional, only about 60% go through the underwriting. Of those that are underwritten, about 70% go through with the policy purchase. The other 30% either change their minds during the underwriting process, are declined coverage by the insurer, or are rated in a lower class and don't want to pay the higher premiums. What befuddles Udell the most are those who get their insurer-paid exam but never send in their application. "They let a stranger into their home to take their blood and urine, do an EKG, get weighed and measured, answer a bunch of personal health questions and waste 45 minutes of their time for nothing," he said. "That makes no sense to me. why would someone do that unless they wanted to at least get an offer on the table?

"So we all have the challenge of trying to maximize the likelihood of a lead becoming a paid piece of business," he said.

Advertising's Effects

Another big challenge for the online brokers, Bland said, is that consumers are still used to buying insurance face-to-face. That is changing, however, due to "massive advertising spending" by companies such as Geico, Progressive, State Farm, Allstate and Esurance. This advertising drives people to comparison-shop for insurance, he said.

Also, the proliferation of broadband has "somehow connected people to a renewed confidence in buying things online," Bland said. He added that online insurance is still lagging online banking by several years, but he said that is not necessarily the fault of the provider, but rather is simply the adaptation rate of the consumer.

Singh said a major accomplishment of the business of selling term life online or, earlier, by phone, is that people can find out what they are likely to pay for life insurance without having to meet with an agent face-to-face. "Then it's a question of going to different Web sites or whatever, where you feel the Web site and the people you talk to are credible, they're listening to you, and you think they're going to go to bat for you," he said. "That's what is basically going on today in the online business."

People still value their relationship with a neighborhood agent, if they have one, he said. "But what has happened in the last 10 years is that people are moving, life is changing, things are getting faster, people are becoming concerned about their privacy issues, they want to be anonymous, they want to do this quietly and in the privacy of their home, without pressure, and whenever they want to do it, whether at 4 a.m. or 10 p.m. People's buying habits are changing."

Key Points

* Some people know they ought to buy life insurance, but they don't want to face sales pressure.

* Online insurance brokers attract these self-directed buyers by providing objective information about the term-life insurance market through advertisements and their Web sites.

* Despite their cost efficiencies, online brokers face profitability challenges, including marketing costs and attrition of prospects.

Who Are You?

Last summer, many term-life online brokers willingly provided estimated quotes without requiring visitors to key in personal information. AccuQuote was one broker that never allowed people to obtain quotes anonymously, said founder and chief executive officer Brian Udell. "Most of those who switched were the ones losing money," he said. "So maybe this will help them. Our theory back in the mid-1990s was that we didn't even give quotes online. We gave examples of rates for various ages, had them put in their contact information, and then told them someone would be in touch with them shortly. We got chastised for that by people in the press who said you can get a quote without having to wait for someone to talk to. I didn't want to be chastised, so I decided I'd rather play the game."

However, Udell said he does nothing to ensure that user information entered is real, so people willing to enter their medical histories but fake their names can still get a quote.

Robert Bland, founder and CEO of Insure.com, said he asks for a visitor's name, address and phone number, but filling in the fields is not required. "We still allow and promote anonymous quoting," and it remains important to Insure.com that everyone who visits the site sees at least a few quotes, he said. In 1999, the company was quoting up to 130 insurers.

"Let's face it. As you approach middle age, you develop medical histories," Bland said. "It's inevitable. So the importance of a database is not to overwhelm people, but to help them very quickly, given their health background, shop the market to see which companies would be most likely to underwrite them. The reason that is so important now is that prices are at all-time lows. They've been dropping for 10 straight years, and it looks like they will drop further in 2007. The bad news is that every application is underwritten tighter than ever."

Recognizing the Hurdles

Despite their overall success, not all online brokers have flourished, and some have failed. Some of the major challenges facing the survivors are:

* How to differentiate themselves from competitors;

* The cost of lead generation;

* How much and where to spend on advertising;

* How much prospect information to collect during the initial contact;

* What to do about prospects that initiate the application process but don't follow through, and;

* Speeding up the underwriting process.

Term Life in Force, Top U.S. Writers--2005
($ Thousands)

Metropolitan Life & Affiliated Cos    $1,684,308,370
Swiss Reins Group                     $1,387,336,700
Aegon USA Inc                           $997,056,489
ING USA Life Group                      $792,650,683
Lincoln Natl Corp                       $686,496,324

Source: A.M. Best State/Line Product