Window Shopping.

Online aggregators created a new business model, but sales have been slow to develop.

A mid the dot-com revolution, online insurance aggregators have been opening for business in rapid succession. During recent months, Internet insurance malls with names such as Lowestpremium.com, Insurance.com and Insurezone.com have launched their services, allowing consumers to comparison-shop for insurance rates among multiple carriers while helping insurers establish an online presence.

Online sales of insurance have yet to take off. Only 1% of all policies are purchased over the Internet, and fewer than 20% of auto insurers currently have the ability to sell policies online, according to Meridien Research Inc. But the aggregators are betting that this picture will change dramatically. So will the industry at large. Allstate, the nation's second-largest auto and homeowners insurer, anticipates that as much as 15% to 20% of its property/casualty business could come from direct channels--the Internet and call centers--within five years. As much as $15 billion of new life premium and $20 billion of new property/casualty premium is estimated to be generated online by 2003, said Michael A. Cohen, vice president, life/health division, A.M. Best Co.

But as their numbers multiply, online aggregators face a host of challenges, not the least of which is staying alive in an increasingly competitive arena. Some observers predict that aggregators--in order to survive--will have to do more than they are doing now, namely online closings and cross-selling of insurance products.

Robert Hartwig, chief economist of the Insurance Information Institute, said that with the recent implosion of the dot-com sector, Wall Street is sending the message that it does not believe the online brokerage, as a standalone-type business, is viable. He pointed to the trading prices of InsWeb and Quotesmith as evidence. By early January, InsWeb's stock was down to $1.25 per share, from a 52-week high of $23.38, and Quote-smith's stock had sunk to 75 cents from a 52-week high of $12.31.

"What this says is, viewed in terms of generating profits to sustain a business in the short run or long run, this is just not happening," Hartwig said. "The outlook is bleak.

"Not that it wasn't a good idea," he added, referring to these two aggregator pioneers. "I applaud the initiative. Both companies had a real business plan, and they came on the scene before the dot-com ballyhoo."

But Hartwig said online insurance aggregators are doomed to fail for several reasons. First, agents are dissatisfied about the sharing arrangement they have with the companies they're working with, he said. Second, customers still prefer to use an agent through a toll-free number. Geico is a prime example of a company that has profited from the latter approach.

Also, Hartwig pointed out, bricks-and-mortar insurers have begun to develop their own capabilities. As examples, he cited State Farm and Allstate, the top two auto and homeowners insurers, respectively, in the United States. Allstate has launched a $1 billion effort to develop call centers and Internet capabilities for online sales. State Farm has announced that it would begin its online insurance sales efforts by offering auto insurance in California and renters insurance in Illinois. Customers for these products will receive applications and bind contracts online. Finally, the environment for funding dot-coms in general is unfavorable now with less venture capital going in their direction, Hartwig said.

"Right now, it seems to be difficult to salvage the aggregator concept," he said. As of last year, he noted, 22,155 people had been laid off from 245 dot-coms in a number of industries, and 42 had closed shop altogether. During 2000 alone, at least 210 Internet companies folded, taking as many as 15,000 jobs with them, according to a survey by San Francisco-based Webmergers.com.

Some aggregators have hoarded cash and could stay alive months, if not a year or two. "But if you cannot develop a business plan which leads you to profitability in a reasonable amount of time, this is irrelevant," Hartwig said.

What's needed, he said, is a new business model for these aggregators. "But I don't know what that is," he said.

Online Pioneer

InsWeb, launched in October 1995 and one of the oldest in the business, is a classic example of an online insurance aggregator. Consumers who use InsWeb can compare multiple quotes provided by more than 40 leading insurers for auto, term life, homeowners, renters, condo, health and other insurance products. InsWeb also is accessible from more than 200 other sites. In an April survey of 85,000 consumers, 65% said they came to the InsWeb site to compare rates and save money, with an average $370 saved annually, said Hussein Enan, chief executive officer of InsWeb, in a recent presentation to PricewaterhouseCoopers' annual property/casualty conference. Surprisingly, Enan added, more than 70% of respondents were older than 30.

To illustrate the activity in this marketplace, Enan said that for the first nine months of 2000, InsWeb recorded 10 million sessions, with more than 1.7 million completed application forms. "About 75,000 policies resulted from these initiatives," he said.

"Do carriers really need marketplaces? We believe so," Enan said. "We have 100% more traffic than the largest single-carrier site, which is Progressive."

InsWeb receives transaction fees and commissions from the insurers for assisting in the application process. The online service is built on the premise that today's consumers are apt to do more comparison shopping for their insurance and want a site that will bring all the information--and reputable insurers--to them, Enan said. "We think it is much easier for the consumer to go to one site," he said. "They can fill out a generic form and get quite a variety of quotes."

Enan would add that online insurers have agents and call-center employees, who often are not familiar with Internet-oriented programs; the individual company's response to online quote requests is often slow or nonexistent; there are problems in meeting customer-service requests online, including ineffective use of e-mail; and most insurers still insist on an office visit to complete a transaction.

For now, the experts would agree with Enan that the one-stop insurance malls have a far better chance of attracting more traffic than any single insurer's Web site.

"Our view has been that today's Internet shopper is going to prefer aggregators to an individual company's site," said Mark Trencher, vice president of research at Conning & Co. "Aggregators have the advantage at least for the next couple of years. By nature, the Internet customer is very sensitive to price and knows what he or she is looking for."

Elusive Profits

InsWeb, however, has not been a profitable operation. In July, the company posted a net loss of $21.6 million, including several one-time charges, compared with a loss of $9 million a year earlier. InsWeb suffered a blow to its bottom line earlier in 2000, when State Farm withdrew from its partnership with the online service, taking with it about 37% of InsWeb's revenues, Enan said. State Farm, which refused to comment on its move, soon switched to a new online insurance aggregator, InsureConnection.com.

Thomas M. Dawson of LeBoeuf, Lamb, Greene & MacRae LLP, the insurance practice group, has written that State Farm's abandonment of InsWeb "illustrated the perils of changing business models--in InsWeb's case from an aggregator 'lead generator' to cyber-agent (one that local State Farm agents presumably frowned upon)."

Michael G. Chung of Salomon Smith Barney said there's a tendency for consumers to use sites like InsWeb for information-gathering, but then they go to an agent to make the actual transaction. The more complicated the product, the more "hand-holding" a consumer may require, and that's something the aggregators can't supply, Chung said. Another hurdle for the insurance malls is that "a lot of manufacturers want to retain direct contact with the customer and not hand it over to a referral," he said.

Jonathan Sherwin, an analyst for Data Monitor, is much more positive about aggregators' prospects.

"They're the fastest-growing spot for insurance on the Internet," he said. "Traditional insurers have been behind banks and brokers for the last three years. They've had a lot of catching up to do. The business entrepreneurs realized the gap and went in before the insurers--and they're doing well."

A recent report by Data Monitor said 42% of consumers who purchased insurance online listed comparison-shopping as a big plus for them. "I am optimistic, I'm definitely optimistic," Sherwin said about aggregators' futures. "And I think that insurance companies, in trying to catch up, are looking at them and fighting an uphill battle. You have a number of insurance companies signing up with [aggregators], and they control the customer relationship."

Mark Folk, founder of the Columbus, Ohio-based Lowestpremium.com, knows that lower premiums are what draw customers to his site. But he's also aware that along with the opportunity to compare price quotes from an array of carriers, people are looking for service. That's why he places so much emphasis on the agents in his network and supplies site visitors with an agent-satisfaction index based on previous customers' feedback.

"We need to make this business be an important part of the new business production of agents," Folk said. Unlike other aggregators, Lowestpremium.com does not parcel out leads to agents; instead, it divides them up into a limited number of territories, he said. The company has about 300 agents in its network. Parceling out leads means the business gets spread over too many agents, he said. "Unless referrals pour over the transom through the Internet, there's not going to be enough in the agent's office for people to pay attention," Folk said.

For insurance companies, the lure of the Internet is the prospect of saving money. As A.M. Best's Cohen points out, insurers' activity on the Internet generally is confined to linkless Web sites, with companies using these sites for quotes, referrals to producers, information dissemination and customer-driven policy changes. They also are using their sites for administering policies, thus breaking down the distinction between front and back offices and, to some extent, the field, Cohen said.

Policy administration costs for a basic transaction run just 45 cents through the Internet, compared with $19 per transaction for an agency and $8 for a call center, Cohen said.

The flip side of this is that the ability of insurance malls to provide comparison quotes is likely to put pressure on insurance companies to be even more cost conscious, thereby promoting more competitive prices, Meridien Research said in a recent report on auto insurance aggregators. "This will be a great improvement over the past, where rates have, in some cases, differed by hundreds of dollars depending on the insurer or agent," the researchers wrote.

But aggregators do have a few weaknesses that could threaten their survival, Sherwin said. For one thing, he noted, consumers are going to aggregators and primarily looking at price, but they don't always know what they're buying. And "there are little things in small print when it comes to insurance policies," he said. "This could result in customer dissatisfaction with this method for purchasing some forms of insurance."

Also, as Meridien Research points out, the companies most likely to survive in the aggregator market will be the ones that can draw the greatest number of quotes from as many insurers as possible. "Only companies with a full selection will succeed in attracting the necessary visitors to their Web site," the Meridien report said.

Another consideration is that auto insurance--currently the big product for aggregators--is typically a one-time purchase, with annual renewals throughout the life of the car. The result is that the malls don't have much chance at repeat business, so many have chosen to offer policies in several insurance sectors, such as life and homeowners, to cross-sell and generate additional revenue, Meridien said.

Yet another point is that traditional insurance companies have formidable strengths. These businesses have established brand names and can specialize where the aggregators can't, Sherwin said. Also, they can build on relationships with convergence and link up with banks and brokerages.

"I think, at this point, a lot of these insurance companies have more money behind them than aggregators do with venture capital," Sherwin said. "I think the battle has begun, but it's uphill for insurance companies, because they got in late."

At least one major carrier has decided to deliver its own thrust in this battle. American International Group Inc. and three other insurers last fall said they planned to form an online auto insurance market in an attempt to "create a completely new model" for personal lines sales, according to a report by Morgan Stanley Dean Witter. According to Morgan Stanley, the consortium's effort, Fusura.com, is based on the premise that customers care about brand, stability and services, in addition to price. AIG and its partners have found "that most customers do not want to shop exhaustively among a large number of insurance carriers" to get the best price from a no-name company. While customers want choice, Fusura.com executives are betting they would prefer a limited choice from among a few well-known carriers that can deliver fast, consistent service."

Sherwin wouldn't venture to guess which group--insurers or aggregators--would triumph in snaring the bulk of online activity. "I think a limited number of each will survive," he said. "For the more complex policies, regular insurers might have an advantage. But with something simple, like auto, the comparison is relatively easy."

                       Top Insurance Sites By Unique
                           Visitors October 2000
                       Unique
                     Visitors
Site                    (000)
1 InsWeb.com              848
2 Geico.com               525
3 Progressive.com         520
4 Eterm.com               402
5 Insure.com              308
6 MetLife.com             269
7 Allstate.com            251
8 StateFarm.com           219
  Insurance Category    3,813
  All World Wide Web   78,534

Unique Visitors: the number of total users who visited the reported Web site or online property at least once in the given month. All unique visitors are unduplicated (counted only once).

Sample Size: More than 60,000 individuals throughout the United States participate in the Media Metrix sample.

Source: Media Metrix

InsWeb Forges Ahead After Tough Times

InsWeb is recovering from the loss last spring of its largest customer, State Farm Insurance Co., which wiped out about one-third of its revenue base. After moving its headquarters from Redwood City, Calif., to a less expensive address in Sacramento and cutting half the staff, InsWeb is again focusing on its fledgling online independent agency and sorting out its recent acquisition of select assets of Intuit's QuickenInsurance business.

"When State Farm left, it was a big setback," said Jaimie Pickels, InsWeb's senior vice president of client development. "So, it caused us, earlier than most dot-coms who are struggling today, to sit back and rethink and see where we are and where we were going," he said.

InsWeb--one of the oldest online insurance sites, dating to 1995--completed 1.3 million insurance applications in the first half of 2000. It offers products from more than 40 insurers, and homeowners insurance quotes in about 20 states, auto insurance quotes in 49 states and life insurance quotes in all 50. InsWeb handles 1.1 million consumer sessions a month, each lasting about 15 minutes and has data on about 7.5 million consumers. This data was to be used last year in a business-to-business venture, but was put on hold after State Farm pulled out of InsWeb. "It was too costly and didn't fit in with our short-term revenues," said Greg Jones, a company spokesman.

During 2000, InsWeb posted losses for three consecutive quarters. The biggest loss came in the second quarter, when the company lost $21.6 million, or 62 cents a share. InsWeb has projected making a profit in the first quarter of 2003. The company's founder and Chief Executive Officer Hussein Enan said in October that InsWeb was in good financial shape with $66 million in the bank. Enan also estimated that the company would spend "about $5 million a quarter" in 2001 to grab market share and support operations until the company is profitable.

Pickels recited a litany of statistics to prove that both InsWeb and the online shopping experience are still of great interest to the American buying public:

* research shows that by 2004, Internet-initiated insurance sales will be about $12 billion;

* 67,000 new users go online every day; and

* through the third quarter, InsWeb did 10 million unique user sessions and completed 1.7 million applications.

InsWeb's expansion of its agency operation, which began in 1999, will create a new revenue stream for the company and cut its dependence on lead referral revenues, will Jones said. Currently, InsWeb is selling auto insurance for a half dozen insurance companies in four states--California, Oregon, Washington and Arizona. "We'll continue to build out more states and carriers and we are looking to big states with large populations," Pickels said. InsWeb has 14 agents and 12 call-center operators in the agency business, with plans to expand that number this year.

In an effort to pump up consumer traffic, InsWeb bought select technological and intellectual property of Intuit's QuickenInsurance business in November. Under the agreement, InsWeb would become the exclusive aggregator of online consumer insurance services for Quicken.com, QuickenInsurance and certain Quicken consumer desktop products.

The company's foray into international business is stalled in Japan for now. InsWeb's joint-venture company, InsWeb Japan K.K., debuted in December 1999 and offers auto coverage online from five Japanese insurers. But InsWeb is currently focusing on maintaining and improving its distribution and strategic partnerships. "There are so many opportunities that we'd love to do, but we're really focused on our strategy right now. Nothing's going to distract us," Pickels said.

Lynna Goch

Lowestpremium.com: Agent Advantage

One of the newest online insurance aggregators is Lowestpremium.com, a Columbus, Ohio-based company that considers itself to be a complete front-to-back-end provider. The service began operating in Fresno, Calif., in November 1999, and it expects to roll out to most states by the end of March.

Once customers log on to www.lowestpremium.com or go through the company's call center, they answer some basic questions related to driving record, type of car owned, distance driven daily and coverage desired, a process that takes about 10 minutes. Then, through the use of its comparative rating engines, Lowestpremium.com provides customers with 10 premium quotes available from competing companies in their area. Consumers can select the carrier of choice with a mouse click or a confirmation call to a call center representative.

The service also will project the customer's savings, based on the quoted rates and the rate the person is currently paying for auto insurance. The company says that nearly 70% of those who visit the site find lower-priced insurance than their current policies, with average savings of more than 30%, or nearly $500 a year.

But what happens next seems to set this dot-com apart from similar online brokerages: For every insurance quote shown, the service provides the name of one of its hand-picked agents. Consumers can then choose the person they want to close the sale by viewing an agent-satisfaction index, which is based on feedback from previous clients. Once a customer selects an agent, the customer's information is sent electronically to the agent, who then contacts the customer directly and writes the policy.

"While people may be interested in saving money, they may not be interested in the lowest price if it means slower service," said Mark Folk, president and chief executive officer of Lowestpremium.com.

The business has established a network of 300 agents who were selected on the basis of their service records, Some independent agents represent up to eight carriers, Folk said. He looks for agents who are experienced, Internet savvy and committed to meeting customers' expectations. The incentive for these agents to link up with this aggregator is the potential for a bigger share of presold customers, instead of seeing these leads parceled out, as individual carriers do, across a greater agent field.

The company monitors the agent performance by e-mailing their customers and asking them to rate the agents. These responses are combined with others to give an overall evaluation of the employee, Folk said.

"We have a clause in agents' contracts saying that if they receive customer complaints--and the number can be very few--then they're gone," Folk said.

Folk, who founded the aggregator, is well versed in online business, based on his work on Nationwide Insurance's initial venture into Internet technologies. In May 1995, Nationwide became the first institutional shareholder in the online insurance marketplace insurance's InsWeb. Folk served on InsWeb's board from 1996 to 1998. As president of Nationwide Direct, Folk decided that Nationwide Direct should become a leader in using Internet technologies. His Internet team, working closely with the property/casualty division of InsWeb, became the first insurer to quote auto insurance in real time on the Web, Folk said.

Lowestpremium.com is largely funded by Securitas Capital LLC, a global equity-investment firm that deals exclusively with the insurance sector, and Century Capital Management, an independent investment firm that specializes in insurance investments and focuses on private and publicly traded global risk-management businesses.

Quotesmith.com: High-Volume Processor

During peak hours, Quotesmith.com's Web site often processes one quote request every four seconds. And in the first month after the launch of its huge marketing campaign, Quotesmith said it processed more than 24,000 quotes within three days.

In 2000 alone, the company processed 4.2 million quotes, up 75% from the prior year, said Robert Bland, president and chief executive officer. Its most recent marketing campaign included running television commercials during several major sporting events, such as the Tournament of Roses parade and the Rose Bowl. The $100 million, three-year campaign commenced in January 2000.

The company's business model is what sets it apart from other aggregators, Bland said. "Most insurance Internet models are merely a cookie-cutter morph of the average agent moving over to a Web site. For example, they take three or four of their favorite companies and put them over on the Internet and say, 'We searched the market and already looked at these [companies] as the best three.'"

Quotesmith, one of the e-commerce pioneers, provides online quotes from more than 300 insurers. It was founded in 1984 as an electronic quotations and policy provider for insurance agents and brokers. During that time, the company built up and expanded its extensive databases. "Most importantly, we garnered up the trust of the insurance companies who had made the decision to list their plans on our network," Bland said.

Recognizing a demand for self-directed shopping, the company began to reposition itself into the consumer market in 1994 by providing free quotes by mail. Finally, with the onset of the Web, the company took yet another turn. In 1996, Quotesmith began providing real-time quotes on the Internet, in addition to receiving online insurance application requests from consumers.

That same year, the company abandoned the agent/broker business and became an agent and broker itself in every state. "During that time, the company opened up its term life databases via the Internet and, literally for the first time, we let insurance shoppers survey the market," Bland said.

Some insurance Web sites fail because they aren't aware that what works in a face-to-face sale does not necessary work across the Internet. "You can't bluff the consumer into thinking that they are looking at the best value. The power shift on the Internet is entirely reversed," he said. Most insurance salespeople are used to controlling the information flow, but on the Internet that is reversed, and the customer is the one who controls the flow of information."

Quotesmith's quotes include two full pages of policy coverage and reference information, including published underwriting guidelines and the most recent independent ratings from major insurance rating agencies. The quote-retrieving process takes less than one minute, on average, after which consumers can select products, complete an initial online interview for qualifying purposes and download the application from several carriers.

Quotesmith also offers customers two satisfaction guarantees. If visitors don't find the lowest term life premiums in the United States, they are issued $500 in cash. And every quote is guaranteed to be accurate, or visitors receive a $500 cash reward.

Darien, Ill.-based Quotesmith provides real-time individual term life quotes from more than 100 companies, including First Colony Life, John Hancock Variable Life, Banner Life, West Coast Life, Transamerica Occidental Life, American Mayflower Life of New York and Valley Forge Life. Quotesmith also offers dental, Medicare supplement, long-term care, small-business coverage, international medical, boat/watercraft/RV/motorcycle, disability, individual and family medical, group medical, auto and annuities.

Due to a recent expansion of its health insurance market coverage, Quotesmith offers consumers and small-business owners real-time health insurance quotes in all states and the District of Columbia. Its roster of insurers includes 105 personal lines insurers. In addition, Medicare supplement is offered by 71 participating insurers; dental, 38; small-group medical, 32; short-term medical, 13; and term life insurance, 109. Progressive, State Farm and Allstate are among its stable of auto insurers.

Lori Chordas

eHealthInsurance: Inoculated With Strong Funding, Strategy

The past few months haven't been kind to dot-corn companies, many of which have depleted their initial infusions of capital and have gone out of business.

But eHealthInsurance Services Inc., which markets at www.ehealthinsurance.com, doesn't expect to suffer the same fate. It's a private company, funded by several heavy hitters of the U.S. economy: Dell Computer, Goldman Sachs, Kleiner Perkins caufield & Byers, Donaldson Lufkin Jenrette (The Sprout Group), and Weiss, Peck & Greer Venture Partners. It also has an experienced management team of former and current executives from the likes of Healtheon, PacifiCare, Foundation Health, Aetna, United Healthcare, IBM, MetaCreations, Silicon Graphics and MetLife.

The investors evidently have a lot of faith in the company's business model, which uses the Internet to sell and service health insurance to a huge and underserved portion of the U.S. market. "We estimated that $440 billion would be spent in 2000 on health insurance premiums," said Gary Lauer, chief executive officer of the Sunnyvale, Calif., firm. "We address about half of the market." That includes individual and family plans (10% of the overall market), businesses with 50 or fewer employees (25%), Medicare gap and supplemental programs (10%), and the uninsured (20% of the population, or 44 million people).

Small businesses alone provide great opportunity. Lauer said the country's 12 million small businesses employ about half of the U.S. work force. And more than 40% of them don't offer health insurance. Hundreds of companies become customers every month, he said.

eHealthInsurance sells the products of such companies as Blue Cross/Blue Shield franchises, Golden Rule, Celtic, HealthNet, PacifiCare and Humana. Coverages include major medical, dental and vision. In all, it offers more than 4,000 products, but it has seen no need to venture into the realm of medical savings accounts or flexible spending accounts. It is licensed in 50 states and the District of Columbia and is available to 95% of the U.S. population, Lauer said.

Two strategic premises make the company efficient and able to offer affordable coverages. One is that the vast majority of customers shops and enrolls in health insurance plans completely via the Internet, a cost-effective way for eHealthInsurance to market and distribute. When prospects need some guidance-and many small businesses do not have a benefits manager or human-resources director-one of the company's 60 full-time licensed agents works with them by phone. The company has nearly 200 employees in all.

eHealthInsurance also has established partnerships with the National Federation of Independent Businesses; Proact Technologies Corp., an employee-benefit provider; and BankOne, a regional bank. These partners introduce members to the online insurance provider. The national organization alone has more than 700,000 small-business members, and eHealthInsurance is the exclusive provider to its member base. BankOne has a very large insurance business with millions of its customers, but the bank previously was not able to offer health insurance to them in any meaningful way, Lauer said.

Founded in 1997, eHealthInsurance has confirmed that health insurance can be made affordable and accessible for those who need it, Lauer said. In its 2 1/2 years of operation, the company has learned a great deal about how to be efficient, he said.

No company is a direct competitor, Lauer said. "Some companies have been in this business and learned it's complex and hard," he said. "InsWeb was in the health business, but now we do health for them. BenefitMall.com is working with and through brokers."

Consolidation is under way. Recently, InsWeb and QuickenInsurance decided to merge, and Lauer predicted more of that kind of activity. "Our model is very sustainable and successful," he added. "We enjoy a recurring revenue stream, margins are attractive, and it's a huge market."

Lauer said the company adds hundreds of customers monthly. It has an annual growth rate of more than 10 times that of the previous year. The company is still not profitable, but Lauer said profits are in the not-too-distant future. "That's more a decision about how much we invest for growth," he said. "Because of good investor support we enjoy, we can balance those things. We're extremely well-capitalized."

He estimated that eHealthInsurance has about 75% of the online health insurance marketing share.

Ron Panko