October 1 - 3, 2000, The Westin Providence, Providence, R.I.

Aggregators Among Us: The Continuing Case for the Insurance Mall Hussein A. Enan, InsWeb Inc.

InsWeb Founder Sees Expanded Role for Internet Middlemen
By David Pilla, associate editor, BestWeek: David.Pilla@ambest.com

The Internet will play an ever-increasing role in the insurance industry and competitors had better learn to play the game online, the founder of one of the original online insurance aggregators and quote generators told insurers.

"Many insurers are missing the mark" when it comes to using the Internet to sell policies or promote their brand, InsWeb Corp. founder and Chief Executive Officer Hussein Enan told an audience of about 250 insurance professionals. While he admitted that most customers are still leery when it comes to buying insurance online, Enan said he sees customers' attitudes changing rapidly. Likening the customer's fears about buying online to the gradual acceptance of automated teller machines for banking, Enan said doing insurance business online will sell.

Enan spoke at "E-Fusion: Where Insurance and Technology Converge," a conference sponsored by A.M. Best Co., held Oct. 1-3 in Providence, R.I. Full coverage of the event is available online at http://www.ambest.com/e-fusion.html.

"We've found that very few customers start the buy-online process to begin with," Enan said. "And of those, about a third go through the entire process. About a third of those then quit when they get to the point where we ask them for their credit-card number." Those, Enan said, are the customers who will get on board next.

"Customers are still not comfortable with doing the entire process online," he said.

InsWeb offers to the consumer information and price quotes from insurers. It gets transaction fees and commissions from the insurers for facilitating the application process. InsWeb is built on the premise that consumers will do more comparison shopping for their insurance and want a site that will bring all the information--and reputable insurers--to them.

"We think it is much easier for the consumer to go to one site," Enan said. "They can fill out a generic form and get quite a variety of quotes."

Enan is hoping insurers become more sophisticated with their online presence, as he sees InsWeb as being perfectly positioned to work with more insurers on the Internet. Some of the weaknesses Enan sees among insurers that are online include:

• Agents and call-center employees often are not familiar with Internet-oriented programs;

• The response to online quote requests is often slow to none;

• There is commonly failure to meet customer-service requests online;

• Most companies use e-mail ineffectively; and

• Most insurers still insist on an office visit to complete a transaction.

"Some of the keys to success include clearly defining your strategy and communicating it clearly to your employees," Enan said. Management has to support and train staff effectively and monitor results and performance constantly, he said.

InsWeb, founded in 1995 and one of the oldest online insurance sites, completed about 1.3 million insurance applications in the first half of 2000. The company offers products from more than 40 insurers. InsWeb handles about 1.1 million consumer "sessions" a month, each of those lasting about 15 minutes. Enan said the company's high-traffic volume, combined with a huge and rapidly expanding database, give the company enormous leverage in its bid to become a must for both the insurer and the consumer doing business on the Internet. InsWeb has data on about 7.7 million consumers.

InsWeb, however, has not been a profitable operation. In July, InsWeb posted a net loss of $21.6 million, including several one-time charges, compared with a loss of $9 million a year earlier (BestWire, July 21, 2000). The company suffered a blow to its bottom line earlier this year, when State Farm withdrew from its partnership with InsWeb (BestWire, April 19, 2000), taking with it about 37% of InsWeb's revenues, Enan said.

Enan said the loss of State Farm's business was a setback, but some of the other insurers InsWeb works with "were eager to jump in and fill the gap." Enan said the response from other insurers was so good that InsWeb recently issued a revised outlook for the second half of 2000, bumping up its expected revenues from $8 million to $9 million (BestWire, Sept. 27, 2000).

In the wake of InsWeb's stock slide from $44 a share about a year ago to just over $2 a share now, the company is trimming its staff and moving its headquarters from Redwood City, Calif., to Sacramento. Enan insists that the company is in good financial shape, with $66 million in the bank, and plans to expand its product offerings. Enan wouldn't give any specifics about InsWeb's "burn rate," or the amount of money it is spending to grab market share and support operations until it becomes profitable, but he ventured a guess that the company would spend "about $5 million a month next year."

Over the next two years, InsWeb will seek to expand its quote-generator business. The company now offers quotes on auto insurance in 49 states (New Jersey is the exception), life insurance in all 50 states and homeowners insurance in about 20 states. InsWeb will try to add health insurance in several states and has plans to expand its homeowners market. The company also is seeking partnerships with more insurers.

Among its expansion plans, InsWeb will bolster its fledgling agency operation begun in 1999, offering products such as auto insurance in more states. InsWeb currently does business as an auto insurance agent in four states: California, Washington, Oregon and Arizona. Such an expansion could increase expenses, Enan acknowledged in an interview following his presentation. InsWeb now has 14 agents and 12 call-center operators to serve customers as an agency. But operating in more states means getting more licenses for more agents in more states, a process some insurers have found costly.

"It will be a slow process, but we're confident we can do it," Enan said.