Pioneer InsWeb Brings One-Stop Insurance Shopping to the Internet

The Internet's ability to offer one-stop price shopping from a variety of sources has transformed the buying experience for such products as cars and computers. Can it do the same for insurance policies?

A number of companies, including the newly public InsWeb (INSW:Nasdaq), are betting that it can.

Though there are still some practical barriers to selling policies directly over the Internet, there's nothing to stop consumers from comparing prices online and doing the actual purchasing face to face or over the phone.

InsWeb, for example, has created an online market among 38 insurers hoping to sell auto, homeowner's, term life, health and renter's insurance.

"This is what many have been waiting for: one-stop shopping for insurance without bias or filters," says Randall Roth, an analyst with Renaissance Capital, a Greenwich, Conn., company that specializes in evaluating IPOs.

InsWeb's backers include Japanese technology investor Softbank and insurers Nationwide (NFS Quote) and CNA (CNA Quote). On its first day of trading, July 23, InsWeb's shares zoomed from an offering price of 17 to as high as 44. It closed at 25 7/16 on Monday.

With InsWeb and competing services InsureMarket, Quotesmith and SelectQuote, it's possible to fill out a policy application online, click and -- in seconds, minutes or 24 hours -- receive quotes from competing insurers on screen or in your email box.

An application for a term life policy on InsWeb, for example, includes such questions as:

• Do you participate in any risky activities such as racing, scuba diving, sky diving, mountain climbing, parasailing or ultralight flying?
• Have you been found guilty of reckless driving or driving under the influence?
• Have you used any tobacco products within the last five years?

This writer, who lives in Connecticut, received seven quotes on a $500,000, 20-year term life policy via InsWeb within a minute of submitting an online application. The striking price disparity among the quotes underlines the value of these online insurance shopping centers: Annual premiums ranged from $495 a year from Lincoln Benefit Life (an Allstate (ALL Quote) company) to $4,205 a year from General Electric Capital Assurance.

Once quotes are received, the recipient can indicate his or her interest in being contacted by one or more of the participating insurers.

No quote supplied by InsWeb is a final, agreed-upon price. InsWeb is only an intermediary for its participating insurers. Those asking for a quote, or for a policy, do not buy a policy online; they only position themselves to be contacted by an insurance agent via telephone or email. The agent might provide a slightly different quote once more information is learned about the customer.

Residents of some states might also discover that InsWeb resembles an old Soviet Union restaurant menu. Thirty-eight insurers may be listed, but in 29 states, only two or three auto insurers are available. Many insurers, in their Net strategy, have targeted a select few states. Other insurers have quietly said the Internet might undermine, or enrage, their exclusive or independent agents.

Among InsWeb's particpating insurers are some major players, including American International Group (AIG Quote), State Farm and Nationwide.

A representative with State Farm, the nation's largest writer of auto and homeowner's insurance, says she likes what she's seen so far.

"Some people are time starved. They expect us to be where they need us. And InsWeb has brought our agents some very qualified leads," says Sharon Banister, interactive marketing specialist with State Farm in Bloomington, Ill.

Insurers such as State Farm pay InsWeb a fee every time a customer asks for a quote -- or for a referral to a local insurance agent. InsWeb in 1998 generated about 3 million leads, up from 400,000 in 1997.

But generating leads has not generated profits during InsWeb's three-year existence. The company lost $22.4 million, or $1.52 a share, on revenue of $4.3 million in 1998. And during the first six months of this year, InsWeb lost $14.8 million, or 94 cents a share, on revenue of $8.3 million, according to documents filed with regulators. Quotes and customer leads on auto insurance accounted for 84% of InsWeb's revenue in the six-month period ended June 30.

The value in InsWeb, however, lies beneath its profit-and-loss statements, said Lawrence Sundram, former president of RelianceDirect, an online provider of insurance for Reliance Group in New York.

"InsWeb resembles an insurance supermarket. It's built on multiple choice, the premise that people don't go to a Campbell's Soup store to buy soup. They only buy Campbell's after comparing it to other brands," says Sundram.

One of InsWeb's primary goals is to add more insurers to its menu. With more choices available, the power of the site will become more clear. Even today, InsWeb visitors can learn what their agents rarely tell them: By varying the information submitted on their applications, they can see how insurance policies are constructed; how policies are priced; how coverage and pricing can be adjusted to fit within a budget; and how prices can vary from carrier to carrier, Sundram says.

Someday, consumers may also be able to complete their purchases online. Though some insurers -- among them Progressive, Travelers and Reliance -- sell auto policies directly online in some states, they've had limited success. InsWeb is likely to remain an electronic broker in the near term. In many states, several rules stand in the way of the direct sale of insurance online:

• Most life insurers require policyholders to take a physical.
• Home insurers usually inspect the home of would-be policyholders.
• Most people get their health insurance through their jobs.
• In almost every U.S. state, a policy requires a signature before it is deemed valid; only a few states recognize electronic signatures as binding.

Despite these roadblocks, the Internet's role in selling insurance is destined to grow, according to a Forrester Research report. In 1988 the Internet generated leads that resulted in $1.5 billion in written premiums. That total could grow to $11 billion by 2003, according to Forrester. Insurers all told wrote about $800 billion in premiums in 1997, according to A.M. Best.

"The idea behind InsWeb may take time to catch on," says Sundram. "But it could take hold in as little as two years."