Surviving The Dot-Com Shipwreck

The online insurance market has witnessed its share of companies that collapsed under
the weight of mismanagement and from a lack of funding. What can the survivors–and carriers–glean from
these mistakes?

By Steve Dwyer, Senior Editor, Insurance Networking Magazine at

(Reprinted with permission; originally published in the August 2001 issue of Insurance
Networking magazine.)

Less than two years ago, San Francisco-based Internet auto insurance provider eCoverage
Inc. made a proclamation seemingly as bold as it was preposterous.

Promising that “the insurance industry is history,” eCoverage executives
launched an automated quote-to-claim operating model intriguing enough to make even ardent
dot-com skeptics sit up and take notice.

More than an online lead generator site, eCoverage was equipped with an internal
underwriting solution through an insurance carrier partner, and an executive management
team armed with extensive insurance-industry experience.

With heavy interest from the investment community–the likes of which included Accel
Partners, E*Trade and Softbank Technology Ventures–eCoverage had a wellspring of capital
on which to reinforce its service and did just that–on its way to personal lines’
direct-written premiums of almost $1 billion in 1999.

But then the tables turned. Rather than the insurance industry teetering on the brink
of extinction, it was eCoverage that shuttered its operation last March after exhausting
its cash flow. As part of its dissolution, eCoverage agreed to license its technology to
GMAC Insurance Group, a division of GMAC Financial Services.

Demise no surprise

Given its auspicious debut, eCoverage’s precipitous fall, to some industry
observers, was astounding. But should it have been? Its demise may be a microcosm of the
precarious position many technology start-ups face–from Web aggregator models to
e-business solutions providers.

Many dot-coms fail for three principal reasons: They lack a strong parent, lack a
narrowly defined focus or face corporate culture obstacles with carrier partners,”
Todd Eyler, senior analyst with Cambridge, Mass.-based Forrester Research Inc., says.

“The first two reasons overwhelm the third,” he adds. “A sharp focus
speaks for itself. Having a strong parent with deep pockets, for instance, can buy time
and enable a dot-com to develop their technology platform over time.”

In eCoverage’s case, although the technology was regarded as an asset, the
company’s focus had gone awry. A top-to-bottom audit of its internal competencies
exposed several troubling deficiencies.

“eCoverage was probably the poster child of profligate spending on brand
building,” Eyler says. “They spent way beyond the 20-25% that should be
earmarked for brand building within a marketing budget. The rest of the budget should be
devoted to other critical areas, such as working to reduce costs for carrier partners.”

This can be accomplished, he says, by developing process integration with them,
launching real-time quoting and online binding and focusing on fulfillment, which remains
onerous because there’s still an abundance of manual processing occurring for electronic Web inquiries.

Beyond their control

In defense of some recently departed technology companies, matters outside their
control played a role in undermining their attempt to remain solvent.

For instance, a lack of consumer Internet usage along with the slow movement of
carriers to develop internal data integration served as a trickle-down effect–resulting
in too many dot-coms to serve not enough prospective customers.

“There is a finite number of customers, and every technology provider is fighting
for their affections,” Ron Young, director of product marketing, insurance division
for San Mateo, Calif.-based e-business solutions provider Siebel Systems, says. “To
these potential customers, the Internet is still not a panacea because old communication
channels won’t go away.”

Another variable that has negatively impacted technology firms has been the lack of
agent support for Web-based selling programs. Gold River, Calif.-based online aggregator
InsWeb Corp. established a partnership in 1998 with Bloomington, Ill.-based State Farm
Mutual Automobile Insurance Co. Under the agreement, InsWeb marketed State Farm’s
auto, homeowners, and term life insurance products on its Web site, State Farm had
accounted for 30% of InsWeb’s revenue, but in April 2000 the carrier informed InsWeb
it wasn’t renewing its contract with the provider.

“State Farm agents never accepted the program, and would not follow up on leads.
In the end the relationship was terminated,” Eyler says. “Losing business put
InsWeb at a crossroads. Ultimately, it had to reinvent itself, and did so by parlaying
itself from a lead generator to an agency that provides a higher level of internal services.”

Prior to its reorganization, InsWeb transmitted leads to its carrier customers. But
following up on those leads frequently meant next-day phone calls or faxes to potential
customers–hardly a way to foster the efficiencies for which the service was designed.

The reinvention of InsWeb, though, did not guarantee a safe landing. But with $40
million in available cash on which to leverage its future strategies, InsWeb was able to
deliver automated policy management and data integration with carriers and other
affiliates to enable real-time quoting.

For example, InsWeb’s distribution agreement with Yahoo!, industry observers say,
is driven by data integration that provides intuitive pre-filled online forms to customers
researching policy information.

Switching channels

InsWeb wasn’t alone in rethinking its place in the insurance technology movement.
Another provider that modified its operational blueprint out of necessity was Colorado
Springs, Colo.-based ChannelPoint Inc.

ChannelPoint originally built its business on back-end workflow products, providing
automation between agents and carriers. But when it merged with Provo, Utah-based
InsurQuote Systems Inc., in early 2000, ChannelPoint took a calculated but necessary
gamble to expand its horizons. InsurQuote’s main customers had been online insurance
malls, such as InsWeb and, where it provided comparative rating
solutions on the property/casualty market for the customers of these aggregators.

The synergy between the two companies has enabled ChannelPoint to reach a higher
plateau. “ChannelPoint had the carrier network in place, but with the merger it
created the ability to provide outsourcing opportunities for not only carriers but
aggregators,” says Eyler. “InsurQuote, on the other hand, had a hard time
forming relationships with carriers, and ChannelPoint helped leverage this. ChannelPoint
also had lacked the front-end Web development expertise that InsurQuote later helped deliver.”

The revamped ChannelPoint began licensing its online auto insurance rating and quoting
software to the aggregator segment–among its customers being Newton Highlands,
Mass.-based online marketplace

Founded in 1999, also began to retool its own internal structure. It
reduced its reliance on branded marketing to focus on affinity partnerships as a way to
replicate brand awareness. Owned by Fidelity Investments, can market its
products–geared toward life-event insurance–to Fidelity’s 17 million customers who
currently buy investment products without a broker or advisor.

But it also needed to put the technology in place to drive the process. That’s
where ChannelPoint came in. “ChannelPoint’s data base of rates is continuously
updated, though it does not link to the back end of individual insurance companies; this
means that not all quotes will be binding,” David Potterton, research director of
e-financial services for Newton, Mass.-based market research firm Meridien Research Inc.

Further explaining the relationship in a December 2000
report called “Auto Insurance Aggregators: The On-Ramp to the Internet,”
Meridien states that when a potential customer of logs onto , he or she is
presented with a number of insurance products from which to choose. Clicking on auto
reveals a variety of topics: an overview, coverage amounts, information on filing a claim
and rentals and the option to request a quote.

If the customer were to select a quote, he or she would be asked to then select the
state in which an insurance policy would be issued. At that point, for most states,
consumers could start the process to obtain real-time auto quotes via the ChannelPoint technology.

Any takers?

There are a handful of Internet companies serving the insurance industry have had to go
the route of reinvention. Some firms are in the early stages of their existence and,
unlike InsWeb and eCoverage, are still able to make a play for investor capital if they
can prove their worth. In short, they are leveraging distinct operating models to generate
capital in turbulent times.

And for some, if they are not generating capital they are attracting the attention of
strong potential parent firms–one key to dot-com prosperity. One of the more celebrated
corporate bailouts of a dot-com insurer occurred in September 2000 when San
Francisco-based Internet quote-to-claims insurance provider Esurance Inc. was taken over
by Folksamerica Holding Co. Inc., a New York City-based subsidiary of White Mountains Insurance Group.

Under the terms of the agreement–specifics of which were not disclosed–Esurance
became a subsidiary of Folksamerica Holding Co. Inc., and will remain an independent
entity under Folksamerica Holding. It will also continue, without any modifications, to offer personal
auto insurance through its Web site,

Under a strategy that combines the service of an agent-based insurance company with the
competitive rates of a direct insurance provider, Esurance currently sells personal auto
insurance in 24 states, representing more than 70% of U.S. drivers.

The fact remains, if there is upside in a technology provider, it’s often not lost
on investors or suitors. But similar to acquiring a used car, a great deal of due
diligence and exhaustive research has to be carried out to separate the distinct providers
from the so-called “me-too” providers.

Established in 1991, Singapore-based (the acronym stands for Performance with
Total Commitment) provides data management solutions that feature data storage, data
backup, disaster recovery, DLT devices/libraries and GE networking solutions. Over a
10-year period, it has added functionality to its offerings, industry experts note.

Specific to insurance carriers, the service provides technology solutions that can help
estimate building and replacement costs for home repair.’s relationship with
general contractors and all other parties involved in the home repair market enable
carriers to seek out affiliates who can remediate a claim on a property that may have been
damaged by a storm or other natural catastrophe.

Carriers such as Northbrook, Ill.-based Allstate Insurance Co. and Novato, Calif.-based
Fireman’s Fund have taken notice: Both have gravitated toward, located at , recognizing its solution as a
way to pinpoint needless costs and drive inefficiencies out of the system, Eyler says.

Dot-coms that were established just over the last two to three years are also
generating capital if they can show their mettle. Two areas in particular stand out:
claims processing and life insurance policy processing.

Regarding the former, Redondo Beach, Calif.-based ProcessClaims has built a suite of
secure and scalable Internet-based claims processing tools that integrate with the
technologies currently used by insurance companies, repair facilities and independent
adjusters. In addition, ProcessClaims provides insurance companies and repair facilities
the ability to connect with one of ProcessClaims’ trading partner, or any trading
partner they designate.

Similar to the claims side of the business, carriers and their affiliates are desperate
for solutions to remove costs from life insurance processing. With funding spilling in
from a cross-section of e-commerce, technology and financial service providers, Quincy,
Mass.-based Worldinsure Ltd. this spring raised a second round of financing amassing $31
million. The finds will be sued to support the development of processing solutions for
medically-underwritten insurance products, John Hele, president and CEO of Worldinsure, says.

By streamlining the underwriting process, Worldinsure enables insurance companies to
increase productivity, cut costs, close more business and establish new distribution
opportunities, Hele says. The timing of WorldInsure’s service is timely since it
comes as “the insurance industry is currently turning away business because it
can’t process policies fast enough,” he adds.

Lessons learned

The acute shakeout that’s occurred with dot-com companies that service the
insurance industry–or any industry for that matter–should not be construed as a sign
that the era of Internet-only companies is over, industry observers say.

One reason why experts believe that another dot-com wave is on the horizon is that
carriers will need their services. Speaking in March at the Life Office Management
Association’s (LOMA) Systems Forum, Don Tapscott, chairman of Toronto-based
e-business consulting firm Digital 4Sight, said that while today represents a “post
dot-com era,” that doesn’t mean that technology initiatives should retreat along
with this era. On the contrary.

“Carriers believe they can turn back the clock and return to traditional ways of
doing business since dot-coms are failing. This is the wrong approach. Carriers need to
embrace technology more than ever,” Tapscott said.

However, because of the uncertainty that has crept into the market, carriers may be
reluctant to take the plunge again with dot-com firms. Nevertheless, until they take the
plunge, they won’t be able to get ahead of the technology curve.

“Insurance carriers that ponder whether to partner again with a start-up or
existing dot-com are going to closely scrutinize the partnership, particularly the second
or third time around. It’s a case of ‘once bitten, twice shy,'” Eyler states.


Great ideas don’t always succeed

The rise and fall of San Francisco-based eCoverage Inc. isn’t the only dot-com
whose demise has surprised industry experts.

In late April, Chicago-based, the first independent business-to-business
online marketplace to link agents and brokers with specialty insurance carriers, ceased
operations after failing to raise additional funding.

A few weeks later, Atlanta-based Inc. purchased certain assets of,
including software and intellectual property rights of all products, and access
to its agency and carrier partners.

Following on the heels of this disclosure was the announcement in late May that, a Web operation launched by Wausau, Wis.-based Wausau Insurance Co., was
planning to discontinue service by the end of the year. was more than a Web
site–it was a separate business unit dedicated to serving small-business owners seeking
business owners policies, workers compensation insurance and other like products.

Wausau had spent a handsome sum on launching and tweaking the business–particularly in
the expansion of its technology–over the last year. eWausau executives listed four
“cornerstones” in building a successful Internet program, two of which were
“patience and strong financials.” In the end, Wausau executives gave
less than a year to build a following among small-business owners.

But each of these providers faced underlying challenges that went undetected.
“Nobody can predict if a consumer or a business is going to change their behavior and
embark on new habits,” Todd Eyler, senior research analyst for Cambridge, Mass.-based
Forrester Research Inc., says.

Eyler theorized on the trouble probably faced. “A small-business
customer may have gone to eWausau but weren’t comfortable binding a policy directly
online, without the counsel of an agent. For small-business owners, their business is
their main asset. So even though they may view the Web as a tool that saves time and
money, many of them probably decided to research on eWausau before going through a agent
to bind the quote. The savings of using the Internet was not compelling enough for
them,” Eyler explains.

The component appealing about, industry observers say, is that it featured a
tightly focused model. It enabled brokers to match the specialty commercial lines coverage
required for their clients to the carriers and managing general agents (MGA). Once this
was determined, would then simultaneously forward multiple submissions to those carriers.

The marketplace was also free to agents, while insurers and MGAs paid no
registration or subscription fees to make their products available. In return, they
received an added distribution channel to sell their products.

However, the specialty insurance segment consists of a small fraternity of players with
a devout and traditional clientele who prefer face-to-face meetings rather than doing
business behind a PC screen, experts say.

Ranking Online Marketplaces

  1. InsWeb 7.15

  2. Answer Financial 6.61

  3. 6.60

  4. Pivot 5.78

  5. 6.69

  6. QuickQuote 5.61

  7. ReliaQuote 4.95

  8. Quotesmith 4.09

  9. Insurerate 4.08

  10. 1stQuoteNetwork 3.39

*Rankings are based on a combined score for ease of use, customer confidence, on-site
resources and relationship services with the highest score being 10.

Source: Gomez Inc.