SOUND INTERNET SOLUTIONS
The evolution of QuoteSmith, InsWeb, and Insurance.com
By John Ashenhurst
OK, so now everyone agrees that agents are not in immediate danger of being disintermediated by the Internet--at least for now. Most consumers aren't ready to buy through the Internet; they'd rather purchase insurance through a local agent. On the other hand, an increasing number of consumers--personal lines and small business--want to or do use the Web for insurance shopping and self-service. According to the IIAA's Future One 2001 Technology Study, three-quarters of those surveyed shop the Web for insurance and half want online service.
Insurance on the Web isn't going away--but what it is may differ from what was first imagined. And according to that same Future One study, three in four personal lines and small business consumers initiate their shopping tour at an "independent" insurance site, not at what they think of as a carrier or agency site. In fact, few personal lines consumers consult agency sites (perhaps because they can't locate them or don't find them useful).
Who are these independent sites? What do they offer? What can independent agents learn from them? What are they likely to evolve into? What's the future of online insurance sales?
My guess is that three independent sites get the lion's share of insurance shopping consumers: QuoteSmith, InsWeb, and Insurance.com. Recently, I had a chance to talk with the head of each site. All were gracious, helpful, and--I think--realistic about the challenges they face. I came away with information and perspective that could be of interest to independent agents trying to understand what the Web might do for them and what they might be able to do with it.
By the way, consumer or industry belief that portal sites are simply public services that generate revenue solely through advertising, lead generation, or some mysterious "New Economy" process are mistaken. They're (increasingly) national independent agencies that market themselves as online independent information sites and then point out to visitors that they offer insurance to purchase as well.
These independent sites use big portals, associated business sites, and print and other advertising to attract visitors. Once on the site, visitors have access to educational content and quoting--with the independent site hoping that a sufficient number of visitors will stick around to buy what it has to offer.
Pointing out that these sites actually sell insurance isn't to say that they don't perform a useful public service. But make no mistake, they're independent insurance agencies--not some new business model made possible only by the Internet, one we've never seen before. They're reasonably well known because they've spent an incredible amount of money getting the word out. Many agencies could field similar sites, content, and functionality, using readily available technology--but they probably wouldn't want to spend $10 million or $20 million a year advertising to a national audience.
QuoteSmith, the veteran of the group, has been in business since 1984. I had a chance to catch up with Bob Bland, president and founder, and he brought me up to date. In its early years, QuoteSmith provided online comparative life and health quotes on a subscription basis to agents and brokers. Obviously the Internet didn't exist at that time, but modems and Web site precursors did. In 1992, QuoteSmith moved away from being an agent/broker information service to selling insurance directly to consumers.
In 1996, Bland read about Amazon and, he declares, it changed his life. He saw that insurance could be a perfect Web product because it consisted of promises, not hard goods. So QuoteSmith began its move to the Internet--first with term life. The question Bland wanted to answer was whether a self-directed insurance buyer would be willing to go through an education and comparative quote process and then push the button to buy. Overall, his experience suggests that the answer is yes. Now 95% of QuoteSmith's sales are made through the Internet.
Traditionally QuoteSmith has been strong in life and health, but because consumers need a broader offering--including home and auto--QuoteSmith has begun building its P&C carrier connections and technology. Last year QuoteSmith fielded comparative auto quoting/sales for a few states and will expand over time. QuoteSmith markets in fairly traditional ways, choosing not to pay large fees to major portals to drive insurance shoppers to its site.
In December 2001, QuoteSmith bought insure.com, an insurance consumer education and information site that on its own has drawn significant traffic over the last few years. The insure.com content now enriches the QuoteSmith site.
From the consumer point of view, QuoteSmith is a public service. Consumers can become better informed about how to understand the risks they face and protect themselves with appropriate insurance. They can access information regarding the financial ratings that carriers enjoy. They can get instant, comparative quotes. And if they choose, they also can buy insurance. From QuoteSmith's point of view, it's an independent insurance agency that--instead of occupying a local brick and mortar office--uses the Internet and telephone to sell and service its customers.
InsWeb followed a classic Internet business evolution (at least for dot-com survivors), initially betting on massive social change lubricated by advertising dollars and Internet technology, but now increasingly becoming a traditional insurance business that happens to live on the Internet. To its credit, InsWeb reacted pretty quickly to stronger-than-expected insurance consumer inertia, moving its offices out of the pricey Bay Area to Sacramento and cutting back on expenses, thus buying a much longer chance to prove itself. Recently it backed off from renewing advertising agreements with the likes of MSN--an expensive proposition.
In 1998, InsWeb predicted an online insurance market of $1.2 billion by 2001. In hindsight that seems ridiculous, but at the time no one really knew how consumers would react. Had the market materialized--with InsWeb getting a piece of, say, half the sales as a leads source--it could have become a good-sized, profitable business. Even with online insurance sales much lower than expected, InsWeb isn't tiny and is generating about $25 million in revenue. After all, lead generation can still work as a source to brick and mortar direct and agency carriers. But increasingly InsWeb is generating revenue as an independent agency, selling and servicing policies via its licensed agent staff.
I had a chance to talk with Mark Guthrie, InsWeb president. He was upbeat about InsWeb's prospects and explained the firm's current business model and revenue sources. As in the past, the idea is to offer useful information and quotes while, as part of the process, generating saleable leads. In some cases, InsWeb now acts as the agent for the business.
InsWeb is an independent agency that does business in eight states and through 10 carriers. The consumer is provided unbiased, comparative quotes that may include independent, captive, and direct carriers. In the first case, InsWeb may attempt to close the sale by telephone. In the second, the quote may go to the carrier and from there to a selected agent. In the third, the carrier call center works on completing the sale over the phone. By having lots of selections and then making money no matter which carrier the visitor chooses and buys from (through referral fees or commissions), InsWeb hopes to leverage its expensive advertising and brand creation efforts.
Insurance.com is the newest member of the major independent shopping sites. Owned and funded by Fidelity, Insurance.com was founded in 1999. Fidelity was clear from the beginning that Insurance.com would be an independent agency with a significant, public service Web presence.
Affiliation with the enormously successful Fidelity could ultimately push significant business in the direction of Insurance.com; however, the connection is low key today. This status probably will be appropriate until Insurance.com proves itself.
Insurance.com doesn't provide a great number of choices per product, any more than a typical independent agent would. When I talked with Lou Geremia, Insurance.com president, he reported that they've found offering two quotes results in a 5% close ratio but by offering four, the rate rises to as high as 15%. Offering more than four of five quotes seems to reach a point of diminishing returns--with lower close rates again. Consumers want choice, but too much choice is counter-productive. Most independent agents are already familiar with that phenomenon.
Insurance.com is a small operation, with only 12 employees. When possible, technology and service operations are outsourced. The firm has resisted doing custom software development and, when it's possible, makes use of what already exists. The major expense by far is marketing, and in some cases Insurance.com has stepped up to occupy the portal advertising positions that InsWeb recently gave up.
QuoteSmith and Insurance.com are independent agencies and make money in conventional ways. InsWeb began life as a new kind of intermediary, attempting to become a popular site and profitable lead funnel. My guess is that InsWeb will head in the direction of being an agency--unless it can generate leads with significantly less expense.
None of these businesses is profitable today, though all three probably have resources to last long enough to become successful as online agencies--if that's actually possible. My guess is that in five years they might have combined revenues of $100 million--with thin, if any profits. That's not even a blip on the industry radar screen--but not too shabby for independent agencies. Of course, even with some measure of success, eventual revenue and profit levels may provide a poor rate of return given the capital invested, and that realization has hammered the stock prices of the two public companies.
As the three struggling Internet veterans pointed out to me, the real industry movers and shakers are well-branded, deep-pocketed, national carriers such as Allstate, State Farm, Progressive, The Travelers, The Hartford, and a handful of others. My guess is that in five years these carriers, through a variety of Internet channels, may generate combined online, personal lines sales in the $1 billion range--not nothing, but not something that will turn the world upside down either.
Both QuoteSmith and Insurance.com use, in part, the technology and agency services of ComparisonMarket (www.comparisonmarket.com). Created by former Progressive employees, ComparisionMarket is a technology platform and an independent agency. Realizing that one of the obstacles to online insurance sales was the lack of penny-accurate, instant quotes, ComparisonMarket has been working on nationwide, real-time quoting in cooperation with a number of major carriers including MetLife Auto, All America, Liberty Mutual, The Hartford, and The Travelers. Because the quotes come from the carriers' systems, they won't be disputed during the later policy issue process.
One scenario has Comparison-Market -- and perhaps a competitor or two--representing other sets of carriers, thus becoming the infrastructure that everyone uses to achieve real-time quoting. Even with the presumed virtues of XML, carriers may want to limit the number of technology partners they work with, so real-time quote technology aggregators could become important and the only technology providers allowed into carrier systems. On the other hand, real-time quoting may never become the ubiquitous wonder it's been hyped to be.
Although QuoteSmith, InsWeb, and Insurance.com use the Internet and bushels of technology, they are not as sophisticated as some agencies in the online, self-service functionality they offer. They are more advanced in terms of the content of their sites and their ability to do quotes (at least in some cases) but not in terms of using technology to rationalize operations. They may turn out to be no better and perhaps even less efficient than well-managed, more traditional independent agencies or single-minded, technology-adept carriers.
What's the lesson for independent agents?
If independent agents have anything to fear from Internet sales, it's probably more related to the presence of a few carriers than it is QuoteSmith, InsWeb, or Insurance.com. And--some carriers assign online sales to agents anyway. So let's forget fear, at least for now.
What agents can learn from these "independent" sites is that consumers are hungry for needs analysis, explanation, and--at the very least--limited, comparative quotes. So independent agents could do themselves some good by providing it on their Web sites. The independent sites spend millions to "drive" traffic to their sites. Since they're national, that may make some sense, but it doesn't for typical independent agents. On the other hand, were independent agents to jointly sponsor a national educational, quoting, and agency locator Web site and brand it adequately, agents as a whole could compete both with carrier and independent sites--and it could even turn out to make financial sense. But who will make the effort to research and then pull together such a site? *
John Ashenhurst is editor of Sounding Line, a monthly newsletter covering insurance and the Internet. His company, Sound Internet Strategy, provides consulting, Web site evaluation, and seminar services to independent agents and their trading partners. He can be reached at firstname.lastname@example.org or (360) 376-1090.