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, eCov-erage'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, in the meantime, can buy time and enable a dot-com to develop its 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 trick-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, www.insweb.com. 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." he adds. "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 with 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 QuickenInsurance.com, 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 Insurance.com.

High Fidelity

Founded in 1999, Insurance.com also began to retool its own internal structure. It reduced its reliance on costly branded marketing to focus on affinity partnerships as a way to replicate brand awareness. Owned by Fidelity Investments, Insurance.com 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 Insurance.com/ChannelPoint relationship in a December 2000 report called "Auto Insurance Aggregators: The On-Ramp to the Internet," Meridien states that when a potential customer of Insurance.com logs onto www.insurance.com, 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.

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.

Any takers?

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.

Within 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, www.esurance.com.

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 to a technology provider, it's often detected by investors or suitors. But similar to acquiring a used car, a great deal of due diligence has to be carried out to separate the distinct providers from the so-called "me-too" providers.

Established in 1991, Singapore-based PTC.net (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. PTC.net'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 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 PTC.net, located at www.ptc.net, 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 carriers and repair facilities the ability to connect with one of ProcessClaims' trading partners, or any trading partners 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 funds will be used 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. WorldInsure's emergence 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 has 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, say industry observers.

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," technology initiatives shouldn't 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.

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