ess than a year after launching an ambitious program targeting small-business owners via the Internet, Wausau Insurance has shut down its eWausau operations.The decision was stunning, given that the company in April partnered with InsureZone to offer its products to banks and Web portals.

In fact, executives from eWausau, InsureZone and Wells Fargo spoke enthusiastically about the partnership May 11 at Insurance Networking's Insurance Online conference in Boston.

The Wausau, Wis.-based company, purchased two years ago by Boston-based Liberty Mutual Group, created eWausau 18 months ago as an independent business unit focusing on marketing and selling commercial insurance directly to small-business owners. Lines included workers' compensation, business owners liability and property coverage, commercial multiperil and commercial auto.

Strong effort

Company executives squarely put the blame for eWausau's demise on small-business owners' reluctance to use the Internet to research and purchase insurance. "The market response certainly was disappointing," says company spokesman Brad Zweck. "It's quite possible that this bold market test we undertook was in fact ahead of its time."

The company certainly gave eWausau every chance to succeed. In 1999, Wausau established a separate emerging markets business unit with dedicated business and IT resources, including its own underwriting system and call centers that were integrated within the www.ewausau.com Web site.

eWausau launched in May 2000, and subsequently formed business relationships with 22 partners, including PowerPay.com, SmartOnline and Insure.com. Zweck says the company intends to terminate the contracts with its partners "as soon as is possible and practical," and that the eWausau site will cease operation by the end of the year.

A message on the Web site states that eWausau will "not be available for insurance quotes in the near future," and that Wausau Insurance will provide continued customer service to eWausau policyholders.

The company declined to reveal how many policies it sold via eWausau. "It's a situation where we did not receive sufficient volume to justify going forward," Zweck explains. "The volume and revenues were significantly lower than what we had anticipated at this stage."

It's also unclear what will happen to the technology that was dedicated to the eWausau effort.

"The company committed a significant amount of technology and money and resources, certainly in the range of several millions of dollars," Zweck says. "We certainly feel we committed enough resources to give it a good chance to succeed. We learned through our experience that small-business owners have been slow to embrace the Internet."

Cutting losses?

Industry observers say the demise of eWausau could be attributed to any number of factors, ranging from the fact that small-business insurance traditionally has been an agent-intensive business to restructuring within Liberty Financial Cos. In June, Liberty Financial announced that it was selling its asset management business to Fleet Boston Financial for $1 billion and was going private.

"Management may have been thinking that the pay-off horizon for eWausau was too far off and that it was best to cut the losses now," says William Bradford, co-founder of Meridien Research Inc., Boston. "The specific impact of the decision could cause other insurers doing direct-to-market to revisit their forecasts and analysis."

Although Zweck denies that eWausau did not conflict with the company's agents because the agents targeted larger employers, industry observers speculate that channel conflict could have doomed eWausau.

"It could be that if the agents saw some of their business being taken away from them, they could have complained loudly enough to Wausau management or the agencies themselves to influence that," says James Luscombe, an analyst specializing in agency automation for PricewaterhouseCoopers, Dallas.

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