When online insurance marketplaces first appeared on the Internet horizon more than five years ago, they filled an important gap in carriers' online business strategies. At that time, most insurers had Web sites that industry experts mockingly referred to as "brochureware" to describe their informational, non-transactional qualities.Insurance marketplaces attracted the attention of consumers who were surfing the Web to comparison shop for auto, home and even life insurance. Typically frequented by young, Internet-savvy Generation Xers and baby boomers, these online insurance marketplaces provided participating carriers and independent agents with hundreds of leads from consumers who were patient enough to wade through screen after screen of questions before they received their prize: multiple quotes from brand-name insurers.

Although direct writers and independent agents still purchase leads from these so-called aggregators, most of today's online insurance marketplaces, including Insure.com, Insurance.com, Answer Financial and InsLogic, are licensed online agencies that enable consumers to get multiple quotes and purchase insurance either online or by contacting a licensed agent through a marketplace's call center.

The ability to provide quote-to-issue services provides a more complete experience for consumers, but industry observers are split on the importance of online insurance marketplaces to insurers' e-business strategies.

"Not a single insurance company that I met with in the last two years has mentioned insurance marketplaces," says Kimberly Harris, vice president and research director at Gartner Inc., Stamford, Conn. "Whenever they call me to discuss their e-business strategies, it's all about their proprietary Web sites and building agent portals."

Past its peak?

Insurers have learned a valuable lesson over time about online insurance: Although millions of consumers go online to research simple policies such as auto and homeowners coverage, very few of these shoppers actually purchase insurance online, or through the marketplaces' call centers that are served by licensed agents.

A 2004 survey of 60,000 U.S. households by Forrester Research Inc., Cambridge, Mass., found that 7.6% went online to research auto insurance, and 2.2% either applied for or bought auto polices online.

That compares with 20.3% of respondents who used "offline" methods to research auto insurance last year, and 17.5% who applied for or purchased auto insurance offline last year.

The numbers from several online marketplaces also illustrate the wide gap between people who get online quotes and those who actually purchase policies online. Last year, Insure.com Inc., a wholly owned subsidiary of Quote-smith.com Inc., Darien Ill., generated just over 1.9 million quotes, including 1.37 million for term life insurance, and 546,000 for health and other policies. Of that total, only 20,721 resulted in sold policies.

In 2000, Quotesmith.com generated almost 4.1 million quotes when it focused primarily on auto insurance, and sold just 37,520 polices that year. Although the company's 2004 operating loss of $1.9 million is a vast improvement from 2000 when it lost $20.8 million, the company has lost money every year this decade.

InsWeb Corp., which last year transformed its business model from generating revenue through lead generation to receiving commission revenue from carriers, has also struggled financially. Last year it reported a net loss of $8.9 million on revenue of $14.6 million, compared with net income of $1.04 million on revenue of $24.1 million the previous year.

InsWeb reported a dip in the number of consumers who initiated an insurance application during the fourth quarter (740,000 versus 874,000 a year a earlier), but the company in March announced several steps aimed at increasing its online exposure. It is now represented on insurance marketplaces for AOL's Autos Channels, eBay Motors, Edmunds.com and E-LOAN.

Lack of awareness

Some industry experts believe online insurance marketplaces haven't caught the attention of most consumers because they haven't actively marketed their services. "People are aware of loan aggregators like LendingTree and Quicken Loans, and even the direct writers such as GEICO and Progressive, because of the amount of advertising they do on TV and in print media," says Tom Watson, a Forrester Research analyst. "Most people don't know these insurance sites exist online, and that's a big reason why their traffic is so low."

However, one insurance marketplace, Insurance.com, is planning an aggressive marketing campaign in the coming months.

ComparisonMarket Inc., the Cleveland-based owner and operator of Insurance.com, is launching a national cable television advertising campaign and increasing its direct-mail advertising to boost consumer awareness of its online independent insurance agency.

ComparisonMarket recently secured $14 million of venture capital that will be used in part to fund its increasing marketing efforts.

Last year, Insurance.com, which provides quote-to-issue services for 12 carriers including Liberty Mutual, MetLife Auto & Home, Safeco and Travelers, generated more than 2 million quotes and sold almost 100,000 policies, according to Lou Geremia, president of Insurance.com.

"Right now, we're averaging about 3.5 quotes per state for everyone who comes in, and that's a significant improvement over two years ago when the average was about two quotes," he says. "And the percentage of people who buy online versus calling an agent in our call center is between 25% and 50%."

Follow the customer

The number of polices sold through online marketplaces is a small fraction of participating insurers' total business. But executives from three large carriers that do business with Insurance.com and other online agencies say the business model is a good fit for their online strategies.

"We have relationships with several online agencies such as Comparison-Market and Answer Financial, and because Safeco distributes exclusively through independent agents, these online agencies plug in very well with our business model," says Tom Gray, assistant vice president of Web strategy for Seattle-based Safeco Corp.

Safeco's business relationship with ComparisonMarket is virtually the same as with any of its independent agencies. Routine customer service transactions are handled by ComparisonMarket's licensed agents, and the commission structure is similar as well: ComparisonMarket receives a 17% commission for new policies and a 10% commission for renewals, and there is a back-end contingency payment based on the volume and profitability of auto policies.

Gray declined to say how many policies Safeco sells through online marketplaces, but indicated that the carrier has experienced triple-digit growth every year since 2000.

Pete Crichton, director of partnership marketing at Travelers Insurance, Hartford, Conn., believes consumers are becoming more comfortable with purchasing insurance online due in part to carriers' adoption of online technologies that support real-time, accurate quotes. "As more carriers are communicating in XML with third parties, more companies are able to return an accurate quote. As a result, close rates are increasing because consumers are getting multiple, accurate quotes from name-brand carriers," he says.

Crichton says online agencies such as InsLogic, Answer Financial and Insurance.com "are very important channels to Travelers' personal lines and extending our lines to grow our independent agency business."

MetLife Auto & Home also does business with ComparisonMarket, but unlike Safeco, the New York-based carrier purchases an undisclosed set number of leads from Insurance.com at a set fee. Those leads are used for the insurer's own direct-marketing efforts, primarily via mail.

According to Russell Griffin, MetLife Auto & Home's assistant vice president for e-business, the carrier's relationship with ComparisonMarket fits in well with MetLife Auto & Home's multi-channel distribution strategy, which includes independent and captive agents, direct selling and group insurance.

"You have to be smart and go where the fish are, and to the degree that consumers continue to flock to online marketplaces, we will continue to play there," Griffin says.

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