Two IT professionals from an insurance company recently called a consultant to find out which e- business companies they should consider for partnerships or alliances.

"To do what?" the consultant asked.

"We don't know," they answered.

This isn't a bad joke. It's a recent conversation recalled by Judith Johnson, vice president, insurance information strategies, for Meta Group, a Stamford, Conn.-based research and consulting firm.

Her reply?

"We strongly advise our clients in the IT department, or the marketing department, against taking on these assignments, because they're usually generated by management angst and there's no way you can win. When there is no defined requirement, you can never meet it."

This scenario is typical among insurance carriers, according to Johnson. "There's a lot of confusion out there right now."

Insurance executives know they need to form alliances to reach online consumers, but in many cases, they don't know where to begin. The fact that senior executives typically delegate such decisions to IT or marketing groups indicates they are making tactical, reactive decisions, failing to understand that e- business is a way of doing business, she says.

Endless choices

Compounding the confusion with Internet partnerships is the abundance of possibilities that exist. There's no shortage of companies seeking alliances with insurance carriers. "It's been an endless stream of companies approaching us," says Jeffrey Lewis, vice president of new initiatives at Allstate Insurance Co., Northbrook, Ill.

Whether the decisions are tactical or strategic, a week doesn't pass without yet another insurer announcing a Web partnership. And the alliances come in all shapes and sizes-from hyperlinks and embedded content on consumer-information portals, to joining the Internet insurance marketplaces, to partnering with industry-related and affinity-group Web sites.

Some of the large personal property/casualty carriers selected online partners years ago. State Farm Insurance Co., Bloomington, Ill., began forming alliances with other Web sites in 1996, says Robert Reiner, manager of enterprise Internet services. And Progressive Insurance Co, began establishing affiliate relationships when it hooked up with automotive-buying site-in 1998, says Toby Alfred, Internet site manager for the Mayfield Village, Ohio-based company.

"The way we've dealt with (Internet alliances) historically is that someone comes knocking on our door," says Allstate's Lewis. "We need to define our strategy before we decide what partnerships make sense."

Choosing the right partner

Most carriers understand that their Internet presence must progress beyond offering "brochureware" on their own Web site. Not only are consumers demanding more functionality on the Internet-such as the ability to compare, purchase and service policies online-but attracting the right customers to a Web site has turned out to be a more costly advertising expenditure than originally expected.

"If you look at a lot of the dot-coms, they're spending millions and millions of dollars on advertising, and that's something that we're not doing," says Raymond Hall, senior vice president, emerging markets, Wausau Insurance, a commercial insurer based in Wausau, Wis. Instead, Wausau is trying to reach the small business sector through its online partnerships.

"Those sites that have high traffic, a large customer base, the potential down the road of generating traffic or the capability of providing some distinction of product-that's how were looking at partnerships at this time," Hall says.

Similarly, ZC Sterling, a subsidiary of New York-based Zurich Financial Services, in a move to link its mortgage connections with its insurance business, launched to sell homeowner's insurance over the Internet. Interestingly, is not targeted toward ZC Sterling's Web sites, says Kimberly Harris, senior research analyst at Gartner Financial Services, Durham, N.C.

Instead, it uses mortgage sites, such as, exclusively as a channel through which it identifies prospects and offers insurance products. The reason: The company believes pre-approved mortgage customers carry less risk than average insurance applicants.

Basic marketing 101

Indeed, one primary guideline carriers are using when selecting Internet partners is the tried-and-true marketing principle of being in the right place at the right time-in this case finding the online locations where targeted customers congregate. Allstate, for example, is choosing online marketing partners by focusing on high-volume, high-traffic portals, aggregators and life-event verticals such as autos, homes and families, says Sharon Cooper, a spokeperson for the company.

Similarly, State Farm is using basic marketing strategy in choosing Web-site affiliations. "Our main goal is to build the State Farm brand name in the online medium in all different segments, as well as broadly on the megaportals like Yahoo! and," Reiner says. "We want to make sure we're very well covered in the medium."

To that end, State Farm is aligned with directory sites, such as,, and Switchboard, as well as with specific demographic groups-children's sites such as build brand equity with the next generation of customers, life-event sites such as The Knot for people getting married, and community sites such as, and

Building a brand presence on the Internet is important to carriers, but they are equally conscious about protecting their brand. Carriers are being careful with the content and associations their Internet partners carry on their sites-so as not to tarnish their own reputations. "It has to be a competent site," says Progressive's Alfred. "There can't be anything offensive. We have to be very careful about that, because it's our brand name that's out there."

Technology is an obstacle

With traditional marketing techniques driving the selection process, how are Internet affiliations different from offline partnerships?

The answer is technology. "We're adapting to a new medium, and when you think of online versus offline, there are a few differences," Gartner's Harris says. There are more technology barriers to online marketing and advertising, she says. "People in the marketing department not only have to understand who the target audience is and how to reach them, they also have to understand the technology that's available and the issues regarding security and privacy that go hand-in-hand with information exchange in the online world."

Chicago-based CNA Insurance is currently negotiating with two online exchanges. Although confidentiality agreements preclude CNA from divulging their names, technology is a key factor in choosing its partners, says Robert James, president of CNA's e-business group.

"The problem with these exchanges-and this is not just in the insurance industry-is that there are monumental technology challenges in trying to get multiple products and multiple companies to operate on the same platform," James says. "If there's a risk of failure for some of these exchanges, it is around how they are going to rationalize all these different platforms."

That's why the ability to exchange data in an XML-based format is important to CNA when it is considering which alliances make sense. Additionally, it analyzes a company's financial strength and management team.

"For a lot of these companies that we look at, either the technology platform is not very well thought out, or the funding isn't there," James says. "Are we going to spend a lot of time, money and resources trying to figure out how we're going to interact with a partner-only to find out they're not going to be in business in six months? That's a concern."

Is it working?

The verdict is still out on whether or not the technology issues will be resolved any time soon, as well as whether or not these alliances will ultimately result in enough sales to make them cost-effective to carriers.

Consumers are not yet buying insurance online in large numbers, which makes it difficult to establish reasonable expectations, and carriers don't yet use highly reliable measurement tools, industry observers say.

At the very least, insurers should be monitoring customer traffic coming to their Web site from one of their partner sites, Gartner's Harris says. Another option is to have a Web site on a partner's server, whereby a carrier can monitor the number of quotes generated at the site, she explains.

"Where measuring the effectiveness of Internet alliances gets a little bit fuzzy is that most people are still getting online quotes and following up with a live agent," she says. "It's really hard to compare online interest with offline closing, especially when insurers are giving a quote online without even asking for the person's name."

Nonetheless, carriers are attempting to analyze the effectiveness of their partnerships-with the limited tools they have available to them. State Farm, for instance, usually conducts a six-month test. "We evaluate these things and we collect every piece of data that we can, quantifying the effort," Reiner says. Some of the sites State Farm is associated with offer the carrier online access to analysis tools that enable the company to review the performance of its advertising campaigns on an hourly or daily basis.

"We do cost-benefit analysis, and we will switch sites if it's not performing as expected. We're not afraid to switch horses in midstream to reach our goal," Reiner says.

In May, State Farm ended its partnership with online insurance aggregator InsWeb Inc., Redwood City, Calif. There were many reasons for the decision, Reiner says, but declined to provide details. One problem was State Farm agents ignored the leads generated from InsWeb because initial follow-up proved that online shoppers were curious but not interested in buying, industry observers say.

Wausau tracks Web traffic from partner sites and evaluates the value of a particular partnership based on specific measures. "We're looking at the traffic the partners have on their site versus how many of them click through to our site-on a periodic basis," Hall says. "Once the traffic does hit our site, how many register? Of those who have registered, how many submit an insurance application? Of those submissions, how many do we choose to quote? In some instances, they are in classes that we wouldn't write. And then, of those we quote, how many buy?"

Using different models

In picking its Internet partners, CNA identifies Web sites that reach both business owners and independent agents who sell business insurance. The company is currently affiliated with Property and, an online vertical community, as well as and, online brokers for business insurance. CNA is also aligning with Web sites that cater to independent agents and brokers, such as, and

"We're finding that in the commercial insurance market, products tend to be pretty complex. And the small- to mid-sized business owners, who have traditionally outsourced their risk management to an independent agent, are not real excited about giving up that expertise to try to make those decisions by themselves," James says.

The Internet is a rapidly evolving medium, and Web site partnerships are evolving along with it. "If you're serious about (e-business partnerships), you have to experiment with a variety of different models," CNA's James says.

"You have to be willing to understand that some of these relationships are going to fail," he says. "But you have to be patient."

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