OK, so now everyone agrees that agents are not in immediate danger of being disintermediated by the Internet — at least for now. For the most part, consumers aren't ready to buy through the Internet. They'd rather buy insurance through a local agent. On the other hand, an increasing number of consumers (personal lines and small business) do or want to use the Web for insurance shopping and self-service. According to the IIAA's Future One 2001 Technology Study, three-quarters 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?
Though there are others, my guess is that three independent sites get the lions share of insurance shopping consumers: QuoteSmith, InsWeb, and Insurance.com. I had a chance to talk with the head of each recently. 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 do with the Web.
By the way, consumer or industry belief that these portal sites are simply public services that generate revenue solely by advertising, lead generation, or some mysterious "New Economy" process are mistaken. They're (increasingly) online, national independent agencies that market themselves as independent information sites and then point out to visitors that they offer insurance for 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 they have to offer.
Pointing out that these sites actually sell insurance isn't to say that they don't perform a useful public service in an exemplary fashion. But make no mistake, ultimately they're increasingly independent insurance agencies, not some new business model only possible on the Internet and 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 $10M or $20M a year on advertising to a national audience.
QuoteSmith
QuoteSmith (www.quotesmith.com) is the veteran of the group and has been in business since 1984. I had a chance to catch up with Bob Bland, president and founder, recently 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.
Traditionally, QuoteSmith has been strong in life and health, but consumers need a broader offering, including home and auto, so recently, QuoteSmith has been 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 the QuoteSmith site.
In December, QuoteSmith bought insure.com, an insurance consumer education and information site that on its own has drawn significant traffic over the last few years. Insure.com content now enriches the QuoteSmith site.
InsWeb
InsWeb (www.insweb.com) has followed a classic Internet business evolution (at least for dotcom 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 itself a much longer chance to prove itself. Recently it has backed off from renewing advertising agreements with the likes of MSN, an expensive proposition.
Recently, 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, in the process generating saleable leads, but 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 ten 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 selection and then making money no matter which carrier the visitor chooses and then buys from (through referral fees or commissions), InsWeb hopes to leverage its expensive advertising and brand creation efforts.
Insurance.com
Insurance.com (www.insurance.com) is the newest member of the major independent shopping sites. Insurance.com is owned and funded by Fidelity and 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, but the connection is low key today, probably 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 or 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.
Observations
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 increasingly 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 $100M, 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 like 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 $1B range — not nothing, but not something that will turn the world upside down either.
Though 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 regarding the content of their sites and their ability to do quotes (and least in some cases), but not in 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 from a few carriers than it is from QuoteSmith, InsWeb, or Insurance.com. And at least 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 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 not 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?
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