Effective May 1, State Farm will no longer participate in Redwood City, Calif.-based InsWeb Corp.’s marketplace for auto, term life, homeowners, condominium and renters insurance.
According to Dick Luedke, public affairs specialist for State Farm, the Bloomington, Ill.-based insurer was affiliated with InsWeb for three years.
“Although it’s our consistent policy not to comment publicly on our relationships with other businesses, I can say that we’ve chosen not to renew this contract because we simply feel that the choice is in our customers’ best interests,” Luedke said.
InsWeb does not have exclusive or long-term contracts with any insurance companies. The contracts with State Farm were three one-year contracts that needed to be renewed at the end of each year.
As an online aggregator, InsWeb has relationships with a number of different carriers on various levels. InsWeb’s revenues are mostly derived from transaction fees from the comparison shopping services offered on its site. As the company’s largest customer, State Farm accounted for roughly 30 percent of InsWeb’s $8.6 million worth of revenues reported in the first quarter.
During the first quarter 2000, InsWeb reported revenues that totaled $8.6 million, an increase of 160 percent from revenues of $3.3 million in first quarter 1999.
In the coming months, however, a material decline in revenues is expected due to the April 14 announcement of State Farm’s departure. The company is estimating that revenues for the second quarter will drop to roughly $5 million.
Shares of InsWeb (Nasdaq: INSW) fell 55 percent on April 19 following the big news that State Farm would not renew its contract with the company.
It was the second biggest percentage loser on the Nasdaq that day, as shares closed down 2 11/16-a far cry from its 52-week high of 44.
Some analysts believe that it may be a long time before InsWeb investors see a comparable level of quarterly revenues again. The State Farm announcement prompted both Prudential Securities and Goldman Sachs to lower their rating on shares of InsWeb. The next earnings are expected in mid-July. Meanwhile, in the early trading hours of April 26, the stock had a high of 3 5/16 and a low of 2 13/16.
Filling the void
Luedke emphasized that the decision does not represent State Farm’s change in its approach toward its use of the Internet as a tool to better serve its customers. “We continue to look for opportunities to increase our online presence, and our customers’ needs determine which of these opportunities we act upon,” he said.
Speaking of relationships, State Farm has been busy making friends with various Internet companies.
“We have a relationship with QuickenInsurance and Netquote-as far as other insurance aggregators,” Luedke said. “We also have deals with a lot of Internet companies such as Autoadvantage.com, MSN Car Point, MSN Money Central, Quepasa.com, AsianAvenue.com, and I could go on and on.”
State Farm also offers life and auto rate quotes and car finance applications on its own Web site. “So we’re pretty active through a pretty broad-based online approach,” Luedke said. “And we certainly don’t want to close the door on a future relationship with InsWeb.”
In a company press release, InsWeb CEO Hussein Enan said that he hopes to replace the loss with revenues from other carriers and feels that what happened with State Farm should not affect the company’s online marketplace concept.
In March, InsWeb unveiled a new technology that enables online consumers in California to buy, bind and print proof of auto coverage with Reliance Direct.
“We haven’t disclosed which other states we plan on launching this in next, but it’s fair to say that we do expect to expand this to some traditional states in the near future, with possibly Reliance and certainly with some other insurance companies as well,” said Greg Jones, vice president of public relations for InsWeb.
With this new technology, Jones said the company is striving to reduce cost and increase the rates of closure for insurers. “Whether it’s online with this new technology that we unveiled or over the telephone with a live agent at InsWeb who has been empowered by a particular carrier to close business on their behalf, the agency is one of the solutions,” he said.
“So we’re continuing to provide more outsourcing options that companies can choose if they feel that it fits their model.”
The big players
According to Jones, there are many different variables that make it difficult to list InsWeb’s top carriers. “Even if the carrier is substantially large, it doesn’t mean they are participating with InsWeb in all of their markets,” he said. For example, Allstate started off by participating in term life, but is now also participating in InsWeb’s auto market in a few Western states.
“Farmers is also participating with us today in California in auto,” Jones said. “And they are taking a look at expanding.” Travelers, MetLife and CNA are other “big” carriers that Jones said were involved with InsWeb’s marketplace.
In the first quarter, InsWeb expanded its customer service program and added four carriers to its auto and homeowners marketplaces: GMAC in auto; Commerce in homeowners; CSE Insurance Group in auto; and Financial Indemnity Company (FIC) Insurance Group in auto.
“We certainly don’t expect that there would be a revenue short-term to compensate for all of the lost revenue,” Jones said. “Having said that, we’ve had discussions with a number of current carriers who participate at InsWeb as well as with ones that are considering participating with us, and many are interested and are exploring how they might work with us…in expanding their geography.”
Spring cleaning
In an effort to manage its expenses efficiently, InsWeb found itself having to make some changes within its operations. It began by cutting its workforce by roughly 10 percent (or 30 employees).
“We will also be scaling back on some of our marketing efforts to align with the expected revenue decline,” Jones said. “But this is all quite preliminary, so we’re still continuing to take a hard look at
a more accurate revenue forecast and how advertising as a whole might be affected.”
Jones said that it was probable that the company will hold off on its plans to do more traditional offline advertising.
“Really, what drives a lot of traffic to InsWeb today is the more than 180 site partnerships,” he said. “This is a very big, very measurable, very strategic component of our marketing.”
More than 772,000 shopping sessions were completed at InsWeb during first quarter 2000, a 170 percent increase over the more than 286,000 shopping sessions completed in first quarter 1999.
As for who might fill State Farm’s big shoes? “That remains to be seen,” Jones said.
Topics Carriers Auto Profit Loss
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