Esurance Cuts Staff by 25 Percent, seeks Buyer

San Francisco-based Esurance Inc. has laid off approximately one-quarter of its staff, according to Jean-Bernard Duler, founder and CEO.

“We’re looking into either a merger or an acquisition by an insurance company,” Duler told Insurance Journal on Sept. 18. “Part of that deal requires us to basically lower the burn rate.”

Duler emphasized that nothing will change “in terms of the experience on the website-the interaction you have, the chat center, the call center-nothing has changed in the whole core product…In terms of policyholders, this is [still] an Argonaut policy with an ‘A’ rating.”

Founded in 1998, Esurance signed five-year contracts in December 1999 with Argonaut Insurance Company and General Re Corporation to sell personal auto insurance directly to consumers through the website www.esurance.com. Under terms of the tri-party agreement, Esurance acts as a managing general agent for Argonaut, which retains 15 percent of the insurance risk on the policies issued. General Re Corporation, a wholly owned subsidiary of Berkshire Hathaway, reinsures the policies, assuming 85 percent of the risk.

The site was originally launched in five states, including California, and Esurance expanded rapidly during 2000. Currently operating in 24 states, the company does business in a few of those states as SiliconSierra Insurance Services Inc. The company’s rates have been approved in eleven other states, including Nevada and Texas.

Among the company’s investors are Global Retail Partners, Redpoint Ventures, Trinity Ventures and 21st Century Internet Venture Partners.

Running on multiple platforms, the company had planned to add new products such as renters, homeowners and umbrella. However, Duler said that the company has cut down on all new developments in favor of focusing on its core auto business. Duler added that Esurance’s plans to expand into additional states would continue in spite of the other cutbacks.

Due to a non-disclosure agreement, Duler was unable to divulge any details of ongoing developments with regard to a buyer. At press time, Esurance spokesman Kevin Young indicated that the company anticipated reaching an agreement with respect to acquisition within days.

“Our model makes a lot of sense, but it still requires cash in the next few months,” Duler said. “You just read the paper every day, [and] you see companies merging to consolidate some of the core compentencies…In our case, what we built, we put in a lot of value for the right buyer because we built technology that I think is second to none…That’s the technology that makes a lot of sense for an insurance company.

“An insurance company has licenses and capital, which is what we don’t have,” Duler continued. “It was our plan down the road to buy an insurance company to write this book of business. Now, we could be ahead of ourselves here and get an insurance company to buy us.”