Risky Business - Company Operations

Industry Standard, The, Feb, 2001 by Carolyn Marshall

Nearly six years ago, InsWeb brought insurance online. Last year, it ran into one disaster after another. Can CEO Hussein Enan bring it back from the brink?

GLAMOROUS IT AIN'T. Behind all the kick-ass technology and the heady promise of obscene riches, the reality of e-commerce is hopelessly mundane: a bland, linear world of prefab cubicles placed end to end in drab rows, propped against walls or raised midair to create ersatz offices and the illusion of hallways. It's a decor you might call "contemporary monotony."

That decor is the first thing you notice when visiting InsWeb, the 5-year-old online marketplace where Web surfers can compare prices for, and then buy, insurance policies. The second thing you notice is the hush -- the distracting, almost palpable quiet that seems to hang over the rows of empty cubes.

They're empty because their former occupants have all been pink-slipped. When it launched in June of 1995, InsWeb was one of the first Net companies to chase after a piece of the $420 billion U.S. insurance market. Five years later, it was in trouble. Last year, its marquee insurance carrier, State Farm, pulled out. Its stock price plummeted to under $3 from an August 1999 high of $35. The company's CFO jumped ship. And, meanwhile, the company's chosen niche -- the online insurance market -- stubbornly refused to take off.

To cope with the chaos, and to conserve the firm's $75 million in cash and assets, InsWeb CEO Hussein Enan began restructuring. He announced a major staff cut, slashing the company's workforce from 300 to 130 employees. He killed some of his dream projects, including a demographic database that would generate revenue from the sale of market trend data. Finally, he decided to move the company headquarters from its pricey digs in Redwood City, Calif., just north of Silicon Valley, to the rural outskirts of Sacramento, 90 minutes northeast of San Francisco.

It wasn't supposed to be this way. By all accounts, selling insurance online has huge potential. Consumers purchased an estimated $2 billion worth of policies over the Web in 2000. By 2004, that figure will be (depending on which analyst you ask) somewhere between $10 billion and $20 billion -- more than online banking or brokerage services.

But nobody -- not InsWeb, not the established offline insurance giants, not the newer Net startups -- has figured out how to profit from all those sales. Led by insurance industry veteran Enan and with backing from Japan's Softbank, InsWeb is making a multimillion-dollar bet that, by redefining itself, it can.

IF ANYONE CAN SOLVE THE ONLINE insurance riddle, it may well be Hussein Enan. Insurance is in his blood. In 1934, his father founded Misr, Egypt's first national insurer. At age 55, after 35 years in the business, Enan still gets passionate about the subject, especially when telling the story of Ins Web's birth.

It all started one evening in 1994 when he arrived home after a long day at E.W. Blanch, a reinsurance firm where Enan served as general partner. His 12-year-old son Basil met him at the door. Did Enan get a warm welcome, a query about his day? No, the boy wanted Enan's credit card to buy a CD.

"I suggested we hop in the car after dinner and head for the mall," Enan recalls. That's when the son dragged the father to the computer, fired up Prodigy and introduced Dad to late-20th century commerce. "I was stunned and amazed," says Enan. "My son said he preferred to buy the CD online because it's cheaper, quicker, there's a large selection, there's no need to leave the bedroom and -- most importantly -- there's no TV downtime."

The single-minded Enan immediately searched Prodigy for insurance offerings, but he found only one product: Continental Insurance offered to cover him for lost or damaged camping equipment. Enan was amazed: "Here was the most efficient medium available for selling insurance, and all they could think to sell was coverage for camping?"

Enan was so amazed, in fact, that he quit his day job and, on January 3, 1995, launched InsWeb. At first, he thought he'd develop software that insurance companies could sell to their customers to help them pick a suitable insurance policy. But he bagged the idea after consumers in focus groups greeted it with apathy. "No one had any interest in buying the software," laughs Enan. But they were interested in comparison shopping for auto, health and home policies.

So Enan came up with InsWeb version 1.0. Shoppers fill out a Web form describing the kind of insurance they want, and Ins Web spits out a list of insurers and their prices for policies that match those criteria. Users can then click through to the insurers' Web sites or get a referral to a local agent who'll sell them the policy. In return, InsWeb receives a small fee, even if the agent fails to close the deal.

Enan figured it was a win-win for everyone involved. Instead of calling six separate carriers, filling out six lengthy applications, and then waiting six weeks for a price quote, consumers could go online, specify the kind and amount of insurance they needed, then instantly get quotes from multiple vendors. Insurers, in turn, get applications from qualified buyers ready to sign on the dotted line. Customers get the best deal, carriers get more customers, InsWeb gets paid and everybody's happy.