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Health plans go online
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March 9, 1999: 12:27 a.m. ET
Insurance called the 'largest untapped market' remaining on the Internet
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SAN FRANCISCO (The Red Herring) - Companies that offer health insurance over the Internet agree on one thing: The traditional method for selling and distributing insurance is broken.
Insurance products are complex and difficult to research and compare, brokers take a big cut of deals, and paperwork and bureaucracy are rife.
But health insurance policies, like other forms of insurance policies, are perfect products for e-commerce. They are purely information-based, requiring no physical infrastructure for storage or complex delivery mechanisms. And because insurance carriers distribute their products directly to consumers through the Internet, cost savings can be passed onto the consumer.
"This industry is tailor-made for reinvention by the Internet," says Andrew Felder, COO of Pennsylvania-based startup HealthAxis.
Healthy market
HealthAxis may be the first Web site to sell health insurance targeted at the self-employed and other individuals not covered by employer policies, as well as small groups (such as companies with fewer than 25 people).
According to the startup, this represents a $75 billion market, which, unlike the online automobile coverage and term life insurance market, is still up for grabs.
"The market is three times bigger than selling books on the Internet. We see it as the largest untapped market still out there," Felder said.
HealthAxis, majority owned by Provident American Corporation (PAMC) and funded by Health Plan Services and America Online (AOL), is currently raising a new round of funding. It has signed a small number of health insurance carriers and plans to expand into dental, vision, and disability products.
The startup's biggest advantage is an exclusive relationship with AOL, which will give it direct access to much of mainstream America as it moves onto the Internet. It also has exclusive distribution deals with Lycos (LCOS), CNet (CNET) and Snap.com.
Fit competition
InsWeb, the current market leader in online insurance, also is accelerating its push into health coverage. The Silicon Valley-based company launched its individual health insurance product in the second half of 1998, and plans to move into small group plans later this year.
After closing a $30 million funding round from Softbank Japan in December, the company bought Benelytics, an online health services and information provider, as part of its health insurance strategy. Benelytics provides Doctor Exchange, a tool that lets consumers determine which health plans their doctors participate in, as well as the nearest doctor in a participating plan.
Other InsWeb investors include Nationwide Insurance, one of America's biggest insurance carriers; AMS Services, a consortium of leading insurance companies led by CNA (CNA); Century Capital, the oldest investment fund specializing in insurance; and Marsh & McLennan (MMC), the largest insurance broker in the world.
Darrell Ticehurst, president of InsWeb, indicated that InsWeb would not be taking more private money and that he expects to see the company to go public.
Health is the second biggest market for insurance companies after automobile coverage. Next is homeowners/rental, then term life insurance. InsWeb offers products in all four categories.
The company has thus far signed up four health insurance carriers and is currently in negotiations with others. InsWeb charges carriers an online fee, a continuing technology fee, and a charge for sending them a consumer's name and contact details (with their permission) to close the deal.
It currently has an exclusive relationship with Yahoo! (YHOO) and deals with 60 Web sites that are tied to events that trigger insurance policy purchases, such as buying a car or a home.
But unlike HealthAxis, where consumers can buy the policy they have researched and decided to purchase, InsWeb consumers are sent the policy by snail-mail and must complete the transaction offline.
"It's a great referral service, but it doesn't deliver on direct selling over the Internet," Felder said. He claims that InsWeb therefore stops short of offering the complete benefits of e-commerce. "We are the only site offering end-to-end health insurance shopping."
Raising confidence
That may be so, but one problem both companies face is reaching the mass of consumers who are only just learning about buying books and CDs on the Internet, let alone a complicated product like health insurance.
Ticehurst concurred, but said momentum is picking up faster than many expect.
InsWeb experienced a significant leap in visitor numbers in the four weeks after Christmas last year, which he attributed to consumers' increased familiarity with e-commerce over the holiday shopping season.
"People bought products on the Internet for the first time and they didn't get spammed, and their credit card number was not misused," Ticehurst said. "The success of other e-commerce sites feeds us."
But while insurance shopping online may be more efficient, cost-effective, and less stressful than traditional channels, the Internet doesn't change everything.
"Buying insurance is no longer as painful as it used to be, but it's never going to be fun," Ticehurst said.
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