Web-Based Insurance Broker Discovers a Secret to Success
By DAVID P. HAMILTON Staff Reporter of THE WALL STREET JOURNAL
Like other dot-coms, many of the companies that hoped to transform
health care via the Internet have either flamed out or are in
the process of doing so.
Given its name, you might expect eHealthInsurance Services Inc.,
better known as eHealthInsurance.com ,
to be in the same boat as flashy start-ups such as Jim Clark's
much-hyped Healtheon Inc. -- now WebMD Corp. -- whose shares have
fallen 96% since their peak. But by eschewing glitz and concentrating
on the mundane but surprisingly complex task of offering health
insurance via the Internet, the Sunnyvale, Calif., company has
not only made significant progress, it is a hit with some of the
Old Economy insurers that other Internet start-ups hoped to replace.
The secret of eHealthInsurance's success so far is simple. Instead
of trying to reinvent the complicated and heavily regulated health-insurance
industry, the company has focused on making itself into an Internet-based
insurance broker. Not only does eHealthInsurance aim to simplify
the process of applying for health insurance, it makes it far
easier for individuals and small businesses to compare a variety
of health plans and to choose the one that suits them best, both
in terms of coverage and cost.
"We're doing a lot of exciting things in a boring space," says
Chief Executive Officer Gary Lauer with a grin. "Part of the challenge
has been to look at an industry that's so staid and change it."
Doing so, however, required enlisting both health insurers and
state insurance regulators as allies, not enemies. Because health
insurance is regulated by state governments, eHealthInsurance
spent two and a half years applying for insurance-broker licenses
in all 50 states. It now offers 4,000 different health plans from
54 insurance carriers, and claims geographic coverage of 95% of
the U.S. population.
The company is already a hit among some of those insurers. "So
far, they're the leading e-agent among those we deal with," says
Alan Katz, a vice president for individual and small-group insurance
at WellPoint Health Networks Inc., a large health-insurance provider
based in Thousand Oaks, Calif., and an investor in eHealthInsurance.
"As far as I know, no one else has had the sales success that
eHealthInsurance has had."
Among the things that people like Mr. Katz appreciate about
eHealthInsurance are the fact that it doesn't disparage WellPoint's
traditional insurance brokers as Old Economy dinosaurs. In addition,
eHealthInsurance, which started as a purely Web-based insurance
service, has since added an 800 number and hired several dozen
traditional agents itself, so that customers who want to speak
to actual human beings can do so.
"What they've done that their online competitors haven't is
to add that high-touch component," such as hiring the agents,
Mr. Katz says. "Even if the consumer doesn't use them, knowing
they're there can bring tremendous presence of mind."
The Web-based application system at eHealthInsurance pays off
in terms of efficiency and customer retention, Mr. Lauer says.
Where normally about 3% of health-insurance customers cancel their
policies or change insurers every month, attrition at eHealthInsurance
tends to run about half that rate, he says.
In addition, most insurance-application forms are so complex
that between 30% and 40% have to be reworked or rewritten in order
to satisfy both insurers and insurance regulators, Mr. Lauer says.
When the same forms are filled out at eHealthInsurance's site,
however, the error rate drops to less than 10%.
The arrangement is lucrative, too. EHealthInsurance receives
between 10% and 15% of the monthly premiums paid by its customers,
giving it gross margins in excess of 80%, Mr. Lauer says. The
closely held company expects to reach profitability by early next
year; it boasts that revenue and customers continue to grow at
a rate of 20% each month.
"Sometimes as a board member [at a start-up], you read their
five-year projections, their one-year plan, and think, 'Oh, right,
it's going to be some fraction of that,' " says Joseph Lacob,
a member of the eHealthInsurance board and a partner with Kleiner
Perkins Caufield & Byers, a venture-capital firm that provided
the start-up with early funding. "In this case, I believe the
Unlike many consumer-oriented dot-com companies, which have
gotten the cold shoulder from investors since the Internet bubble
started deflating last year, eHealthInsurance managed to close
a new round of financing in January. The $32 million round, led
by WellPoint and investment firm QuestMark Partners, gave eHealthInsurance
a valuation in excess of $100 million, slightly down from its
valuation at its previous funding round at the end of 1999, Mr.
Partly because of its detailed ground work and partly because
of its staying power, eHealthInsurance has been able to turn some
would-be competitors into partners by agreeing to take over their
health-insurance offerings. Searching for health-insurance quotes
on Yahoo! Insurance, a service offered by Yahoo! Inc., takes users
to a page on the eHealthInsurance site that bears the Yahoo! logo.
At least one of those partnerships, however, has ended unhappily.
A year ago, online-insurance start-up InsWeb Corp. of Redwood
City, Calif., agreed to let eHealthInsurance handle health-insurance
requests. But in February, eHealthInsurance unilaterally terminated
the relationship, accusing InsWeb of unethically forwarding consumers
with no interest in health insurance to the eHealthInsurance site.
The matter is in litigation; InsWeb denies the charges.
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