Web-Based Insurance Broker Discovers a Secret to Success
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Web-Based Insurance Broker
Discovers a Secret to Success


Web-Based Insurance Broker Discovers a Secret to Success

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 plan."

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. Lauer says.

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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