Less than a year after its IPO, online insurance portal InsWeb Corp. said on Monday that it is moving its headquarters and cutting its staff by 40 percent.
The Redwood City, California-based company said it plans to move its offices to Sacramento, California later this year and cut its workforce by 120 people.
“These measures, combined with other cost reduction efforts and our more than $75 million (US$) in cash and short-term investments as of March 31st, make us confident that we will have more than enough cash to allow us to operate comfortably through 2002,” said InsWeb Chairman and CEO Hussein Enan, adding that the company also expects to be profitable by 2002.
InsWeb’s Rocky Road
InsWeb’s woes began in April when — despite its quarterly revenue rising 160 percent to $8.6 million — State Farm Insurance, the company’s largest customer, decided to withdraw from the portal. This development was a tough blow, since State Farm accounted for about 30 percent of InsWeb’s revenue. Because of the loss, the company then cut its workforce by about 10 percent, and also reduced sales and marketing expenses.
Additionally, InsWeb has been plagued with the difficulty of meeting regulatory requirements governing multiple product lines from more than 50 insurance companies.
Some observers contend that by abandoning InsWeb, State Farm did what many major insurers may also be forced to do if they wish to maintain a good relationship with their huge sales forces. Currently, Nationwide Insurance holds a 10 percent stake in InsWeb.
Earlier this year, Forrester Research issued a report saying that brick-and-mortar insurance giant Allstate’s plans to sell insurance online would “spark an all-out Internet war.” The report cautioned that the shift in power from agents, product managers and underwriters to consumer marketers and customer service experts would fuel the dispute.
Many agents believe that sites such as InsWeb will ultimately be used to eliminate them from the buying process.
Some analysts say that there is something fundamentally wrong with InsWeb’s current model of acting primarily as a source of leads to other companies’ agents, rather than acting as an agent itself.
“As strong as our model is, it is weakened by an over-dependence on lead referral revenues,” Enan said. “Realizing this, we implemented corrective measure last October with the rollout of our insurance agency capabilities, which we plan to significantly expand nationwide over the next 12 to 18 months.”
InsWeb has also unveiled technology that enables the purchase of automobile insurance without the need to speak with an agent. Company officials say that InsWeb plans to “aggressively push adoption of this new technology.”
Meanwhile, as of Friday’s close of the Nasdaq, shares of InsWeb plummeted from a 52-week high of $44 per share to just under $3 per share.