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ALSO Doctors get wired

April 1, 1999
Web posted at: 6:16 p.m. EST (2316 GMT)

by Megan Barnett

(IDG) -- Few businesses take a more plodding approach to adopting technology than health insurers. Burdened both by a fast-shifting regulatory and economic environment and by reliance on seriously outdated hardware, the industry has only grudgingly inched its way onto the Web. While auto and life insurers are finding some success selling policies and servicing clients online, health carriers have struggled to get on the Net.

In general, the health-insurance industry is having a miserable time. Following the failure of the Clinton Administration plan to overhaul the U.S. health-care system, bipartisan groups have been lobbying for less comprehensive reforms. At the same time, health insurers have been devoting the bulk of their technology spending on fixing Y2K problems rather than developing Web strategies.

That's given them some time to think about some sticky issues. The Web is a boundary-free marketplace. Insurance is a state-regulated business. The Internet is a direct sales channel; health insurers sell largely through intermediaries. And the Net offers comparison shopping, which could hurt pricing.

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Still, the $93 billion individual health insurance market offers Net entrepreneurs a juicy target market. If someone can figure out a way to Webify the health-insurance business, the potential payoff is huge. Several Internet startups – EHealthInsurance.com, InsWeb, HealthAxis and ChannelPoint – are racing to do just that. All are trying to win over consumers by linking up with established carriers in multiple states.

Meanwhile, as these startups come calling on the old-line insurers, the giants are realizing they can't continue to ignore the Internet.

"At first the insurance companies said 'We're not sure it'll work,'" explains Art Young, president of Benelytics, a recently acquired subsidiary of InsWeb that provides health-insurance referrals. "Now they know it's an alternative channel for them, and they ask, 'How much traffic can you send to us?' It's an evolution, and we're in the middle of it."

The U.S. health-insurance business is horribly complex. Each state has its own regulators plus thousands of physicians organized into hundreds of groups and medical plans. What's more, the dynamics of choosing a health insurer are different from choosing an auto or life carrier.

For those reasons, each startup is taking a slightly different approach to capturing the market. For the individual insurance market, Insweb's Benelytics, for example, has individuals complete one application. It then delivers quotes to the customer and sends the lead to the health-insurance provider with the best offer. EHealthInsurance.com, on the other hand, acts as an online insurance broker – the company was established by a large, offline insurance agency called InterWest. The site delivers quotes and offers a complete online application, approval, enrollment and payment process. HealthAxis touts itself as a "trusted third party," providing quotes, buying advice and a customer-service call center.

For the corporate market, Colorado Springs, Colo.-based startup ChannelPoint hopes to capture the lead online. It sells software to insurance carriers that enables their brokers to access underwriting material over the Web to distribute to corporate clients. ChannelPoint, which launched its product late last year after a successful test pilot with United HealthCare, has raised nearly $40 million in venture funding from a group that includes Andersen Consulting, Capital Z Partners, Intel, Mohr, Davidow Ventures, Pacific Venture Group and and United HealthCare.

When it comes to shopping for health insurance online, the savings go to the carrier, not the customer. States regulate insurance prices and providers pay agents for distribution. Internet providers charge the insurers significantly less than offline agents.

But Vip Patel, EHealthInsurance.com's president, argues that there are forces working for the consumer in the online marketplace. "With administrative processes simplified, health-insurance providers can spend more on improving the quality of health care," he says. "Consumers get access to rapid comparison services and the convenience and anonymity provided by the Internet."

The rise of third-party Web-based insurance startups has forced big carriers to take a closer look at the Net. Most offer only informational sites, although a few have added quote delivery and application forms online. Not many have dedicated e-commerce departments.

Aetna U.S. Healthcare is an exception to the rule. One of the nation's leading providers of corporate health plans, Aetna ventured online more than three years ago with a directory of doctors. Two years ago, it launched EZ Enroll, an online enrollment system for employees of corporate plans. It also formed a partnership that created a health-care content and community site called InteliHealth.

"Longer term, the vision is to put all functions on the Internet," says Robert Kelly, Aetna's director of e-commerce. Kelly predicts that within three years, 70 percent of the company's most significant transactions will be conducted electronically.

The Blue Cross Blue Shield companies have made slow progress in moving online. Only in California, North Carolina and Florida have the Blues moved to the Web. Leading the way: Blue Shield of California, which resolved to address the online broker channel first. Its system allows brokers to log on, generate quotes and submit applications online. So far, though, it doesn't offer similar services to consumers.

"We wanted to get the most bang for the buck," says Ryan Shields, online project manager for Blue Shield of California's individual and family plans. "The broker community is a smaller, more manageable, educated group of people. Direct sales would require more education and more effort."

Nearly every industry that has moved to direct online sales has faced a similar dilemma: how to get into the game before it's too late, without disrupting the traditional channel. Just how do insurance brokers feel about the possibility of losing business to the Net? For now, they remain confident.

"There is no way we're ever going to be replaced by the Internet," argues Gary Gentzler, president of the York, Penn.-based insurance agency Gentzler Smith and Associates. "People are still going to need us. There are a lot of things the average person out there just has no concept of."

While the rest of the financial-services industry has been involved in the Internet for years, the insurance industry is only beginning to recognize the Web's potential. And the health-insurance industry is behind even that curve.

But one thing's certain: The beast is beginning to wake up. And just as the Internet changed the brokerage business, the insurance game may never be the same.