Intuit Insures Future of Fledgling IIS
A desktop banking giant jumps into the insurance delivery market with its acquisition of Interactive Insurance Services
When Intuit Corp. wanted to add insurance services to its Quicken Financial Network, it turned to a group of young, fresh entrepreneurs based in Alexandria, Va. Now a new link on Intuit's Quicken Financial Network leads straight to the Netplex.
The story behind the acquisition of Alexandria's Interactive Insurance Services makes clear how a small idea can spark the strategic interests of a big player.
On May 29, the $500 million Intuit of Mountain View, Calif., finalized the acquisition of IIS, a developer of an Internet-based system designed to allow consumers to obtain personalized insurance information from national insurance carriers through the World Wide Web. The acquisition, valued at $8.6 million, was completed in June 1996 by issuing approximately 172,000 shares of Intuit common stock to IIS shareholders. IIS now exists as a wholly owned subsidiary of Intuit.
Why did Intuit pick this fledgling company to help it get into the $750 billion insurance market?
IIS' 26-year-old founder and president, Steven Aldrich, is not surprised by their choice, though he never thought his idea would move quite so fast. The venture-backed company was founded in May 1995 by Aldrich and his two college friends, Mark McCrery, 28, and Robert Freeland, 27. The three had backgrounds in insurance, Internet marketing and client/server systems. In spring 1995, they created a business plan to combine Web technology with insurance services and took their idea to venture capital firms for funding. The idea caught the eyes of Morgan Stanley and Zurich Centre Investments, both of New York, which provided venture capital.
They spent a year developing the Web site, which since its launch last month has received more than 1,000 hits per day. Visitors to the site can assess their individual risk and insurance coverage needs, receive extensive information about participating insurance companies' products and services, submit on-line requests for additional information and access databases allowing them to locate agents. They also can schedule appointments electronically and link to the Web sites of auto, life and home insurance carriers.
IIS works with several carriers such as Lincoln Benefit Life, MetLife, TIG and Zurich Direct, which pay to have their policies included in the Web site. IIS is advised by experts in the insurance industry, including writer Ben Baldwin, who provides tips to consumers.
So how did IIS hook up with Intuit? The two stories are slightly different. According to Aldrich, in October 1995 IIS founders approached fewer than 10 companies about becoming distribution partners. They targeted companies that were "attached to a life cycle event" or companies that had access to consumers as they managed their personal finances. They sent materials to Microsoft but never heard back. The largest company to show interest was Intuit ? the only company that gave them an offer. But the offer was to merge, not to become partners. Aldrich and his partners accepted. They were anxious to have the Intuit name associated with their product and knew they could never compete with Intuit or Microsoft.
"We didn't expect to be bought right away," recalls Aldrich. "We expected a much longer period of development before we would take an exit strategy and before we received money for our efforts."
Six months ago, Intuit started to pursue the insurance market.
"We had been actively looking for people who would help us move quickly into providing delivery services and technology for insurance carriers," said Bill Harris, executive vice president of Intuit.
Harris said IIS was referred to his company by Intuit employees who had gone to Stanford Business School with Aldrich. The entire deal took less than six months from the initial approach to the merger.
The insurance service will be offered on the Quicken Financial Network (http://www. qfn.com), which includes investing and banking services, financial news and information. The product will appear as InsureMarket and maintain its original design.
According to Harris, IIS was chosen over two other companies Intuit was considering as vehicles into the insurance delivery market. Intuit officials were impressed by IIS' data-driven technology, which is built on a database that runs on a sophisticated set of input from the user and the insurance carrier.
"We looked outside of Intuit [to get into this market] because we have too many projects going on and it's difficult to move quickly without combining internal and external resources," said Harris.
Analysts agreed that this is a logical move for Intuit.
"Intuit is aggressively pursuing a suite of financial services," said Peter Rogers, software industry analyst for Bear Stearns in San Francisco. "IIS fits perfectly into their strategy."
Consumers will use the product because people consider insurance complicated, and the process of finding the right carrier can be tedious, Rogers said.
Phoebe Simpson, an analyst for Jupiter Communications in New York, said the timing of the acquisition is perfect for Intuit.
"They are beating the consumers to the punch by providing a service before it becomes hyped up," said Simpson.
"IIS has a very advanced system and a stellar group of partners and insurance providers. It has excellent functionality in the marketplace."
Meanwhile, Intuit appears willing to wait for the payoff. Harris says Intuit doesn't expect the new product to be a significant part of its revenues in the near future.
Intuit will keep the company in Alexandria in "an effort to support and encourage development." Aldrich is already thinking about developing the product for Intuit's Quicken financial planning software that now has Netscape built in.