Another ‘Dot-Gone’: eCoverage is History

San Francisco-based eCoverage, an online provider of insurance services founded just over two years ago, has ceased operations. Known for its slogan: “The industry is history,” eCoverage predicted the demise of traditional insurers. One ad crowed: “Denial, Anger, Resent-ment, Acceptance. (If you are a brick and mortar insurance company, here is an agenda for your next few board meetings.)”

Visitors to the eCoverage website are informed that new policyholders are no longer being accepted and that renewals on existing policies will not be offered in 19 states, including Nevada, Oregon and Washington. In addition, claims handling and basic other basic services are to be managed by Security Insurance Company of Hartford, which is owned by Royal & SunAlliance USA. However, customers are advised “to seek insurance coverage elsewhere since we cannot guarantee the level of service provided in the past.”

According to a March 15 VentureWire report, eCoverage laid off about 80 percent of its staff in January. Subsequently, the struggling company went in search of a buyer and ultimately struck a deal with General Motors Corp. Although terms of that agreement were not disclosed, current eCoverage president and CEO Jon Kelly indicated that some of the defunct company’s technology would be acquired by General Motors.

Founded by David Riker in February 1999, eCoverage began offering auto policies in California the following September, thereby distinguishing itself as the first exclusively online auto insurer in the U.S., where consumers could get quotes, purchase policies and print proof of insurance cards in one quick visit. The company also boasted 24/7 accessibility to a group of customer service reps, comprised of licensed independent insurance agents, based in Pleasanton, Calif.

Riker remained with the company as chairman of the board and chief development officer after being succeeded as president and CEO by Internet industry executive Scott L. Kauffman in December 1999. Quite recently, the president and CEO gauntlet was passed to Kelly.

As stated in one of its press releases last year, eCoverage prided itself on offering “speed, control and convenience” through self-service transactions, and eliminating middlemen, which it claimed “drive up the prices and sell unnecessary coverage.”

Some of eCoverage’s initial backers and board members included Softbank Capital Ventures general partner Scott Russell; Stuart Ellman of RRE Investors; E*Trade; and former Bank of America chairman and CEO David Coulter.

Also memorable was the start-up’s in-your-face print ad campaign, launched in September 1999 through full-page ads in the Wall Street Journal. Even among a dot-com crowd not particularly known for its humility, eCoverage was a standout.

And the company was equally up-front in laying blame for the inefficiencies it perceived in the traditional system: “Big, old insurance companies did not get to be big and old by being stupid. No, they are a smart bunch. Smart enough to figure out that our business model- use the Web to demystify insurance and eliminate agents and their hefty commissions-is the way of the future.”

Not only was this line of attack a turn-off for agents, it also served to cool relations between eCoverage and Pacific Specialty Insurance Company (PSIC), which initially underwrote eCoverage’s auto business in California.

“[PSIC] had a contract with eCoverage as an independent agent that was identical to those it has with thousands of other independent agents in California,” said Mike McGraw, president of PSIC. “Like all the other independent agents, eCoverage had the freedom to do business with whomever they wanted, and they exercised that option.”

McGraw added that PSIC had engaged in pivotal discussions with eCoverage regarding the latter’s advertising campaign. “[eCoverage] felt they had the total freedom to pursue any advertising/marketing campaign they wanted,” McGraw said. “While we didn’t overtly tell them they couldn’t, we did express that there was great concern. I think they ultimately saw that as a fatal flaw in our relationship.”

eCoverage had also announced an aggressive national rollout plan for 2000, as well as plans to expand its product offerings to cover homes, boats and even life insurance. However, these plans and a far-reaching, $60-million marketing campaign scheduled for last year never reached fruition. In fact, it has been reported that eCoverage, despite its plans to go nationwide in 2000, never reached more than a third of the U.S. market.

In March 2000, eCoverage and Royal & SunAlliance USA announced a partnership, which would both provide Internet efficiencies to Royal & SunAlliance’s personal lines agents and accelerate eCoverage’s national rollout. During 2000, eCoverage also forged various business alliances with a number of Internet companies, including Pivot, a subsidiary of Bankrate Inc.; QuickenInsurance; buy.com; Autobytel; and LendingTree.

However, in the end, eCoverage’s promise was no match for the company’s cash needs. While the company’s first and second rounds of financing secured $1.4 million in January 1999, and $15 million in November 2000, eCoverage was unsuccessful at raising its goal in the range of $50 million for the third round.