Principals are veterans of Arm Financial

A startup business backed by executives at CIBC World Markets of New York and two global reinsurers is betting it has the technology to do what other marketers have been unable to do: sell life insurance and annuities online.

Inviva Inc., a New York holding company, plans to begin selling its low-cost Instant Term life insurance policies through Quotesmith.com, a web insurance portal, later this month, and to introduce an Internet-only variable annuity by fall.

Inviva aims to overcome a hurdle that has stymied most online life insurers’ annuity shopping sites from moving beyond simply generating price-quote leads: Most sites require shoppers to telephone an agent, print out and complete a questionnaire or apply directly to an insurer to purchase a policy.

Many online shoppers end up buying a policy through a traditional agent, depriving the insurance comparison-shopping sites of referral fees. For example, of the 4.1 million insurance shoppers who obtained price quotes from Quotesmith.com last year, only 37,520, or less than 1%, purchased policies through the portal. The Darien, Ill., company lost $18.6 million on revenues of $15.2 million last year.

hitches are noted

“To date, the cost of acquiring a customer versus the commission dollars they will generate is negative,” says analyst Nik Fisken with Stephens Inc. in Little Rock, Ark. “The only way that online quoters are going to get around that is if they offer a policy that you can only buy online, and underwriters haven’t done that yet,” he adds.

Shares of both Quotesmith.com and Insweb Corp. of Redwood City, Calif., the two biggest insurance comparison-shopping sites, are off at least 88% from their 52-week highs.

Last month, Quotesmith.com completed a 3-for-1 reverse stock split to retain its Nasdaq National Market listing, which requires stock to trade above $1 per share. The stock closed Thursday at $1.06.

Inviva believes it has some of the answers to turning online shoppers into online buyers. Executives say the company’s software will enable them to issue policies online through a 30-minute, automated, paperless underwriting system.

The initial rate guarantee provides 90 days of coverage with a face amount of $250,000 to $1 million. American Life Insurance Company of New York, a small A-minus-rated insurer that Inviva acquired last month from Mutual of America Life Insurance Co., will underwrite the policies.

New policyholders still must submit to a brief physical exam to qualify for full term coverage.

Inviva says it will price its life policies 10% to 15% below those of leading online term life competitors such as John Hancock Financial Services Inc., CNA Financial Corp. and Western and Southern Group.

“Our target is to be among the three to four lowest quotes that come back on the screen,” says David Ferguson, Inviva’s chief technology officer and chief operating officer.

“Our product offers a very competitively priced, simple-to-understand term policy that can be self-administered in a paperless environment.”

In addition to Quotesmith.com, Inviva aims to strike alliances with other quoting sites, and eventually with banks, web-based brokers, financial planners and other intermediaries.

The company is the latest evolution of Web Wide Insurance Group, a Louisville, Ky., company launched in 1999 by former executives of Arm Financial Group Inc., the defunct insurance and annuity marketer.

Arm was forced into bankruptcy in late 1999 after it failed to redeem funding agreements sold to institutional investors.

Mr. Ferguson also served as Arm’s technology chief. John McGeeney, Inviva’s general counsel, was vice president, general counsel and a member of Arm’s three-man office of the president.

technology leader

Mr. Ferguson is the driving force behind Inviva’s automated systems. While at Arm, he developed software to launch a line of low-cost variable annuities that was to be sold exclusively on the Internet.

That effort was scuttled when Arm fell into financial trouble.

In forming Inviva last year, Mr. Ferguson teamed up with David Smilow, co-founder and former CEO of Telebanc Financial Corp., an Internet-based bank that is now part of online broker E*Trade Group Inc., as well as Tracey Hecht, a founding manager of DoughNet, an online payment service aimed at teens.

Mr. Smilow, Ms. Hecht and other Inviva executives put up most of the company’s $12 million in startup capital.

To acquire American Life Inviva raised another $65 million from Trimaran Fund II, a private-equity fund run by three members of CIBC World Markets’ high-yield finance group in New York, and reinsurers ACE INA Holdings Inc. of Philadelphia and Gerling Insurance Group of Cologne, Germany.

Inviva also plans to use its low-cost operating platform to launch a low-fee, no-surrender-charge line of variable annuities in the third quarter.

The online-only Instant Annuity will also feature a paperless application and electronic signature. Inviva plans to market the annuity through web portals, agents, banks, brokers, financial planners and other financial services providers.