From Phila Business Journal
August 23, 1999
Net insurer waits, watches Wall Street
Peg Brickley Staff Writer
EAST NORRISTON -- HealthAxis.com got to watch from the sidelines as two rival Internet-based insurance sellers recently went public amid nasty market conditions.
The long-awaited initial public offerings of those rivals, Quotesmith.com and InsWeb Corp., hit a hostile market as July turned into August. Both gave ground immediately and are now living with the "broken IPO" label, the designation attached to companies that flopped on debut.
HealthAxis.com, a unit of publicly traded Provident American Corp., is not likely to take the IPO route to the market. Instead, it plans a "forward triangular merger" that will create a pure Internet play out of an old insurance company some time before the end of the year.
InsWeb of Redwood City, Calif., opened at $38 per share on July 23, closed down $6.50 per share that day, and continued to slide. Since bottoming under $16 on Aug. 10, it has turned around, but has lots of ground to reclaim.
So does Quotesmith.com, based in Darien, Ill., which took to the market at $11 per share Aug. 3, and likewise headed south before the Aug. 10 recovery kicked in.
Yet while HealthAxis.com ducked the high-profile humiliation of being slapped around the stock market, it did not escape completely unscathed.
That's because its parent, Provident American, took the same pounding as Quotesmith and InsWeb, plummeting from $28 per share in the third week of July to under $16 by Aug. 12, before turning around.
There is, at this point, little left of Provident American to insulate the infant Internet company from the fury of the market. Once a managed-care and marketing operation, the insurance company is almost out of the insurance business entirely.
In May, Provident American hired Advest Inc., while HealthAxis hired BancBoston Robertson Stephens to work out the share exchange transaction that is expected to put an end to Provident American, and launch HealthAxis.com solo.
"Those two online insurance companies happened to come out in the throes of the declining Internet market," said HealthAxis.com CEO Michael Ashker, commenting on the fate of his rivals. "Had we been going to the market to raise capital we would have been concerned because the faucet's being shut down a little."
InsWeb and Quotesmith are not taking the initial hit personally, coming as it did in the midst of a mid-summer slaughter in the tech sector. This is not the first time, after all, that the tech sector has eaten its young.
"You'd have to live under a log not to conclude that the Internet is a highly volatile sector," said Robert Bland, Quotesmith's president and CEO.
The day before his 15-year-old company's stock priced, underwriters had orders for eight times more stock than Quotesmith planned to sell. Less than 24 hours later, the world had changed, at least the world on Wall Street.
"The financial community uses all these pejorative terms," Bland said. "They call us a 'broken IPO.' I don't feel broken. I feel funded. We sold 5 million shares at $11 per share."
Jolting stock prices, he suggested, might not be the best measure of who will win the consumer branding contest that has Quotesmith, InsWeb and HealthAxis.com vying for the Web traffic of insurance shoppers.
"If our stock goes down, I'm not sure we're bad and stupid," the Illinois executive said. "If our stock goes up, I'm not sure I've lost that extra 15 pounds or grown my hair back."
Up market or down, he added, Quotesmith claims 13,000 policies sold last year, as compared to HealthAxis.com's 416 policies-in-force. HealthAxis.com executives retort that their relationship with the consumer -- and their revenues -- do not end at the point-of-sale.
Different business models, product offerings and histories set the three companies apart.
Basically, however, all three want to be the dominant insurance sales site on the Internet, which is expected to grow into a multibillion-dollar forum.
All three companies have garnered sizable private investments from strategic partners. And all three are looking at a stock market that is tightening down on the cash-hungry tech sector, and turning up the pressure for profits.
HealthAxis.com has raised $20 million from private placement action over the past year. Some big investors are tech comrades, rich and presumably understanding of the fortunes of the market. Others, though, are in the insurance field themselves.
UICI and Health Plan Services Corp., however, are counting on HealthAxis.com for more than a return on their investment, Ashker said.
"We are building a digital infrastructure that in the future will be a portion of their future revenues," Ashker said. "We are responsible to help them bring earnings to their bottom line."
Insurers are notorious foot-draggers when it comes to investing in technology. That is what make insurance a potential Internet bonanza, Ashker added, no matter what the stock market does.
His own background is in money management, particularly in running money for venture capitalists.
"It's nice to be part of the hot Internet sector, but you can't model the growth of your company according to those lofty valuations," HealthAxis.com's chief said.
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