Local start-up finds success as Web insurance BROKER

RewardPlus lets firm offer benefits that are just a click away


March 26, 2000|By Mark Guidera | Mark Guidera,SUN STAFF

Is the friendly, glad-handing insurance broker the next target of the Internet?

Time will tell, of course, but the insurance industry seems headed for upheaval as Internet entrepreneurs are fast staking out ways to mine gold from another staid bastion of American industry.

The strategy seeks to remove middle men in the purchase of insurance and benefits. The cost savings allow for deep discounts, while the Web format allows employees easier access to their accounts. (Many employers today offer their workers similar access to their 401(k) retirement portfolios.)

Entrepreneurs Kenneth P. Barksdale, 40, and R. Jamie Spriggs, 32, are among those blazing a path in this latest electronic frontier.

Four years ago, both held secure jobs at Maryland Casualty Co., the Baltimore insurance underwriter owned by Zurich Financial Services Group.

Today, Barksdale, a former Maryland Casualty sales vice president, and Spriggs, who held various posts in the insurer's information technology department, head up RewardsPlus.com, a Baltimore start-up that's already got Wall Street's eye.

The company, backed by $25 million in venture money, is among the first Internet, or "e-market," entries into the highly lucrative employee benefits management arena.

Goldman Sachs & Co. estimates that the market for employee benefit products exceeds $1.2 trillion annually, which means that anyone getting in on the "transaction costs" -- the costs of brokering and administering policies -- could hit it big.

"What these guys are doing is creating an exchange environment for employee benefits. It's unprecedented in the industry," said Bryan C. Keane, a senior e-finance analyst for Prudential Volpe Securities who has been tracking emerging companies in the sector.

He believes that RewardsPlus is leading the charge in upending an industry slow to realize the potential of the Internet.

2 competitors

Others trying to carve out a niche in the e-benefits arena include Employease Inc. of Atlanta and Simpata Inc. based in Silicon Valley.

In the parlance of the Internet, such companies are business-to-consumer, or B2C, players.

They are shifting the balance of power from intermediaries selling benefits to customer groups, said Dennis J. Shaughnessy, managing partner at Grotech Capital Group, a Timonium venture capital company active in e-commerce. Grotech took a $10 million stake in January in RewardsPlus.

Industry is ripe

Meanwhile, predicts Shaughnessy and other experts, additional competition is likely considering how ripe the industry is for the B2C model and the profit potential for portal providers.

RewardsPlus has put together a business that fits the needs of the three key parties in a benefits transaction, namely provider, employer and employee, said Keane at Prudential. Also, it's got a jump on competitors.

The company's strategy also allows an employer to offer workers other kinds of insurance and products.

Pet insurance

Need health insurance for your dog? It's available (and among the more popular offerings, says Barksdale).

Tired of shopping for home and auto insurance? Click. Did you run up the credit cards and need to consolidate debt? Click. Need a home security system? Click.

Said Barksdale, "Our goal is to create an Internet portal experience that helps employees manage real life needs -- buying a home, buying a car, having a baby -- in a seamless way through work.

"In this economy many workers are spending more and more time at work. This gives them the opportunity to balance life-work issues easily."

As he and others point out, forward-looking employers are looking for every edge to keep workers.

Hewitt Associates, a Chicago human resources consultant, recently reported that a number of U.S. companies -- 35 percent by the end of this year -- are offering such benefits through work to attract and retain talent in a tight labor market.

`Incredibly easy'

"They've made it incredibly easy for employees to create and manage their own profile of benefits through work," said Shaughnessy at Grotech.

He expects the company to be well positioned to go public this year after generating new accounts.

The convenience of accessing information through the Net, as well as group discounts averaging 5 percent to 25 percent of what an independent broker could offer, make such a service attractive to large corporations as a recruiting and retention tool, said Shaughnessy.

Among its clients are long-distance phone giant AT&T, Bank of America and Sylvan Learning Systems, the Baltimore education and testing company.

Shrinking industry

Industry analysts believe that the advent of companies like RewardsPlus will mean shrinking commissions for independent insurance brokers and agents.

Workers will embrace, even demand, the convenience and cost savings that group buying power on the Internet provides.

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