The next insurance frontier for banks may be selling small-business insurance coverage online.

Internet companies such as e-Policy, Financial Keyosk, and InsuranceNoodle are creating platforms for banks and other financial institutions by setting up Web sites or links to be used in selling small-business insurance products online.

Executives of these companies said that selling commercial lines on the Internet can and will be done successfully and that banks can become major players because of their relationships with small businesses. But the key to success, they said, is simplifying the application process so that small-business owners can handle much of it themselves.

Commercial lines are attractive to banks because they tend to pay higher commissions than personal lines of insurance and because such relationships can be leveraged to sell more banking products.

But some experts cautioned that selling these policies online is not as easy as selling consumer products such as auto or homeowners' insurance.

"The more commoditized a product is, the more relevant the Web is as a channel," said James H. Overholt, a consultant at Milliman & Robertson Inc. in Chicago. "The more complex sales, and particularly commercial insurance, probably do not lend themselves as well to the Internet."

Buying commercial insurance - such as property coverage for a business, business interruption policies, or workers' compensation - is too complex and requires too much information for most business owners to handle without the help of an agent, said Mr. Overholt, who specializes in bank insurance deals.

These limitations, however, have not stopped several new Internet companies from pursuing this market - or from seeking bank brand names to fortify their offerings.

Online insurance companies say the market is there. Research by the Chicago firm InsuranceNoodle found that 60% of small businesses - those with five to 50 employees - are Web-enabled and that 45% of small-business owners had bought a business product or service online by the end of 1999, said Don Urbanciz, InsuranceNoodle's chief executive officer.

"A huge population of small businesses do purchase products and services online," he said. "We think insurance can be just another one of these products."

Mr. Urbanciz said his firm is trying to make deals with state and national bank trade associations so that their members have the option to sell insurance online.

Financial Keyosk, which is just getting its system online, has not announced any major partnerships, said CEO John Dawson. And e-Policy vice president Scott Blum said his company is working with financial firms on partnerships that have not yet been announced.

And online providers are working to simplify Web buying. InsuranceNoodle lets business owners type in their location and business category - for example, a florist shop in Dubuque, Iowa - and then the system only asks questions pertinent to their line of work.

This system reduces the number of questions applicants are asked and the amount of help they need during the process, Mr. Urbanciz said. He added that users generally call InsuranceNoodle's help line twice, once while applying and once just before the purchase.

E-Policy has also simplified its application forms and supplies telephone help, Mr. Blum said. In addition, the Torrance, Calif., company has beefed up marketing through contracts with financial services providers like MasterCard to hawk its insurance to a wider audience, and it offers product discounts that banks can pass along to their customers.

Some experts, however, said that commercial lines is one area in which a bank might be better off buying an insurance agency than going online.

To sell commercial lines of insurance on the Internet, a company must "back up the page on the Internet with real human knowledge - and not only knowledge but wisdom," said Michael White, chairman and CEO of Michael White Associates in Radnor, Pa., a bank insurance consulting firm. He said he is skeptical that the in-depth consultation needed for many commercial lines transactions could be satisfied on a Web site.

But Mr. White said that offering commercial lines insurance through an agency is still beneficial for banks. A strong commercial lines operation, he said, can benefit both the insurance and banking sides because of a bank's ability to develop strong relationships with clients and to cross-sell.

Mr. Overholt said that small-business owners often have better relationships with their insurance agents than they do with their bankers - so a bank that buys an agency not only has new products to sell to its banking customers but also a new base of clients. "I think the commercial side of the business is a great entree into banking products," he said. "This is the one area of insurance that is actually a source of new clients for the bank."

Though there are difficulties in selling small-business insurance online, bank insurance consultant Carmen Effron, president of C.F. Effron Co. in Westport, Conn., said that working with an Internet firm lets banks take small steps into commercial lines insurance without the big investment of buying an agency.

If banks structure deals carefully, they can often pick and choose which functions to outsource and which they themselves will offer, thereby keeping control of the process, she said.

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