Dot-Com Insurer Acquired by Brick-and-Mortar

Faced with limited funding, Esurance, an Internet-based personal auto insurance provider, has sold an 80 percent interest in the company to Folksamerica Holding Company, Inc., a subsidiary of White Mountains Insurance Group (Hanover, NH).

Just a year ago, many start-ups were riding high. Rich with venture-capital funding and investors' apparently insatiable appetite for anything dot-com, online start-ups flourished. Today, many ventures are struggling to find profitability.

"We wanted to be part of a risk bearing entity," says Jean-Bernard Duler, chief executive officer of San Francisco-based Esurance. "As we were looking for a third round of funding, we came across Folksamerica. Theyhave a lot of things we did not have—they have access to capital."

Steve Fass, president of Folksamerica, says his company has been tracking different dot-coms for a while. "We have been looking at a number of Internet insurance ventures," he says. "We believed that one company would eventually find the right model. Many have good technology, but have been lacking in insurance skills. Esurance has staffed the company with insurance expertise. Esurance has the right blend."

In a similar move, Warren, NJ-based The Chubb Corporation ($24.3 billion) invested $2.5 million in financing in eREINSURE.com (Salt Lake City), a provider of e-commerce technology to the reinsurance industry. "This is a significant opportunity to use Web-based technology to better manage the reinsurance process," according to Dean R. O'Hare, chairman and chief executive officer of Chubb.

Folksamerica's acquisition of Esurance comes after fears Esurance was about to shut its doors. According to an early October headline on a Web site that follows rumors about dot-coms, "Rumor has it Esurance employees were given two weeks to find new jobs. After that they can still come to work, but won't be paid."

Esurance's Duler says the company was never in any danger of closing down, although it did lay off 30 workers who were developing new product lines for the company, such as homeowners' insurance. "The layoffs focus on the development of new product lines and it will not impact Esurance's core product—auto insurance," he says. The plan, which currently has Esurance offering products in 24 states, has the company selling insurance in 35 states by the end of the year.

And continuing with Esurance's business plan is part of Folksamerica's strategy. "Folksamerica's biggest role is to continue to let Esurance do what they have done," says Fass. "Esurance doesn't have to worry about their next round of financing. We understand the long-term view of the insurance industry. We are not a venture capital firm."

Esurance's Duler expects the company to become profitable in another 18 months. "This is a very positive step for Esurance," he says. "Folksamerica will bring stability to the company so we can focus on our plan," rather than the next round of financing, he adds.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio