The 3 percent factor. (from the president).(failure of Mortgage.com)(Brief Article)(Editorial)

The February 2001 issue of CFO Magazine contains a cautionary article on Internet failures. One of the stories, for example, is about Mortgage.com. With more than $50 million in funding, the company had created a 200-person customer-support call center. It was moving forward on its plan to build a Web-based, end-to-end electronic mortgage-fulfillment platform. Mortgage.com was going to change the way mortgages were done in the United States. It went public in 1999 at $8.

Last November, with its shares selling between three and five cents, the company sold its remaining assets to an Argentine bank and was delisted by NASDAQ. Mortgage.com and the other dot-com ventures detailed in the CFO article have similar tales to tell:

 
   "Commodities like airline tickets, books, and CDs might move quickly on the 
   Internet. But sales of higher-margin products like cars, pharmaceuticals, 
   and mortgages remain complicated by law, customer habits, and longstanding 
   supplier relationships." 

It is easy to see how the experiences of Mortgage.com are relevant to life insurance. A study by Mercer Management Consulting in New York reported that "consumers make online purchases of insurance, loans, and mortgages far less often than they buy computer hardware, books, travel, clothing, and other consumer goods." Even when consumers buy insurance online, it is mainly auto, term life, homeowners, renters, condo, and health products -- which are commodity-type products, sold mainly on price and demanding little customer loyalty. In May 2000 LIMRA conducted focus group sessions and telephone interviews regarding Internet usage and consumer attitudes toward the Internet in preparation for a subsequent survey of Internet users. Again we heard that face-to-face contact is seen as especially important when purchasing insurance. Among the things focus group members and telephone interviewees told us:

* They are willing to pay more to deal with someone they trust or know

* Their families need a person to deal with after they have passed away

* First-time purchasers want face-to-face contact -- someone who can give them advice, and someone they can trust, maybe someone they have done business with before.