INSWEB CORP - 10-Q Quarterly Report

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSWEB CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	September 30, 2004			December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	11,447		$	15,223
Short-term investments	8,294			10,868
Accounts receivable, net	1,133			1,006
Prepaid expenses and other current assets	704			785
Total current assets	21,578			27,882
Property and equipment, net	939			1,386
Other assets	523			614
Total assets	$	23,040		$	29,882

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,389		$	524
Accrued expenses	3,699			4,804
Deferred revenue	100			275
Total current liabilities	5,188			5,603

Commitments and contingencies

Stockholders’ equity:
Common stock	7			7
Paid-in capital, less treasury stock	198,276			197,988
Accumulated deficit	(180,431		)	(173,716		)
Total stockholders’ equity	17,852			24,279
Total liabilities and stockholders’ equity	$	23,040		$	29,882

See accompanying notes.

INSWEB CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Revenues:
Transaction fees	$	3,228		$	5,931		$	10,246		$	19,253
Development and maintenance fees	147			255			550			738
Total revenues	3,375			6,186			10,796			19,991

Operating expenses:
Technology	1,268			2,091			4,188			6,762
Sales and marketing	3,299			4,327			9,967			13,116
General and administrative	1,112			1,249			3,551			4,481
Total operating expenses	5,679			7,667			17,706			24,359
Loss from operations	(2,304		)	(1,481		)	(6,910		)	(4,368		)
Interest expense	—			(21		)	—			(84		)
Interest income	80			58			225			224
Other (expense) income	—			849			(30		)	1,658
Net loss	$	(2,224	)	$	(595	)	$	(6,715	)	$	(2,570	)

Net loss per share-basic and diluted	$	(0.47	)	$	(0.13	)	$	(1.43	)	$	(0.49	)

Weighted-average shares used in computing per share amounts-basic and diluted	4,716			4,690			4,690			5,212

See accompanying notes.

INSWEB CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(6,715	)	$	(2,570	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of prepaid marketing costs	87			272
Depreciation and amortization	585			775
Gain on sale of a portion of investment in Finance All K.K.	—			(822		)
Other	—			(36		)
Net changes in operating assets and liabilities:
Accounts receivable	(127		)	139
Prepaid expenses and other current assets	81			277
Deposits and other assets	4			79
Accounts payable	865			245
Accrued expenses	(1,041		)	(361		)
Deferred revenue	(175		)	(231		)
	(393		)	148
Net cash used in operating activities	(6,436		)	(2,233		)

Cash flows from investing activities:
Redemptions of short-term investments	26,041			14,720
Purchases of short-term investments	(23,473		)	(7,946		)
Purchases of property and equipment	(137		)	(77		)
Proceeds from sale of a portion of investment in Finance All K.K.	—			2,097
Net cash provided by investing activities	2,431			8,794

Cash flows from financing activities:
Repayments of debt	(65		)	(3,307		)
Proceeds from issuance of common stock through stock plans	294			45
Repurchase of common stock	—			(4,000		)
Net cash provided by (used in) financing activities	229			(7,262		)
Net decrease in cash and cash equivalents	(3,776		)	(701		)
Cash and cash equivalents, beginning of period	15,223			12,382
Cash and cash equivalents, end of period	$	11,447		$	11,681

See accompanying notes.

INSWEB CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Business of InsWeb

InsWeb Corporation operates an online insurance marketplace that enables consumers to comparison shop online and obtain insurance company-sponsored quotes for a variety of insurance products, including automobile and term life. InsWeb’s marketplace electronically matches consumers and insurance companies. InsWeb has combined extensive knowledge of the insurance industry, technological expertise and close relationships with a significant number of insurance companies to develop an integrated online marketplace. InsWeb’s marketplace enables consumers to research insurance-related topics, search for, analyze and compare insurance products, apply for and receive insurance company-sponsored quotes and to purchase automobile and term life insurance coverage through InsWeb’s insurance agencies.

Quotes obtained through the online marketplace are free to consumers, while participating insurance companies pay a transaction fee to InsWeb. These fees are earned either from a fee paid by an insurance company for each closed policy, from the delivery of a lead to a participating insurance provider, or from a commission or broker fee earned by InsWeb’s insurance agencies, InsWeb Insurance Services, Inc. and Goldrush Insurance Services, Inc.

Certain consumers, depending on their responses to several preliminary screening questions, are provided the opportunity to link directly to an insurance company’s website. In these situations, the consumer will complete the insurance company’s online application, and InsWeb will be paid a fee for that consumer link or click-through.

InsWeb is subject to all of the risks inherent in an early stage business in the electronic commerce industry and special risks related to the online insurance industry. These risks include, but are not limited to, unpredictable business model, limited management resources, Internet related security risks, the changing nature of the electronic commerce industry, and variations in consumer traffic (consumers shopping for insurance on the Internet) and insurance company participation. Due to the foregoing and other factors, InsWeb’s future operating results may be materially affected.

Since its inception, InsWeb has incurred significant losses, and as of September 30, 2004, InsWeb had an accumulated deficit of $180.4 million. These losses, and this accumulated deficit, have resulted from the significant costs incurred in the development of InsWeb’s technology platform, the establishment of relationships with insurance companies, their integration with the InsWeb site, and InsWeb’s marketing and sales activities. InsWeb intends to continue to invest in product development and maintenance, sales and marketing. As a result, InsWeb believes that it will continue to incur operating losses at least for the next nine to twelve months. InsWeb’s operating results for future periods are subject to numerous uncertainties, and there can be no assurance that InsWeb will be able to achieve and sustain profitability. In view of the rapidly evolving nature of InsWeb’s business, InsWeb believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as an indication of future performance.

2. Basis of Presentation

The condensed consolidated financial statements include the accounts of InsWeb Corporation and its wholly-owned subsidiaries, InsWeb Insurance Services, Inc. and Goldrush Insurance Services, Inc. (“InsWeb” or the “Company”). All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.

The accompanying unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly InsWeb’s financial position as of September 30, 2004 and the results of operations for the three and nine months ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 2004 and 2003. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in InsWeb’s Annual Report on Form 10-K and other information as filed with the Securities and Exchange Commission.

3. Concentration of Risk — Significant Customers

For the nine months ended September 30, 2004, Progressive and John Hancock each accounted for 10% of total revenues. John Hancock terminated its participation in the InsWeb term life insurance marketplace on June 14, 2004. Revenues from Progressive, GE Financial Assurance (“GEFA”), and American Family accounted for approximately 16%, 12% and 11%, respectively, of InsWeb’s revenues for the three months ended September 30, 2003. For the nine months ended September 30, 2003, revenues from GEFA, Progressive, and American Family accounted for approximately 15%, 15%, and 10%, respectively, of InsWeb’s revenues. In September 2003, Progressive discontinued its participation as a quoting company in the InsWeb market place; however, in October 2003, Progressive signed an agreement to participate in the Sponsored Web Link program. In November 2003, GEFA’s participation as an instant quoting carrier within the InsWeb marketplace was terminated as a result of its acquisition by AIG, Inc., who has continued as a quoting company in the InsWeb auto insurance marketplace.

4. Concentration of Risk — Marketing Partners

InsWeb relies on relationships with Internet portals and other online companies to attract consumers to its website. In a typical arrangement, the online company includes a “link” on its website on which a user can click to jump to InsWeb’s website or to a site that InsWeb operates under the online company’s name; as part of the arrangement, InsWeb typically pays the online company a portion of the resulting transaction fees. For 2003, 2002 and 2001, we received approximately 13%, 11% and 32%, respectively of our website traffic from the major Internet portals Yahoo! Inc., MSN and AOL. For the nine months ended September 30, 2004, we received approximately 20% of our website traffic from these online relationships. These relationships may not continue to generate a substantial amount of new traffic on InsWeb’s website, or the revenues generated by these relationships may be insufficient to justify InsWeb’s payment obligations. InsWeb has experienced fluctuations in the traffic from its online partners as a result of redesigns of their websites or being outbid for promotions by other online insurance providers. Furthermore, the value of these relationships is based on the continued positive market presence, reputation and growth of these online companies’ websites and services. Any decline in the market presence, business or reputation of these online companies’ websites and services will reduce the value of these relationships to InsWeb and could harm its business.

5. Per Share Information

Basic earnings per share, is computed using the weighted-average number of shares of common stock outstanding. Diluted earnings per share would reflect the potential dilution that would occur if stock options and warrants had been exercised. For the three and nine month periods ended September 30, 2004 and 2003, common equivalent shares from stock options and warrants were excluded from the computation of net loss per share-diluted as their effect was antidilutive.

InsWeb accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The following table illustrates the effect on net loss and net loss per share if InsWeb had applied the fair value recognition provisions of Financial Accounting Standards Board Statements No. 123 “Accounting for Stock-Based Compensation” and No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” to stock-based employee compensation (in thousands, except per share amounts):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net loss, as reported	$	(2,224	)	$	(595	)	$	(6,715	)	$	(2,570	)
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards	(179		)	(452		)	(515		)	(1,225		)
Pro forma net loss	$	(2,403	)	$	(1,047	)	$	(7,230	)	$	(3,795	)

Net loss per share:
Basic and diluted—as reported	$	(0.47	)	$	(0.13	)	$	(1.43	)	$	(0.49	)
Basic and diluted—pro forma	$	(0.51	)	$	(0.22	)	$	(1.54	)	$	(0.73	)

Option valuation models require the input of highly subjective assumptions. Because InsWeb’s employee and director stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options’ vesting period. The above pro forma disclosures are not necessarily representative of the effects on reported income or loss for future periods, as additional grants are made each year and options vest over several years.

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	September 30, 2004		December 31, 2003

Accrued lease obligations (see Note 9)	$	2,238	$	2,584
Accrued employee compensation	695		1,208
Deferred rent	518		513
Other	248		499
Total	$	3,699	$	4,804

7. Comprehensive Loss

Total comprehensive loss for the three and nine months ended September 30, 2004 and 2003 was as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net loss	$	(2,224	)	$	(595	)	$	(6,715	)	$	(2,570	)
Other comprehensive income:
Change in cumulative translation adjustment due to the partial sale of investment in Finance All K.K.	—			132			—			132
Change in unrealized gain on available for sale securities (principally, Finance All K.K. for the three and nine months ended September 30, 2003)	2			3,254			(6		)	3,254
Total comprehensive (loss) income	$	(2,222	)	$	2,791		$	(6,721	)	$	816

8. Related Party Transactions

During the three and nine months ended September 30, 2004, InsWeb recognized $115,000 and $424,000, respectively, in marketing expenses under a marketing agreement with an Internet company, compared to $68,000 and $310,000, for the comparable periods in 2003, respectively. An affiliate of the Internet company became a stockholder of InsWeb in December 1998.

9. Commitments and Contingencies

Leases

In July 2002, InsWeb and one of its sublessees agreed to amend the sublease covering portions of the property InsWeb formerly occupied as its headquarters in Redwood City, California. Under the terms of the amendment, the sublessee agreed to rent the entire facility for the duration of InsWeb’s lease (through September 2008). All rent and operating expenses otherwise payable by InsWeb to the landlord are required to be paid directly by the sublessee. Therefore, the amended sublease offsets InsWeb’s aggregate operating lease commitments by approximately $7,679,000 through the remainder of the lease. However, the sublessee is a start-up company with a limited operating history and, therefore, there are inherent risks and uncertainties associated with its future operations and its ability to discharge its obligations through the term of the sublease. In the event that the sublessee defaults on its obligations under the amended sublease, InsWeb would be responsible for making the required lease payments to the landlord throughout the remaining term of the lease. The Company maintains an accrual of $1,000,000 as of September 30, 2004 due to the uncertainties associated with this subleasee.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, and in particular Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” with respect to InsWeb’s future financial performance. The words or phrases “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are generally intended to identify forward-looking statements. Such forward-looking statements are subject to various known and unknown risks and uncertainties, and InsWeb cautions you that any forward-looking information provided by, or on behalf of, InsWeb is not a guarantee of future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond InsWeb’s control, including, but not limited to, uncertain economic conditions which could result in lower growth rates, decreasing revenue and reduced participation in InsWeb’s marketplace, anticipated losses, the unpredictability of future revenues, reliance on key customers—property and casualty insurance carriers- who are themselves subject to volatility in their operating cycles, competition, risks associated with system development and operation risks, management of potential growth and risks of new business areas, business combinations, and strategic alliances. These risks and uncertainties, as well as other risks and uncertainties, which are described in greater detail in the section entitled “Factors That May Affect Future Performance” and other documents filed with the Securities and Exchange Commission, could cause InsWeb’s actual results to differ materially from historical results or those currently anticipated. All forward-looking statements are based on information available to InsWeb on the date hereof, and InsWeb assumes no obligation to update such statements.

Overview

InsWeb operates an online insurance marketplace that enables consumers to shop online for a variety of insurance products, including automobile and term life, and obtain insurance company-sponsored quotes. In order to create this marketplace, InsWeb has established close relationships with a significant number of insurance companies throughout the United States.

InsWeb’s principal source of revenues is transaction fees from participating insurance companies. While quotes obtained through InsWeb’s online insurance marketplace are provided to consumers free of charge, InsWeb earns revenues from participating insurance companies based on the delivery of qualified leads. With most insurance companies, InsWeb is paid a fee only when the consumer purchases an insurance policy, and with others, InsWeb is paid a transaction fee based on the delivery of a lead, regardless of whether or not the consumer actually purchases a policy. Qualified leads are produced when a consumer clicks to view insurance company quotes. These leads are produced both for insurance companies providing instant online quotes and for insurance companies providing e-mail or other offline quotes. Once the leads are generated by the consumer’s request to view quotes, InsWeb transmits the leads either to InsWeb Insurance Services or to the selected insurance company or other entity by e-mail, file transfer or direct connection to the insurance company’s information system. InsWeb provides each participating insurance company with custom-formatted lead information based on the insurance companies individual requirements.

InsWeb also generates commission revenue and broker fees from the operations of its insurance agent subsidiaries. As of September 30, 2004, InsWeb’s wholly-owned subsidiaries, InsWeb Insurance Services, Inc. and Goldrush Insurance Services, Inc. (collectively “InsWeb’s Insurance Agency”), function as authorized automobile insurance agents for nine participating insurance companies in nine states. Since August 18, 2004, InsWeb’s Insurance Agency has been selling term life insurance policies in all states on behalf of six insurance companies. Where InsWeb’s Insurance Agency has acted as the selling agent, it receives a commission based on a percentage of the initial insurance policy premium related to each insurance policy sale, and in some cases each renewal of a policy. InsWeb recognizes the revenue from these activities as the insurance policies are paid, less an estimate for early cancellations. Commission revenue and broker fees are included in transaction fees.

In October 2003, InsWeb began providing “Sponsored Web Links,” whereby certain consumers, depending on their responses to several preliminary screening questions, are provided with the opportunity to link directly to an insurance company’s website. In these situations, the consumer will complete the insurance company’s online application, and InsWeb will be paid a fee for that consumer link or click-through. Fees paid to InsWeb for Sponsored Web Links are included in transaction fees.

A less significant and declining source of revenues for InsWeb are development and maintenance fees that are paid by insurance companies that participate on the InsWeb insurance marketplace. Development fees are generated from the design and development of customized interfaces between an insurance company’s information system and the InsWeb site. InsWeb charges maintenance fees for maintaining and servicing the programs of the individual insurance companies and for maintaining any hardware at InsWeb’s facility that is dedicated to specific insurance companies.

InsWeb has focused its efforts on developing insurance company coverage for automobile insurance in order to be able to offer true comparative online shopping for this important segment of the insurance market. Automobile insurance accounted for approximately 76% and 74% of transaction revenues for the three and nine months ended September 30, 2004 and 79% and 81% of transaction revenues for the comparable periods in 2003. We anticipate that automobile insurance will continue to account for a substantial portion of InsWeb’s revenues for the foreseeable future.

InsWeb has been dependent on a limited number of insurance companies for a significant portion of its revenues. Revenues from Progressive and John Hancock each accounted for approximately 10% of InsWeb’s revenues for the nine months ended September 30, 2004. John Hancock terminated its participation in the InsWeb term life insurance marketplace on June 14, 2004. The Company expects that the majority of leads that would have been directed to John Hancock will be directed to other carriers, new or existing. Revenues from Progressive, GEFA, and American Family accounted for approximately 16%, 12% and 11%, respectively, of InsWeb’s revenues for the three months ended September 30, 2003. For the nine months ended September 30, 2003, revenues from GE Financial Assurance, Progressive, and American Family accounted for approximately 15%, 15%, and 10%, respectively, of InsWeb’s revenues. Because of the broad market presence of some of InsWeb’s participating insurance companies, InsWeb expects to continue to generate a substantial portion of its revenues from a limited number of insurance companies for the foreseeable future.

In April 2004, we announced that we intended to seek a strategic partnership with one or more firms that have access to a large number of qualified consumers and that such a partnership could result in the sale of all or a part of InsWeb to achieve this goal. Although several potential strategic partners were identified during this process, the preliminary discussions did not produce an acceptable level of interest for either party. Therefore, management is now devoting its attention to other current initiatives to improve its operating results. We will continue to explore strategic opportunities if and when they arise, although there can be no assurance that any such partnership arrangement or sale will result. Uncertainty regarding our future direction could adversely affect relations with our employees or with our insurance company customers or online partners and cause them to alter or delay decisions regarding their relationship with InsWeb.

Results of Operations

The following table sets forth certain statement of operations items as a percentage of total revenues for the three and nine months ended September 30, 2004 and 2003:

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Revenues:
Transaction fees	96	%	96	%	95	%	96	%
Development and maintenance fees	4	%	4	%	5	%	4	%
Total	100	%	100	%	100	%	100	%
Operating expenses:
Technology	37	%	34	%	39	%	34	%
Sales and marketing	98	%	70	%	92	%	66	%
General and administrative	33	%	20	%	33	%	22	%
Total	168	%	124	%	164	%	122	%
Loss from operations	(68	)%	(24	)%	(64	)%	(22	)%

Revenues

	Three months ended September 30,				Nine months ended September 30,
(In thousands)	2004		2003		2004		2003

Transaction fees:
Auto insurance	$	2,445	$	4,711	$	7,587	$	15,624
Term life insurance	711		1,123		2,452		3,223
Other insurance	72		97		207		406
Total transaction fees	$	3,228	$	5,931	$	10,246	$	19,253

Direct Marketing (Consumer Acquisition)

	Three months ended September 30,						Nine months ended September 30,
(In thousands, except per consumer amounts)	2004			2003			2004			2003
Direct marketing costs	$	1,964		$	2,530		$	5,875		$	7,655
Direct marketing as a percent of transaction fees	61		%	43		%	57		%	40		%
Number of consumers	665			1,865			2,082			5,784
Direct marketing cost per consumer	$	2.95		$	1.36		$	2.82		$	1.32
Transaction fees per consumer	$	4.85		$	3.18		$	4.92		$	3.33

Auto Marketplace

	Three months ended September 30,				Nine months ended September 30,
(In thousands, except per consumer amounts)	2004		2003		2004		2003
Auto insurance transaction fees	$	2,445	$	4,711	$	7,587	$	15,624
Number of consumers	570		1,657		1,735		5,089
Transaction fees per consumer	$	4.29	$	2.84	$	4.37	$	3.07

Term Life Marketplace

	Three months ended September 30,				Nine months ended September 30,
(In thousands, except per consumer amounts)	2004		2003		2004		2003
Term life insurance transaction fees	$	711	$	1,123	$	2,452	$	3,223
Number of consumers	69		124		242		402
Transaction fees per consumer	$	10.30	$	9.06	$	10.13	$	8.02

Definitions:

“Direct marketing costs”		Represents expenses incurred by the company to drive consumer traffic to InsWeb’s online insurance marketplace;
“Number of consumers”		Represents a consumer who has started an InsWeb application;
“Transaction Fee per consumer”		Represents transaction revenue earned per consumer who has started an application.

Summary

Revenues for the three and nine month periods ended September 30, 2004 reflect the challenging advertising environment for personal lines insurance (auto and term life insurance) in which InsWeb must compete. While direct marketing costs per consumer are up, there has yet to be an increase in the number of consumers coming to the InsWeb site. The Company continues to work toward modifying its advertising strategies to improve these results and to find dependable and affordable sources of consumers. While dealing with the challenges on the consumer marketing side of the business, the Company continues to improve its Auto product offering by implementing a shortened quote form, the sharing of consumers amongst its insurance company partners, the expansion of the Sponsored Web Link bidding platform, and the addition of a new quoting option that provides consumer leads to local insurance agents. Within the Term Life product offering, the Company continues to shift its revenue model from a lead payment to a commission payment because it believes that it will offer greater long-term financial benefit and it has also added several new carriers to its term life consumer offering.

Revenues

Transaction Fees. Transaction fees (consisting of lead fees, commissions and Sponsored Links fees) relating to automobile insurance decreased to $2.4 million and $7.6 million, for the three and nine months ended September 30, 2004, respectively from $4.7 million and $15.6 million for the comparable periods in 2003, a decrease of 49% and 51%, respectively. These decreases for the three and nine months ended September 30, 2004 are each attributable to a 66% decrease in consumer traffic (consumers who have started the InsWeb auto application) from the comparable periods in 2003. Revenue per auto consumer increased to $4.29 and $4.37 for the three and nine months ended September 30, 2004, compared to $2.84 and $3.07 for the comparable period in 2003 primarily as a result of the Sponsored Web Link program discussed above. Management expects revenue per auto consumer to increase for the remainder of 2004 and early 2005 as InsWeb continues to implement initiatives to increase the sale of automobile insurance policies to consumers that shop the InsWeb auto insurance marketplace, in particular the expansion of the new program of providing consumer leads to local agents.

Transaction fees (consisting of lead fees and commissions) relating to term life insurance decreased to $0.7 million and $2.5 million for the three and nine months ended September 30, 2004 from $1.1 million and $3.2 million for the comparable periods in 2003. The decrease in revenues was a result of a significant decrease in consumer traffic (consumers who have started the InsWeb term life application). Revenue per term life consumer increased to $10.30 and $10.13 for the three and nine months ended September 30, 2004, compared to $9.06 and $8.02 for the comparable periods in 2003, on a 45% and 40% decrease, respectively, in consumer traffic. Revenue per term life consumer is expected to be negatively impacted in the near term, however, as additional insurance companies convert to a commission-based revenue model. The conversion of an insurance company from a lead-based revenue model to a commission-based model results in lower revenues in the short-term, as it takes 90 to 120 days to complete the sale of a term life policy and revenue is recognized as the policy is paid by the consumer. On June 14, 2004, John Hancock, who accounted for 10% of total revenues for the nine months ended September 30, 2004, terminated its participation on the InsWeb term life insurance marketplace.

Operating Expenses

Technology. Technology expenses consist primarily of payroll and related expenses, including employee benefits, facility and systems costs, for product and site development personnel involved with the planning, design and implementation of carrier integration to the InsWeb online insurance marketplace. Technology expenses decreased to $1.3 million and $4.2 million for the three and nine months ended September 30, 2004, from $2.1 million and $6.8 million for the comparable periods in 2003. The decrease was primarily attributable to a reduction in headcount. Technology expenses for the remainder of 2004 and early 2005 are expected to remain at or near current levels.

Liquidity and Capital Resources

Summarized cash flow information is as follows (in thousands):

	Nine months ended September 30,
	2004			2003

Cash used in operating activities	$	(6,436	)	$	(2,233	)
Cash (used in) provided by investing activities	2,431			8,794
Cash provided by (used in) financing activities	229			(7,262		)

At September 30, 2004, InsWeb’s principal source of liquidity was $19.7 million in cash, cash equivalents and short-term investments, which decreased from $26.1 million as of December 31, 2003. The decrease resulted from the use of $6.4 million of cash in operating activities.

For the nine months ended September 30, 2004, net cash used in operating activities was $6.4 million compared to cash used in operating activities of $2.2 million for the comparable period in 2003. For the nine months ended September 30, 2004, non-cash items included depreciation and amortization of assets of $0.6 million. InsWeb’s net loss of $6.7 million for the first nine months of 2004 contributed to cash used in operations for the nine months ended September 30, 2004.

For the nine months ended September 30 2004, net cash provided by investing activities was $2.4 million, which primarily consisted of redemptions of short-term investments offset by the purchases of short-term investments.

For the nine months ended September 30, 2004, net cash provided by financing activities was $0.2 million. Cash provided by financing activities was attributable to the proceeds from exercises of stock options of $0.3 million offset by debt repayments of $65,000 to a marketing partner.

InsWeb leases its current office facilities under non-cancelable operating leases, which expire at various dates through April 2011, including a 10-year lease agreement through 2011 for office space in the Sacramento area which houses its corporate headquarters and agency operations. InsWeb has options to extend the lease at the end of the lease term, and has the right of first refusal on other office space in the complex. In addition, InsWeb has entered into various sublease arrangements associated with previously exited facilities that have terms extending through September 2008.

Aggregate contractual cash obligations as of September 30, 2004 are summarized as follows (in thousands):

Years ending December 31,	Gross lease commitments		Sublease income			Net lease commitment
2004	$	807	$	(486	)	$	321
2005	3,257		(1,961		)	1,296
2006	3,391		(2,030		)	1,361
2007	3,483		(2,100		)	1,383
2008	2,936		(1,615		)	1,321
Thereafter	2,515		—			2,515
	$	16,389	$	(8,192	)	$	8,197

InsWeb currently anticipates that its cash, cash equivalents and short-term investments will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Although InsWeb does not anticipate the need for additional financing, InsWeb nevertheless may require additional funds to meet operating needs, or to expand its business internally or through acquisition. InsWeb cannot be certain that additional financing will be available when required, on favorable terms or at all. If InsWeb is not successful in raising additional capital as required, its business could be materially harmed. If additional funds were raised through the issuance of equity securities, the percentage ownership of InsWeb’s then-current stockholders would be reduced.

Factors That May Affect Our Future Performance

Our future business, operating results and financial condition are subject to various risks and uncertainties, including those described below.

Our business is difficult to evaluate because our market is evolving rapidly and our business model is unpredictable

An investor in our common stock must consider the uncertainties frequently encountered by early stage companies in new and rapidly evolving markets. These uncertainties include:

• an evolving and unpredictable business model, which makes prediction of future results uncertain and an investment in our common stock highly speculative;

• the development of comparable services by competitors, which may reduce our market share;

• the uncertainty of the extent to which the consumer market will adopt the Internet as the preferred medium for comparison shopping for and purchase of insurance products, which may limit our ability to generate revenue from consumers that visit our online marketplace or our insurance agency;

• our ability to retain key employees; and

• our reliance on key customers and ability to retain customers.

Our business strategy may not be successful and we may not be able to successfully address these uncertainties. Moreover, our ability to take the foregoing steps may be hampered by our limited financial resources should we fail to rapidly increase revenues or should increased revenues be more than offset by increased operating expenses.

We have a history of losses, we expect future losses, and we may not achieve or maintain profitability

Given planned investment levels, our ability to achieve profitability will depend upon our ability to generate and sustain substantially increased revenues. As a result, we believe that we will incur operating losses at least for the next nine to twelve months. We incurred operating losses of $7.0 million for 2003, $15.5 million for 2002, and $46.0 million for 2001. As of September 30, 2004, our accumulated deficit was $180.4 million. Our operating results for future periods are subject to numerous uncertainties, and we may not achieve sufficient revenues to become profitable. Even if we achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future. If we are unable to achieve profitability or if our profitability is delayed we may need to seek additional financing to continue our business operations. Such financing could be on terms that are dilutive to our existing stockholders or could involve the issuance of securities that have rights and preferences that are senior to those associated with our common stock. Moreover, if such financing were not available or were available only upon terms that were unacceptable to us, we could be required to significantly curtail our operations.

Our current efforts to seek a strategic partnership could have an adverse effect on our operations and our relationships with employees, insurance company customers and online partners.

Our future revenues are unpredictable, our operating results are likely to fluctuate from quarter to quarter, and if we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly

Due to the emerging nature of the market in which we compete and the high proportion of our revenues that are derived from consumer traffic on our website, our future revenues are inherently difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of our future performance. Moreover, our expense levels are based largely on our investment plans and estimates of future revenues. We may be unable to adjust our spending to compensate for an unexpected shortfall in revenues. Accordingly, any significant shortfall in revenues relative to our planned expenditures would harm our results of operations and could cause our stock price to fall sharply, particularly following quarters in which our operating results fail to meet the expectations of investors.

Factors that may cause fluctuations in our operating results include the following, many of which are outside our control:

• We may experience consumer dissatisfaction with our online marketplace as we add or change features, or as the insurance coverage offered by participating insurance companies varies;

• Consumer traffic on our online marketplace may decline as a result of the announcement or introduction of a competing online insurance marketplace or other new websites, products or services offered by our competitors;

• Consumer traffic may also fluctuate as a result of changes in level of advertising by entities with which we have insurance marketing relationships;

• Our revenues may be harmed if we lose one or more significant insurance company relationships or if any of our participating insurance companies merge with one another;

• Use of the Internet by consumers may fluctuate due to seasonal factors or other uncontrollable factors affecting consumer behavior and may be affected by slow Internet performance due to technical problems or traffic bottlenecks on the network;

• Our ability to convert site visits into transaction fees may fluctuate due to changes in our user interface or other features on our site;

• Our ability to generate transaction fees may be adversely affected by changes in the underwriting criteria used by our participating insurance companies to determine which consumers will be offered quotes; and

• Our ability to generate transaction fees may also be harmed due to technical difficulties on our website that hamper a consumer’s ability to start or complete a shopping session.

Seasonality affecting insurance shopping and Internet usage may cause fluctuations in our operating results

We have experienced seasonality in our business associated with general slowness in the insurance industry during the year-end holiday period. We expect to continue to experience seasonality as our business matures. Because of this seasonality, investors may not be able to predict our annual operating results based on a quarter-to-quarter comparison of our operating results. We believe seasonality will have an ongoing impact on our business.

Because a significant portion of our revenue is attributable to automobile insurance shopping on our online marketplace, we are especially vulnerable to risks related to the online market for automobile insurance or the automobile insurance industry generally

Automobile insurance accounted for approximately 79% of our transaction revenues in 2003, approximately 83% in 2002 and approximately 69% in 2001. For the nine months ended September 30, 2004, auto insurance accounted for approximately 74% of our transaction revenues. We anticipate that automobile insurance will continue to account for a substantial portion of our revenues for the foreseeable future. As a result, if we fail to attract a broad base of consumers to shop for automobile insurance on our site, our ability to generate revenue will be reduced and our business will be harmed. In addition, property and casualty insurance, including automobile insurance, is subject to operating cycles. During cycles where automobile insurance rates are stable, traffic to our website might decline because consumers have less incentive to shop for insurance. On the other hand, during a cycle in which loss ratios rise, insurance companies may choose to restrict the amount of business they write while they await approval of rate increases from the various state insurance departments. Our business could be harmed if our participating insurance companies reduce their participation in our online marketplace.

If we are unable to promote our brand and expand our brand recognition, our ability to draw consumers to our website will be limited

A growing number of websites offer services that are similar to and competitive with the services offered on our online insurance marketplace. Therefore, a positive recognition of our brand is critical to attracting additional consumers to our website, strengthening our relationships with participating insurance companies and attracting new insurance companies. In order to attract and retain consumers and insurance companies and to promote and maintain our brand, we are continuing our financial commitment to create and maintain brand awareness. Our current marketing program consists of the maintenance of certain network online relationships and other selective cost effective marketing campaigns, designed to maintain consumer awareness of InsWeb and our online insurance marketplace. If our marketing efforts do not generate a corresponding increase in revenues or we otherwise fail to successfully promote our brand, or if these efforts require excessive expenditures, our business will be harmed. Moreover, if visitors to our website do not perceive our existing services or the products and services of our participating insurance companies to be of high quality, or if we alter or modify our brand image, introduce new services or enter into new business ventures that are not favorably received, the value of our brand could be harmed.

Our ability to maintain a positive recognition of our brand also depends in part on the quality of the products and services consumers receive from our participating insurance companies or our insurance agency, including timely response to requests for quotes or coverage. If we are unable to provide consumers with high-quality products and services, the value of our brand may be harmed and the number of consumers using our services may decline.

Competition in the market for online distribution of insurance is intense, and if we are unable to compete effectively with current competitors or new competitors that enter the market, the fees paid to us by participating insurance companies may fall, the fees charged by online companies with which we have strategic relationships may rise, and our market share may suffer

The online insurance distribution market is a new industry and, like the broader electronic commerce market, is both rapidly evolving and highly competitive. Increased competition, particularly by companies offering online insurance distribution, could reduce the fees we are able to charge our participating insurance companies or increase the fees we are required to pay to online companies with which we have strategic relationships, resulting in reduced margins or loss of market share, any of which could harm our business. In addition, our current and future competitors may be able to:

• undertake more extensive marketing campaigns for their brands and services;

• devote more resources to website and systems development;

• adopt more aggressive pricing policies; and

• make more attractive offers to potential employees, online companies and third-party service providers.

Accordingly, we may not be able to maintain or grow consumer traffic to our website and our base of participating insurance companies, our competitors may grow faster than we do, or companies with whom we have strategic relationships may discontinue their relationships with us, any of which would harm our business.

Because a limited number of insurance companies account for a majority of our revenues, the loss of a single insurance company relationship could result in a substantial drop in our revenues

InsWeb has been dependent on a limited number of insurance companies for a majority of its revenues. Revenues from Progressive, GE Financial Assurance (“GEFA”) and American Family accounted for approximately 14%, 14% and 10%, respectively, of InsWeb’s revenues for the year ended December 31, 2003. Revenues from Amica, GEFA and Kemper Direct accounted for approximately 14%, 14% and 10%, respectively, of InsWeb’s revenues for the year ended December 31, 2002. Revenues from Amica, GEFA and AIG accounted for approximately 11%, 11% and 10%, respectively, of InsWeb’s revenues for the year ended December 31, 2001. Revenues from Progressive and John Hancock each accounted for approximately 10% of our revenues for the nine months ended September 30, 2004. John Hancock terminated its participation in the InsWeb term life insurance marketplace on June 14, 2004. The Company expects that the majority of leads that would have been directed to John Hancock will be directed to other carriers, new or existing.

In September 2003, Progressive discontinued its participation as a quoting company in the InsWeb market place; however, in October 2003, Progressive signed an agreement to participate in the Sponsored Web Link program. In November 2003, GEFA’s participation as an instant quoting carrier within the InsWeb marketplace was terminated as a result of its acquisition by AIG, Inc., who is and will continue as a quoting company in the InsWeb marketplace.

Should one or more of our other key insurance company partners cease to participate in our online marketplace, change its underwriting criteria or geographic coverage in a way that reduces the proportion of consumers that are offered quotes from that insurance company, or suffer a significant decline in its ratings, our operating results could be materially harmed. Because of the broad market presence of some of our participating insurance companies, we expect to continue to generate a substantial portion of our revenues from a limited number of insurance companies for the foreseeable future. Although InsWeb continually seeks new insurance companies to participate in the online marketplace, we may be unable to add any new insurance companies.

We may have difficulty integrating new insurance companies into our online marketplace or agency operations, which could harm our ability to offer improved comparison-shopping opportunities and thus limit the attractiveness of our service to consumers

Integration of an insurance company into our online marketplace requires a significant commitment of time and resources on our part and on the part of the insurance company, and is a technologically difficult process. This integration process typically takes from three to six months to complete and typically requires us to expend between 160 and 2,000 man-hours. To develop company-sponsored quotes for consumers, the integration requires either the development of a customized interface with the insurance company’s own rating system, accessing a third-party rating engine of the insurance company’s choice, or adding the insurance company’s rating information into InsWeb’s proprietary rating engines. Though integration into our agency operations may require fewer resources to implement than integration of an insurance company into our online marketplace, potential participating insurance companies may not be willing to invest the time and resources necessary to achieve this integration, or we may not be able to overcome the technological difficulties associated with, or devote the time and resources necessary to, successfully integrate the insurance company into our online marketplace or our agency operations.

We do not have exclusive relationships or long-term contracts with insurance companies, which may limit our ability to retain these insurance companies as participants in our marketplace and maintain the attractiveness of our services to consumers

We do not have an exclusive relationship with any of the insurance companies whose insurance products are offered on our online marketplace, and thus, consumers may obtain quotes and coverage from these insurance companies without using our website. Our participating insurance companies offer their products directly to consumers through insurance agents, mass marketing campaigns or through other traditional methods of insurance distribution. These insurance companies can also offer their products and services over the Internet, either directly to consumers or through one or more of our online competitors, or both. In addition, most of our agreements with our participating insurance companies are cancelable at the option of either party upon 90 days’ notice or less. We have experienced, and expect to continue to experience, reductions in the level of participation in our marketplace or complete termination by participating insurance companies. These reductions in participation, terminations, or an inability to attract additional insurance companies to our marketplace could materially affect our revenues and harm our business.

The outcome and impact of the securities class action lawsuit involving InsWeb is uncertain

A securities class action lawsuit was filed on December 5, 2001 in the United States District Court for the Southern District of New York, (the “Court”) purportedly on behalf of all persons who purchased our common stock from July 22, 1999 through December 6, 2000. The complaint named as defendants InsWeb, certain current and former officers and directors, and three investment banking firms that served as underwriters for InsWeb’s initial public offering in July 1999. The complaint, as subsequently amended, alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10 and 20 of the Securities Exchange Act of 1934, on the grounds that the prospectuses incorporated in the registration statements for the offering failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the shares of our stock sold in the offerings and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocated shares of the stock sold in the offering to those customers in exchange for which the customers agreed to purchase additional shares of InsWeb stock in the aftermarket at pre-determined prices. No specific damages are claimed. Similar allegations have been made in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000, all of which have been consolidated for pretrial purposes. In October 2002, all claims against the individual defendants were dismissed without prejudice. In February 2003, the Court dismissed the claims in the InsWeb action alleging violations of the Securities Exchange Act of 1934 but allowed the plaintiffs to proceed with the remaining claims. In June 2003, the plaintiffs in all of the cases presented a settlement proposal to all of the issuer defendants. Under the proposed settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in all the related cases, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. InsWeb and most of the other issuer defendants have accepted the settlement proposal. The settlement is subject to approval of the Court, which cannot be assured. If the settlement is not approved by the Court, InsWeb would defend the lawsuit vigorously. However, the litigation is in the preliminary stage, and we therefore cannot predict its outcome. The litigation process is inherently uncertain. An unfavorable outcome could have a material adverse effect on InsWeb’s financial condition, results of operations and cash flows.

Traffic on our website is heavily dependent on our online relationships. These relationships may not generate sufficient revenues to justify the fees we pay to online companies and our consumer traffic may decline in the event an online relationship is unsuccessful

We rely on relationships with a variety of Internet portals, financial institutions, and other online companies to attract consumers to our website. In a typical arrangement, the online company includes a “link” on its website on which a user can click to jump to our website or to a site that we operate under the online company’s name; as part of the arrangement, we typically pay the online company a portion of the resulting transaction fees and in some cases a fixed fee. These relationships may not continue to generate a substantial amount of new traffic on our website, or the revenues generated by these relationships may be insufficient to justify our payment obligations. We have experienced occasional fluctuations in the traffic from our online partners as a result of redesigns of their websites or being outbid for promotions by other online insurance providers. Furthermore, the value of these relationships is based on the continued positive market presence, reputation and growth of these online companies’ websites and services. Any decline in the market presence, business or reputation of these online companies’ websites and services will reduce the value of these relationships to us and could harm our business.

For 2003, 2002 and 2001, we received approximately 13%, 11% and 32%, respectively of our website traffic from the major Internet portals Yahoo! Inc., MSN and AOL. For the nine months ended September 30, 2004, we received approximately 20% of our website traffic from these online relationships. During 2002, InsWeb significantly expanded its on-line marketing relationship with LowerMyBills.com, Inc., as a result of which LowerMyBills.com delivered approximately 34% and 21% of InsWeb’s website traffic for 2002 and 2003, respectively. In early 2004, InsWeb terminated its on-line marketing relationship with LowerMyBills.com, Inc.

Most of our relationships with online companies are terminable by either party on 30 to 90 days’ notice. We may not be able to negotiate or renew marketing agreements with online companies on terms that are acceptable to us. The termination, non-renewal or renewal on unfavorable terms of a relationship from which we generate significant traffic to our website would harm our business. If the recent trend of failing online companies continues, the traffic currently being received as well as the ability to attract new consumer traffic to our site could be harmed. Additionally, an online company’s failure to maintain efficient and uninterrupted operation of its computer and communications hardware systems would likely reduce the amount of traffic we receive at our site, harming our business.

Laws and regulations that govern the insurance industry could expose us, or our participating insurance companies, our officers, or agents with whom we contract, to legal penalties if we fail to comply, and could require changes to our business

We perform functions for licensed insurance companies and are, therefore, required to comply with a complex set of rules and regulations that often vary from state to state. If we fail to comply with these rules and regulations, we, an insurance company doing business with us, our officers, or agents with whom we contract, could be subject to various sanctions, including censure, fines, a cease-and-desist order or other penalties. This risk, as well as changes in the regulatory climate or the enforcement or interpretation of existing law, could expose us to additional costs, including indemnification of participating insurance companies for their costs, and could require changes to our business or otherwise harm our business. Furthermore, because the application of online commerce to the consumer insurance market is relatively new, the impact of current or future regulations on InsWeb’s business is difficult to anticipate.

If we are unable to safeguard the security and privacy of consumers’ and participating insurance companies’ confidential data, consumers and insurance companies may not use our services and our business may be harmed

A significant barrier to electronic commerce and communications is the secure transmission of personally identifiable information of Internet users as well as other confidential information over public networks. If any compromise or breach of security were to occur, it could harm our reputation and expose us to possible liability. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to make significant expenditures to protect against security breaches or to alleviate problems caused by any breaches. To date, we have experienced no breaches in our network security. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as names, addresses, Social Security and credit card numbers, user names and passwords and insurance company rate information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments could result in a compromise or breach of the algorithms we use to protect consumers’ and insurance companies’ confidential information.

System failures could reduce or limit traffic on our website or interrupt our communications with individual insurance companies and harm our ability to generate revenue

Since launching our online marketplace, we have experienced occasional minor system failures or outages that have resulted in the online marketplace being out of service for a period ranging from several minutes to three hours while our technicians brought backup systems online. We may experience further system failures or outages in the future that could disrupt the operation of our website and could harm our business. Our revenues depend in large part on the volume of traffic on our website and, more particularly, on the number of insurance quotes generated by our website in response to consumer inquiries. Accordingly, the performance, reliability and availability of our website, quote-generating systems and network infrastructure are critical to our reputation and our ability to attract a high volume of traffic to our website and to attract and retain participating insurance companies. Moreover, we believe that consumers who have a negative experience with an electronic commerce website may be reluctant to return to that site. Thus, a significant failure or outage affecting our systems could result in severe long-term damage to our business.

Additionally, several of our participating insurance companies have chosen a technical solution that requires that our website servers communicate with these insurance companies’ computer systems in order to perform the underwriting and risk analysis and rating functions required to generate quotes. Thus, the availability of quotes from a given insurance company may depend in large part upon the reliability of that insurance company’s own computer systems, over which we have no control

Our facilities and systems are vulnerable to natural disasters and other unexpected losses, and we may not have adequate insurance to cover such losses

Our computer hardware operations are located in leased facilities in Gold River, California. A third-party service provider located in the Sacramento, California area maintains a backup of our critical systems. If both of these locations experienced a system failure, the performance of our website would be harmed. These systems are also vulnerable to damage from fire, power loss, telecommunications failures, break-ins, natural disasters and similar events. If we seek to replicate our systems at other locations, we will face a number of technical challenges, particularly with respect to database replications, which we may not be able to address successfully. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.

We rely on the services of our executive officers and other key personnel, whose knowledge of our business and the insurance industry and technical expertise would be extremely difficult to replace

Our future success is substantially dependent on the continued services and continuing contributions of our senior management and other key personnel, particularly Hussein A. Enan, Chairman of our Board, and Chief Executive Officer, and the loss of the services of any of our executive officers or other key employees could harm our business.

We have no long-term employment agreements with any of our key personnel, although executive officers and key personnel are entitled to certain severance benefits should their employment be involuntarily terminated. In addition, InsWeb has granted stock options as incentives to executive officers and certain other key personnel. As the value of these incentives is highly dependent on an increase in the market price of our common stock, we may be unable to retain such key employees, nor retain or recruit other officers and key employees in the future.

Regulation of the Internet is unsettled, and future regulations could inhibit the growth of the Internet and otherwise harm our business

The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. Furthermore, the growth and development of the market for electronic commerce may prompt the enactment of more stringent consumer protection laws that may impose additional burdens on companies conducting business online. For example, federal legislation restricting the sending of unsolicited commercial email, or “spam”, may impede the implementation of national email-based marketing campaigns. New laws also may inhibit the growth of the Internet as a medium for commerce and comparison insurance shopping, which could, in turn, decrease demand for our services, increase our cost of doing business, or otherwise harm our business. In addition, applicability to the Internet of existing laws governing issues including property ownership, copyrights and other intellectual property issues, taxation, libel and personal privacy is uncertain. The vast majority of these laws was adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies.

Any acquisitions or new projects that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value and harm our operating results

We may acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise. The process of integrating any acquired business, technology, service or product into our business and operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may consume much of our management’s time and attention that would otherwise be available for ongoing development of our business. Moreover, the anticipated benefits of any acquisition may not be realized. We may be unable to identify, negotiate or finance future acquisitions successfully, or to integrate successfully any acquisitions with our current business. Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm our business. Likewise, we may choose to develop new products or services internally. The revenue realized from these potential products or services, however, might not exceed our costs; and the development process might distract management from other meaningful opportunities.

We may be subject to claims for infringement of intellectual property, with or without merit, which could be costly to defend or settle

We may from time to time be subject to claims of infringement of other parties’ proprietary rights or claims that our own trademarks, patents or other intellectual property rights are invalid. We have been subject to infringement claims in the ordinary course of business, including claims of alleged infringement of the patent and trademark rights of third parties us or by companies with which we have business relationships. Any claims of this type, with or without merit, could be time-consuming to defend, result in costly litigation, divert management attention and resources or require us to enter into royalty or license agreements. License agreements may not be available on reasonable terms, if at all, and the assertion or prosecution of any infringement claims could significantly harm our business.

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-26083

Delaware		94-3220749
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

11290 Pyrites Way, Suite 200 Gold River, California 95670
(Address of principal executive offices)

(916) 853-3300
(Registrant’s telephone number, including area code)

PART I	FINANCIAL INFORMATION
ITEM 1:	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003
	Notes to Condensed Consolidated Financial Statements
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk
ITEM 4:	Controls and Procedures

PART II	OTHER INFORMATION
ITEM 4:	Submission of Matters to a Vote of Security Holders
ITEM 6:	Exhibits and Reports on Form 8-K

Signature

Exhibit Number		Description of Document
31.1		Certification of Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a).

31.2		Certification of Chief Financial Officer, pursuant to Exchange Act Rule 13a-14(a).

32		Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

Dated: November 12, 2004	INSWEB CORPORATION
	(Registrant)


	/s/ WILLIAM D. GRIFFIN
	William D. Griffin
	Chief Financial Officer