Technologists propose computers.

To some software companies, the scandal at insurance broker Marsh & McLennan Cos. looks like a marketing opportunity. The companies sell software that automates the process of soliciting bids for insurance coverage. Because the software encourages multiple bids and records every step of the bidding for later auditing, proponents say it makes it very difficult for brokers or other middlemen to manipulate the process.

The scandal means that insurance buyers will "really want to see the detail behind what they're buying," says Rebecca Wettemann, vice president at Nucleus Research, a Wellesley, Mass., firm that consults on technology for human-resources departments. The only way to do that, she says, is through technology. But she warns it will be painful for brokers and insurance companies because "we see insurance becoming, in a sense, commoditized."

Much of the technology already available is geared toward health insurance, which is by far the biggest insurance cost for most companies. IE-Engine Inc., a five-year-old company in Waltham, Mass., sells insurance-auction software that can let corporate buyers bypass brokers altogether. It's being used by several hundred companies, including Ford Motor Co., Staples Inc. and American Express Co.

Using IE-Engine's software, companies put out electronic requests for proposals, and insurers place bids online. Carriers can't see the actual amounts bid, but are told where their quotes rank compared to all other bidders, encouraging them to ratchet down their bids. The system also forces each carrier to bid on the same package of health-insurance coverage, so that bids can be compared on an apples-to-apples basis.

Brent Bannerman, a one-time insurance salesman who founded IE-Engine, says "the way the business is done, it's really built on a lot of relationships. That drives inefficiencies" that a computerized market can eliminate. Mr. Bannerman says that since the Marsh scandal erupted two weeks ago, half a dozen corporate prospects who had been putting off his salespeople have asked them to come in and make a presentation.

The multiple investigations going on in the insurance field also could generate some new opportunities, Mr. Bannerman says. He says IE-Engine is considering adapting its software to the property and casualty insurance market, the industry that is the focus of New York Attorney General Eliot Spitzer's bid-rigging charges. Connecticut's attorney general also recently expanded his office's investigation of industry practices beyond property and casualty insurers and into the health-insurance market.

Another approach is offered by BenefitPoint Inc., which doesn't bypass insurance brokers but instead sells software that helps brokers automate the bidding process. The San Francisco company's Aptus software turns the traditionally paper-based process of seeking and receiving bids into an online, interactive system with time-stamped bids.

One of the allegations made by Mr. Spitzer is that Marsh & McLennan sought sham bids from insurers, which were told in advance to bid at a certain level so that they wouldn't undercut the rival carrier that was supposed to win the contract. The alleged manipulation may have been facilitated by the loosely monitored system of securing insurance quotes, which can involve a welter of hand-written notes, faxes and spreadsheets -- many of which the ultimate customer never sees.

John Randazzo, chief executive of BenefitPoint, says brokers generally haven't been allowing customers to electronically oversee the BenefitPoint electronic-bidding process. But he predicts that may change. He says the scandal has prompted his company to start advising brokers to become more open, so customers can be more confident that many bids were sought and the best were shown to them. "Without technology, this is a very cozy club where sales depend on who you know and who you talked to today," says Mr. Randazzo.

One IE-Engine customer is Pitney-Bowes Inc. David Hom, vice president in charge of employee benefits, says the software, used to buy health policies for all its U.S. employees, "has allowed us to create a competitive environment for health plans." It also has eliminated the need for the consultants that Pitney used to pay $400 an hour to analyze paper-based proposals from insurance companies. Pitney, the postage-meter maker based in Stamford, Conn., says its average healthcare costs have risen about 7.5% a year for the past 12 years, compared with 12% for average employer plans.

Nancy Lazgin, director of global benefits at office-supplies retailer Staples Inc., says using IEEngine to buy all of the company's domestic health insurance allows Staples to "bring in more competitors than we would have done in a paper-based system. There's competition, clearly."

BenefitPoint, meanwhile, says its technology is used by brokers to place about 10% of the $1 trillion that is spent annually in the U.S. on employee-benefits insurance by private industry. Among its customers is Marsh & McLennan, which is using the software in some of its offices.

If electronic insurance bidding does take off, it will be something of a vindication for Internet visionaries who spotted an opportunity in the late 1990s. At the time, business-to-business electronic markets were expected to bypass all manner of human brokers, and insurance was high on the list because it appeared to be an inefficient market run by high-paid brokers. Page 2 of 3 WSJ.com - Scandal Boosts Online Bidding For Insurance 10/28/2004 http://online.wsj.com/article_print/0,,SB109900040135358963,00.html

But the big insurance brokers have largely maintained a tight hold on the corporate end of the market, in part because insurance is perceived by many to be a highly complex product that needs to be tuned to each customer.

Some consumer Web sites offering personal life, auto and other insurance have persevered, including InsWeb Corp. of Sacramento, Calif., and Quotesmith.com Inc. of Darien, Ill. Another company, EHealth Insurance Inc. of Mountain View, Calif., provides health-insurance quotes for individuals and small businesses.

Insurance brokers and consultants say electronic insurance products won't put them out of business. Bob O'Brien, national practice leader of health care and group benefits at Mercer Human Resource Consulting, another unit of Marsh & McLennan, says customers will continue to need advice from consultants because "it's very different evaluating the appropriateness of a health plan than it is buying office supplies or commodities online."

But some insurance consultants regard electronic markets as inevitable. Watson Wyatt & Co., a Mercer rival based in Bethesda, Md., is using IE-Engine with its clients. "In some ways it's a commodity business, and we have to reconcile ourselves to that," says Ted Chien, global group and health-care practice director.