If the Internet were a frontier boom town, surplus lines insurers would be loitering on the outskirts, planning to come to town but determined to avoid trouble that could land them in Boot Hill.

While less complex products, including various personal lines coverages, are already widely sold via the Web, surplus lines insurers are still grappling with how best to use the Internet's capabilities.

Many insurers and wholesalers have their own Web sites, but most of these are informational, providing outlines of available coverages, application forms and contact information. Most stop short of offering online sales.

"The complexity of the coverage really doesn't lend itself to Internet binding," noted Ralph Cagnetta, a senior financial analyst with A.M. Best Co. in Oldwick, N.J.

Entrepreneurs, meanwhile, are seizing the lead in the online marketing of specialty products, creating a variety of Web sites that aim to connect agents and buyers with markets for an array of casualty and property coverages.

Sites that have opened this year include MarketScout.com, iwix.net and InsureHelp.com. Each is organized differently, but all were created to streamline the distribution of specialty lines products.

How well these online ventures do-and how much they affect specialty insurers' operations in the future-remains to be seen.

"I don't have any delusions of grandeur," said Keith Savino, president and chief executive officer of Warwick, N.Y.-based InsureHelp. "In most cases, this is (only) one of the distribution channels that agents have to reconcile with."

"Right now, it's very, very small in the big picture," MarketScout Chairman and CEO Richard K. Kerr in Dallas said of the volume of business generated online. Volume could grow rapidly, but "only time will tell," he said.

While specialty lines insurers have moved slowly in developing Internet capabilities, they have been pondering its possible uses for a while.

In early 1999, the National Assn. of Professional Surplus Lines Offices Ltd. released the results of an information technology research project conducted by KPMG Peat Marwick L.L.P. The study, based on interviews with insurers, wholesalers and retail agents, found that NAPSLO members tended to lag behind the rest of the insurance industry in spending on technology, but that they also saw the Internet as a relatively low-risk investment that could bring large rewards.

"This tends to be a risk-averse and conservative industry, as reflected in its use of technology," the 1999 report found, noting that IT investment in the excess and surplus lines industry amounted to about half that of the banking industry and far below the rest of the insurance industry.

At the same time, the study concluded, NAPSLO members saw the Internet as having a great impact on the E&S industry in the next few years, and most said that improving industry efficiency would mean creating standard interfaces along the E&S distribution chain, from insurer to wholesaler to retail agent.

NAPSLO members are still debating how best to use the Web, according to Tim Pedersen, the organization's president and president of the Chicago-based wholesaler Travis-Pedersen Associates Inc.

The Internet can streamline the placement process while emphasizing agents' and brokers' role in analyzing coverages, market security and claims-handling ability, Mr. Pedersen suggested.

The Web, though, is less valuable as a distribution mechanism than as a communication tool, he said.

Not everyone feels that way. Over the last several months, a number of independent businessmen have set up Web portals of various designs to market a range of insurance products, including specialty coverages.

One of these, MarketScout.com, now has 35 participating insurance companies, offering products in more than 300 industry and coverage classifications through thousands of participating agents, according to Mr. Kerr.

MarketScout's strategy is to select insurers that it determines are the "best in class" for a particular line of business and then connect retail agents to those markets through the Web portal, Mr. Kerr explained.

Retail agents obtain quotes from the insurers through "CyberAgents," which may include insurance underwriters, managing general agencies and program managers with exclusive authority to write given types of business for insurers

MarketScout investigates CyberAgent applicants to be sure they have the technical expertise and marketing connections to manage particular classes of business. The site, for example, requires that a CyberAgent have at least 10 years of experience in the coverage class he or she intends to sell through MarketScout and that an agency generate premium volume of at least $1 million per year online.

The role of CyberAgents is not only to provide coverage quotes but also to serve as a source of technical advice for retail agents, who do not pay to use the site, Mr. Kerr noted.

"The carrier or the MGA is creating a relationship with agents" through the site, he said. "Even if they don't sell the product, they are creating a relationship."

Privately held MarketScout-which was capitalized in a private placement early this summer-has generated about $20 million in premiums for insurers since its inception, about half of that amount from standard admitted market risks and half from E&S business, according to Mr. Kerr. MarketScout expects to produce $1 billion in premiums annually within the next two years, he said.

MarketScout's business model-selecting a single insurer for each type of coverage offered-intentionally avoids the "reverse auction" strategy adopted by a number of other insurance portals, Mr. Kerr said.

On a "reverse auction" site, buyers or agents submit information about a risk and receive quotes from several insurers, with the low bidder presumably getting the business.

This approach "is going to create a lot of opportunity for consumers, and it's a dangerous environment for the carriers," Mr. Kerr said. "If you build a model this way, the insurer ends up with a low-priced book, and relationships (with consumers) won't last very long."

Another site devoted to specialty lines, iwix.net, got started this spring with the aim of allowing small and medium-sized agencies to place specialty property and casualty coverages with surplus lines insurers.

Privately held iwix.net now has 30 participating insurers and more than 1,100 agents who have placed about 300 risks through the site in the last month, according to Max Carter, the company's CEO.

The idea behind the site is to allow agents who might not normally be able to handle an E&S placement to compete with larger agencies and brokers by using the Web site's resources, Mr. Carter said.

"It really levels the playing field," he noted.

Under the iwix.net system, agents can submit a variety of surplus lines risks-including directors and officers liability, kidnap/ransom, professional liability and medical malpractice risks-for quotations by participating insurers.

Insurers have already set guidelines for the types of business they're willing to write, and iwix.net steers agents to those markets that might write the business. An agent may request up to 10 quotes, which insurers will return through the site; the agent can then send a request to bind coverage through the site or can continue the transaction directly with the insurer.

Agents that do not hold surplus lines licenses can be referred to iwix-registered surplus lines intermediaries to handle placements with non-admitted markets.

As with MarketScout, agents pay nothing to use iwix.net; the site collects flat fees for each submission quoted on and each risk bound.

In addition to expanding agents' business, "the single biggest benefit to carriers is on the marketing side, in terms of being able to place their products in front of the eyes of the brokers," Mr. Carter observed.

Participating insurers so far include ACE Global Markets, Architects & Engineers Insurance Co., New York Marine & General Insurance Co., Royal & SunAlliance USA Inc., Zurich Specialties London Ltd. and several Lloyd's of London underwriters.

Iwix.net intends to avoid a price-driven reverse auction strategy, even though its system allows agents to review multiple quotes from insurers, Mr. Carter said.

"The reverse auction model tends to focus purely on price and ignores other terms of the policy," he noted. "That might lead to a carrier narrowing terms of coverage in order to compete."

Iwix.net, on the other hand, enables agents to weigh all of an insurer's coverage terms, not just price, Mr. Carter said. "It's a competitive bid mechanism (rather than) a reverse auction model," he explained.

Another Web portal, InsureHelp.com, takes a different approach: using the Internet to bring business to agents.

The company, which launched its site last November, is developing a number of specialty programs with insurers, including exhibitor and event cancellation coverages and insurance for fine wine collections.

InsureHelp then markets the coverage via hyperlinks from other Web sites, including association and special-interest sites, insurance agents' own sites and corporate intranets. A buyer, for example, may click on the link at an industry association Web site and find information about an InsureHelp product, along with an application form the buyer can fill out to obtain a quote.

If the referring site is not an agent's, InsureHelp gives the buyer a choice of local agencies that will take over servicing the business. If the site is an agent's own site, no agency referral is offered. InsureHelp designs its link for agents' sites to look like another of the agent's own pages, making InsureHelp's role in transactions invisible to buyers.

InsureHelp is designed to support the independent agency system, Mr. Savino, the company's CEO, said.

"We're taking an existing distribution channel that we know works well...but we built a new tool for it," he said.

InsureHelp has been testing products for the last eight months through an initial group of agencies in California, Connecticut, Florida, New Jersey and New York. But the site has been open to agents nationwide and has preregistered "hundreds" of agencies that will participate as the site expands, Mr. Savino said.

InsureHelp also expects to have 30 product offerings available by the end of the year, though not all products will be available in all states, he said. In many cases, InsureHelp will zero in on types of business that agencies and insurers have ignored or abandoned because of the expense of marketing and administering them, he added.

In one instance, an insurer has revived a product through InsureHelp that it earlier shelved because of the expense of building a wide enough distribution network to make the business profitable, according to Mr. Savino.

In another case, a broker with a small affinity group program has used InsureHelp to expand the program to satisfy its insurer, which had demanded larger volume in order to maintain the broker's exclusive on the program, he added.

Like MarketScout and iwix.net, InsureHelp is set up to strengthen ties between agents and insurance markets, in stark contrast to a number of early sites established to forge direct links between insurers and buyers.

"Over the past year and a half, agents have gone from being disintermediated to being reintermediated, and most of the agents don't even know this has gone on," Mr. Savino joked. "Most of these guys don't know they were out of business a year and a half ago."

Operators of the new specialty lines sites, meanwhile, are hoping to avoid the problems encountered by some of the business-to-consumer insurance auction sites that preceded them.

InsWeb Corp. in Sacramento, Calif., for example, a publicly traded online agency that offers competing quotes for auto, life and homeowners insurance, announced a large second-quarter loss following a decision by State Farm Group, which accounted for about 30% of its business, to withdraw from the site. InsWeb had earlier announced a 40% staff reduction aimed at slashing costs.

Whether the new specialty sites avoid pitfalls, though, and expand as a new distribution channel for specialty lines remains to be seen.

"It's still really in kind of an embryonic stage," observed Mark Trencher, vp-insurance industry research with Conning & Co. in Hartford, Conn. "The market shares are in the very, very low single digits-less than 1%."

"Everyone is trying to figure out how to do this on the Internet," he said. "Everyone is just trying to figure out which (business) model they should adopt."