This Annual Report on Form 10-K 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 continued decreases in 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, uncertainty regarding the costs and revenues associated with new initiatives, 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 "Item 1A. Risk Factors" 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 electronically matches consumers and providers of automobile, hoemowners and term life insurance. 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 principal source of revenues is transaction fees from participating insurance providers, either directly from an insurance company or from a local insurance agent. While quotes and other information obtained through InsWeb's online insurance marketplace are provided to consumers free of charge, InsWeb earns revenues from participating insurance companies or agents based on the delivery of qualified leads. These fees are earned either from an insurance company based on a closed policy, from the delivery of a lead to a participating insurance provider or local agent. In certain instances, consumers are provided the opportunity to link directly to a third-party insurance provider's website. In these situations, the consumer will complete the third-party company's online application, and InsWeb will be paid a fee for that consumer link or "click-through."

Prior to September 2005, InsWeb's agent network program was conducted exclusively through an intermediary, NetQuote, Inc. During the year ended December 31, 2008, NetQuote represented 13% of auto transaction fees, compared to 15% and 19% during the years ended December 31, 2007 and 2006 respectively. To lessen InsWeb's reliance on this intermediary, and to maximize its revenue potential, InsWeb launched a proprietary agent network program ("AgentInsider") to provide leads directly to local insurance agents who have registered with InsWeb. AgentInsider was launched in September 2005 and complements the offering of our intermediary. As of December 31, 2008, 7,400 local personal lines insurance agents were actively purchasing consumer leads through AgentInsider. For the year ended, December 31, 2008, AgentInsider, represented 25% of auto, homeowners' and term life transaction fees. We expect that the sales of consumer leads to insurance agents, both through intermediaries and through our internally developed network, will continue to represent a significant percentage of auto transaction fees.

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 84% of our transaction revenues in 2008, approximately 84% in 2007 and approximately 76% in 2006. We anticipate that automobile insurance will continue to account for a substantial portion of our revenues for the foreseeable future.

InsWeb has been dependent on a limited number of customers for a majority of its automobile insurance transaction fee revenues, although recent expansion of InsWeb's offering has reduced that dependency to some extent. For the year ended December 31, 2008, NetQuote and two insurance companies (AIG, and Allstate) accounted for 16%, 14%, and 11% of total revenues, respectively. For the year ended December 31, 2007, three customers (NetQuote, Allstate and AIG) accounted for 16%, 13% and 13% of total revenues, respectively. For the year ended December 31, 2006, two customers (NetQuote and AIG) accounted for 17% and 10% of total revenues. At December 31, 2008, one customer (NetQuote) accounted for 17% of accounts receivable. At December 31, 2007, two customers (AIG and NetQuote) each accounted for 17% of accounts receivable.

InsWeb incurred operating losses of $2.5 million in 2008, and as of December 31, 2008, our accumulated deficit was $191.7 million. InsWeb generated operating income of $2.1 million in 2007 and incurred operating losses of $5.8 million in 2006. InsWeb's activities' have consumed substantial amounts of cash, cash equivalents and short-term investments ($1.5 million in 2008 and, $2.3 million in 2006) and may require capital in the future. Cash consumption was reduced in 2007 with an increase in cash and cash equivalents of $4.0 million. At December 31, 2008, InsWeb had $9.2 million in cash and cash equivalents. The losses and the related accumulated deficit are a result of 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. In order to remain competitive, InsWeb must continue to make investments essential to its ability to operate, and InsWeb intends to continue to invest in product development and maintenance, and sales and marketing. In addition, InsWeb will continue to incur the costs associated with continuing to function as a publicly listed company, including the costs of compliance with the provisions of the Sarbanes-Oxley Act of 2002, among other compliance related items. As a result, InsWeb may incur operating losses in 2009. In the event that InsWeb is unable to generate revenues sufficient to offset its costs, or if its costs of marketing and operations are greater than it anticipates, InsWeb may be unable to grow its business at the rate desired or may be required to delay, reduce, or cease certain of its operations, any of which could materially harm its business and financial results. In addition, if InsWeb is unable to sustain profitability, InsWeb may need to seek additional financing to continue its business operations. 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, it may delay, significantly reduce or cease certain of its operations, which could adversely affect its results of operations and financial position.

Results of Operations

The following table sets forth selected statement of operations data with the respective percentage change from the prior year:

                                                                      Percentage Change
                                     Year ended December 31,           from Prior Year
 (in thousands)                    2008        2007        2006       2008          2007
 Revenues:

 Transaction fees:
 Auto insurance                  $ 31,387    $ 27,640    $ 21,426          14 %         29 %
 Term life insurance                1,687       3,341       5,108         (50 )%       (35 )%
 Homeowners insurance               3,420       1,915       1,524          79 %         26 %
 Other insurance offerings            781          44         103       1,675 %        (57 )%
                                   37,275      32,940      28,161          13 %         17 %
 Other                                222         258         340         (14 )%       (24 )%
 Total revenues                    37,497      33,198      28,501          13 %         16 %
 Operating expenses:
 Direct marketing                  26,650      19,567      18,576          36 %          5 %
 Sales and marketing                5,982       5,246       7,512          14 %        (30 )%
 Technology                         3,292       3,075       4,459           7 %        (31 )%
 General and administrative         4,024       4,213       3,799          (4 %)        11 %
 Lease loss accrual                     -        (985 )         -         n/m          n/m
 Total operating expenses          39,948      31,116      34,346          28 %         (9 )%
 Income (loss) from operations   $ (2,451 )  $  2,082    $ (5,845 )      (218 )%       136 %

The following table sets forth selected statement of operations data as a percentage of total revenues:

                                              Year ended December 31,
                                             2008        2007     2006
            Revenues:

            Transaction fees:
            Auto insurance                     83.7 %     83.2 %   75.2 %
            Term life insurance                 4.5 %     10.1 %   17.9 %
            Other insurance                    11.2 %      5.9 %    5.7 %
            Other                               0.6 %      0.8 %    1.2 %
            Total revenues                    100.0 %    100.0 %  100.0 %
            Operating expenses:
            Direct marketing                   71.1 %     58.9 %   65.2 %
            Sales and marketing                15.9 %     15.8 %   26.4 %
            Technology                          8.8 %      9.3 %   15.7 %
            General and administrative         10.7 %     12.7 %   13.2 %
            Lease loss accrual                    - %     (3.0 )%     - %
            Total operating expenses         (106.5 )%    93.7 %  120.5 %
            Income (loss) from operations      (6.5 )%     6.3 %  (20.5 )%

Revenues

Auto insurance marketplace metrics were as follows:

                                                                                              Percentage Change
                                                        Year ended December 31,                from Prior Year
(In thousands, except per consumer amounts)        2008          2007           2006          2008          2007
Auto insurance transaction revenues            $      31,387   $  27,640   $       21,426         14 %          29 %
Number of consumers                                    8,827       6,045            5,064         46 %          19 %
Auto insurance transaction fees per consumer        $   3.56   $    4.57   $         4.23        (22 )%          8 %

Term life marketplace metrics were as follows:

                                                                                                        Percentage Change
                                                                    Year ended December 31,               from Prior Year
(In thousands, except per consumer and per policy amounts)       2008         2007         2006         2008           2007
Term life insurance transaction revenues                      $    1,687    $   3,341    $   5,108          (50 )%        (35 )%
Number of consumers                                                   88          105          287         (16) %         (63 )%
Term life insurance transaction fees per consumer             $    19.17    $   31.82    $   17.80         (40) %          79 %
Number of closed term life policies                                    -        2,580        5,444        (100) %         (53 )%
Term life insurance transaction fees per closed term life
policy                                                        $        -    $   1,295    $     938        (100) %          38 %

Homeowners marketplace metrics were as follows:

                                                                                  Percentage Change
                                                  Year ended December 31,          from Prior Year
(In thousands, except per consumer amounts)     2008         2007       2006       2008        2007
Homeowner insurance transaction revenues      $   3,420    $  1,915   $  1,524         79 %        26 %
Number of consumers                                 747         428        257         75 %        67 %
Homeowner insurance transaction fees per
consumer                                      $    4.58    $   4.47   $   5.93          2 %      (24) %

Definitions:

"Number of consumers" Represents consumers acquired from marketing activities.

Transaction Fees. Automobile insurance transaction fees (consisting of lead fees, commissions and Sponsored Web Link fees) increased to $31.4 million in 2008 from $27.6 million in 2007. The 14% increase in transaction fees was attributable to a 46% increase in the number of consumers shopping for automobile insurance on the InsWeb platform in 2008 compared to 2007, offset by a 22% decrease in revenue earned per consumer in 2008 compared to 2007. Automobile insurance transaction fees (consisting of lead fees, commissions and Sponsored Web Link fees) increased to $27.6 million in 2007 from $21.4 million in 2006. The 29% increase in transaction fees was attributable to a 19% increase in the number of consumers shopping for automobile insurance on the InsWeb platform in 2007 compared to 2006, and an 8% increase in the revenue earned per consumer in 2007 compared to 2006.

Term life insurance transaction fees (consisting primarily of agency commissions and a limited amount of lead fees) decreased 50% to $1.7 million in 2008 from $3.3 million in 2007. The decrease in term life revenues resulted from the reduction in sales of new term life insurance policies following our decision in April 2007 to wind-down our term life agency in order to focus on more profitable lead generation opportunities. We will continue to offer term life insurance products to our consumers through our online insurance marketplace using a lead generation model.

Homeowners insurance transaction fees increased 79% to $3.4 million in 2008 from $1.9 million in 2007. The increase in transaction fees was attributable to a 75% increase in the number of consumers shopping for homeowners insurance on the InsWeb platform in 2008 compared to 2007. Homeowners insurance transaction fees increased to $1.9 million in 2007 from $1.5 million in 2006. The 26% increase in transaction fees was attributable to a 67% increase in the number of consumers shopping for homeowner insurance on the InsWeb platform in 2007 compared to 2006, offset by a 24% decrease in revenue earned per consumer in 2007 compared to 2006.

Included in the automobile, homeowners and term life transaction fees are revenues that we receive from other insurance shopping websites which purchase consumer leads from us to sell to their networks of agents and insurance companies.

Other insurance transaction fees consist of subscription and display advertising on agent directory pages. Agent directory revenues amounted to $0.7 million in 2008 and $0 in 2007 and 2006.

Other. Development and maintenance fees accounted for $0.2 million, or 0.6% of total revenues in 2008, compared to $0.3 million, or 0.8% of total revenues in 2007, and $0.3 million, or 1.2%, of total revenues in 2006.

Operating Expenses

                                                                       Percentage Change
                                        Year ended December 31,         from Prior Year
(In thousands, except percentages)     2008       2007       2006       2008        2007
Operating expenses:

Direct marketing                     $ 26,650   $ 19,567   $ 18,576         36 %         5 %
Sales and marketing                     5,982      5,246      7,512         14 %       (30 )%
Technology                              3,292      3,075      4,459          7 %       (31 )%
General and administrative              4,024      4,213      3,799        (4) %       (11 )%
Lease loss accrual                          -       (985 )        -        n/m         n/m

Direct marketing (consumer acquisition) metrics and costs were as follows:

                                                                                                 Percentage Change
                                                                 Year ended December 31,          from Prior Year
(In thousands, except percentages and per consumer amounts)     2008       2007       2006       2008          2007
Direct marketing costs                                        $ 26,650   $ 19,567   $ 18,576         36 %           5 %
Direct marketing costs as a percent of transaction fees             71 %       59 %       66 %       20 %         (11 )%
Number of consumers                                             12,129      6,578      5,609         84 %          17 %
Direct marketing cost per consumer                            $   2.20   $   2.97   $   3.31        (26 )%        (10 )%
Transaction fees per consumer                                 $   3.07   $   5.01   $   5.02        (39 )%          0 %

Direct Marketing. Direct marketing expenses consist of advertising, promotions and fees paid to online companies to drive consumer traffic to the InsWeb online marketplace. InsWeb's marketing strategy is designed to increase consumer traffic to its website and to drive awareness of its insurance products and services. InsWeb employs various means of advertising, which consist primarily of online advertising, sponsored search, portal advertising, e-mail campaigns and strategic partnerships with high-profile online companies that can drive significant traffic to the InsWeb site. A growing portion of our consumer traffic comes from other insurance shopping websites for whom we operate as an additional, complimentary fulfillment program. Our agreements with these companies require us to share a portion of the revenues we earn when we are able to sell the consumer lead to additional agents or insurance companies.

Fees related to InsWeb's online marketing are expensed in the period the related consumer click-through occurs or in some cases, when the consumer leads are generated. Direct Marketing expenses were $26.7 million in 2008, compared to $19.6 million in 2007, and $18.6 million in 2006. The 36% increase in spending in 2008 versus 2007 resulted in an 84% increase in consumer traffic. Much of the increase in traffic can be attributed to the Agent Directory that was launched at the beginning of 2008. Direct marketing expense as a percent of transaction revenues was 71% in 2008, compared to 59% in 2007 and 66% in 2006. As a percent of revenues, marketing costs in 2008 were higher than in 2007 due to the fact that, in 2007, we benefitted from the run-off revenues from the term-life agency without incurring any marketing costs.

Sales and Marketing. Sales and marketing expenses consist primarily of payroll and related expenses, including employee benefits, facility costs, telecommunications and systems costs, for InsWeb's sales and marketing personnel. Sales and marketing expenses increased to $6.0 million in 2008 from $5.2 million in 2007, a 14% increase. The increase was primarily due to an increase in headcount related expenses. Sales and marketing expenses decreased to $5.2 million in 2007 from $7.5 million in 2006, a 30% decrease. This decrease was a result of the closure of our term life agency in April of 2007 and the elimination of related sales and customer support costs.

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 support and maintenance of the InsWeb online insurance marketplace. Technology expenses increased to $3.3 million in 2008 from $3.1 million in 2007. The increase was primarily due to an increase in headcount related expenses. Technology expenses decreased to $3.1 million in 2007 from $4.5 million in 2006. This decrease was primarily due to initiatives completed in September 2006 to reduce headcount due to the conclusion of various major technology initiatives.

General and Administrative. General and administrative expenses consist primarily of payroll and related expenses, including employee benefits, facility costs, telecommunications and systems costs, for InsWeb's general management, administrative and accounting personnel, as well as other general corporate expenses. General and administrative expenses decreased to $4.0 million in 2008 from $4.2 million in 2007. The decrease was primarily attributed to a decrease in

share-based compensation expense. General and administrative expenses increased to $4.2 million in 2007 from $3.8 million in 2006. The increase was primarily due to reductions in headcount and related severance costs.

Lease Loss Accrual. The lease loss accrual of $1.0 million for 2007 represents management's change in estimate for formerly occupied facilities.

Interest and Other Income, Net. Interest and other income for 2008 was $0.2 million compared to $0.4 million in 2007 and $2.5 million in 2006. Included in other income for 2006 was $2.0 million representing the gain recorded in connection with the sale of InsWeb Insurance Services' property and casualty agency book of business. This transaction closed on April 28, 2006. InsWeb's investment portfolio consists entirely of cash and cash equivalents. InsWeb expects that returns received from its investment portfolio in the near future will be negligible given current economic conditions in the United States.

Income Taxes. InsWeb's provision (benefit) for income taxes was ($44,000), $45,000 and $0 for the years ended December 31, 2008, 2007 and 2006 respectively.

Critical Accounting Policies

InsWeb's discussion and analysis of its financial condition and results of operations are based on InsWeb's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires InsWeb to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. InsWeb bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. InsWeb believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition. InsWeb's principal source of revenues is transaction fees from participating insurance providers, either directly from an insurance company or from a local insurance agent. While quotes and other information obtained through InsWeb's online insurance marketplace are provided to consumers free of charge, InsWeb earns revenues from participating insurance companies or agents based on the delivery of qualified leads. In certain instances, consumers are provided the opportunity to link directly to a third-party insurance provider's website ("Sponsored Web Link" program). In these situations, the consumer will complete the third-party company's online application, and InsWeb will be paid a fee for that consumer link or "click-through." InsWeb recognizes revenue when (i) persuasive evidence of an arrangement between InsWeb and the customer exists, (ii) delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable and (iv) collectability of the sales price is reasonably assured.

Contingencies. As discussed in Part I, Item 3 ("Legal Proceedings") and in Part II, Note 5 of Notes to Consolidated Financial Statements of this report, InsWeb is a defendant in: i) a class action lawsuit that alleges InsWeb violated certain federal securities laws at the time of its initial public offering; ii) a securities lawsuit alleging certain officers and directors and significant shareholders violated the short swing trading prohibition of Section 16(b) of the Securities Exchange Act; and iii) a patent infringement lawsuit in the U.S. District Court for the Eastern District of Texas. InsWeb is a co-plaintiff in a patent infringement lawsuit in the U.S. District Court for the Southern District of California. InsWeb cannot accurately predict the ultimate outcome of these matters at this time and therefore, cannot estimate the range of probable loss, if any, due to the inherent uncertainties of litigation. InsWeb believes it has meritorious defenses; however InsWeb cannot assure that it will prevail in any of these actions. An unfavorable outcome could have a material adverse effect on InsWeb's financial condition, results of operations and cash flows.

Share-Based Compensation. InsWeb accounts for share-based compensation in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. Under the provisions of Statement 123(R), share-based compensation cost is generally estimated at the grant date based on the award's fair value as calculated by the Black-Scholes-Merton (BSM) option-pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including expected option life, volatility, and forfeiture rates. If any of the assumptions used in the BSM model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period.

Income Taxes. InsWeb accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled.

Effective January 1, 2007 InsWeb adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"), which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. At January 1, 2008 and December 31, 2008, InsWeb had unrecognized tax benefits of approximately $0.3 million and $0.3 million, respectively (none of which, if recognized, would favorably affect InsWeb's effective tax rate). InsWeb does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

As of December 31, 2008, InsWeb had net operating loss carry forwards of . . .