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, fluctuations in revenues, anticipated and unanticipated losses, the unpredictability of consumer shopping and/or buying behavior, especially on the internet, potential increases in advertising and marketing costs on the internet, the rate of participation by insurance companies and agents, reliance on key customers, who are themselves subject to volatility in their operating cycles, reliance on a third party intermediary who provides leads to local insurance agents on InsWeb's behalf, competition,risks associated with system development and operation risks, management of potential growth and risks of new business areas, business combinations, litigation in which InsWeb is a party, and strategic alliances. These risks and uncertainties, as well as other risks and uncertainties, which are described in greater detail in InsWeb's Annual Report on Form 10-K for the year ended December 31, 2008 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 (the "Company," "InsWeb," "we," "us," or "our") operates an online insurance marketplace that electronically matches consumers and providers of automobile, homeowners 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, agents and insurance providers to develop an integrated online marketplace.

For the automobile and homeowners insurance products, our principal source of revenues is transaction fees from participating insurance providers. While quotes obtained through our online insurance marketplace are provided to consumers free of charge, we earn revenues when a qualified lead is delivered 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, we will be paid a fee for that consumer link or click-through whether or not the consumer completes the third party's online application.

For term life insurance, the majority of our revenues prior to April 2007 consisted of commissions earned by our insurance agency subsidiary, InsWeb Insurance Services, Inc., upon the sale of a term life insurance policy. We discontinued the term life agency operation in April 2007 but continued to earn commissions throughout 2007 (in decreasing amounts) on a limited number of policies written prior to the discontinuation of the agency operations. Beginning in 2008, substantially all of our term life insurance were being generated by the sale of leads to third parties and to local agents.

Beginning in 2008, InsWeb began generating both subscription and display advertising from sales of advertising on its Agent Directory pages. These pages display listings of several insurance companies and not more than eight local agents for the consumer to contact.

For a variety of other insurance products, including renters and health insurance, we are paid a fee for the click through of a consumer from our website to a third party's website.

We have focused our efforts on automobile insurance, which accounted for approximately 84% of our transaction revenues in 2008 and 2007. For the three month period ending March 31, 2009 automobile insurance accounted for 84% of our transaction revenues. For the comparable three month period in 2008, automobile insurance accounted for approximately 86% of transaction revenues. We anticipate that automobile insurance will continue to account for a substantial portion of our revenues for the foreseeable future.

Results of Operations

  The following financial highlights and key metrics are provided as a resource
for our investors

                                                        Three months Ended
                                                     March 31,     March 31,
                                                       2009           2008
      Revenues:
      Auto                                          $ 7,986,000   $ 11,197,000
      Property                                      $   895,000   $    931,000
      Term Life                                     $   449,000   $    485,000
      Agent Directory                               $   111,000   $    351,000
      All other                                     $    43,000   $      7,000
      Total transaction fees                        $ 9,484,000   $ 12,971,000

      Direct Marketing Costs:                       $ 6,545,000   $  9,305,000

      Direct Marketing Costs as a percent of
      Revenues:                                              69 %           71 %

      Cash, Cash Equivalents, Short term
      Investments and Restricted Cash :             $ 8,286,000   $ 12,161,000
      Account Receivable:                           $ 3,483,000   $  3,548,000
      Day Sales Outstanding (DSO):                           23             21
      Staffing:                                              89             72

Transaction Fees. Automobile insurance transaction fees (consisting of lead fees and click through fees) decreased to $8.0 million for the three months ended March 31, 2009, from $11.2 million for the comparable period in 2008. The decrease in transaction fees was primarily attributable to a decrease in revenue per auto consumer to $2.75 from $3.91 for the comparable period in 2008. The decrease in revenue per consumer is a direct result of more consumers being acquired through other lead aggregators. Consumers acquired through other aggregators generate less revenue since we are only able to sell these leads to insurance companies that the consumer has not already seen from the other aggregators.

Property insurance transaction fees (consisting primarily of lead fees) remained level at $0.9 million for the three months ended March 31, 2008 and 2009.

Term life insurance transaction fees (consisting primarily of lead fees) decreased to $0.4 million for the three months ended March 31, 2009, from $0.5 million for the comparable period in 2008.

Agent directory revenues (consisting primarily of subscription revenue) decreased to $0.1 million for the three months ended March 31, 2009, from $0.4 million for the comparable period in 2008. This was due primarily to lower advertising revenues (revenues generated by selling banner ads on the directory, as opposed to revenues generated by agents subscribing).

Operating Expenses

                                            Three months ended     Percentage
                                                March 31,          change from
     (in thousands, except percentages)      2009         2008     prior period

     Operating expenses:
     Direct marketing                     $    6,545    $  9,305            (30 ) %
     Sales and marketing                       1,770       1,295             37  %
     Technology                                  958         816             17  %
     General and administrative                  803       1,026            (22 ) %

Operating Expenses (continued)

Direct Marketing. Direct marketing expenses consist of advertising, promotions and fees incurred to drive consumer traffic to the InsWeb online marketplace. Our marketing strategy is designed to increase consumer traffic to our website and to drive awareness of our insurance products and services. We employ 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 as well as partnerships with other online lead generators that use our network. Fees related to our online marketing are expensed in the period in which the consumer clicks through from a partner's website to InsWeb's website, or in some cases, when the consumer's activity on the InsWeb website generates a lead to an insurance provider.

Direct marketing expenses for the three months ending March 31, 2009 decreased to $6.5 million from $9.3 million in the comparable period in 2008. Direct marketing expense as a percent of total revenues was 69% for the three months ended March 31, 2009, compared to 71% for the comparable period in 2008. Direct marketing expenses per consumer were $1.60 for the three months ended March 31, 2009, a decrease from $2.47 for the comparable period in 2008. This decrease can be attributed to more consumers being acquired through other aggregators. We incur marketing costs for these aggregators through revenue-sharing arrangements. As mentioned earlier, consumers acquired through other aggregators generate less revenue per consumer. Since we are now acquiring more consumers through other aggregators, this results in lower marketing expenses per consumer.

Sales and Marketing. Sales and marketing expenses consist primarily of payroll and related expenses, including employee benefits, facility costs, telecommunications and systems costs, for our sales and marketing personnel. Sales and marketing expenses increased to $1.8 million for the three months ended March 31, 2009, from $1.3 million for the comparable period in 2008. The increase was primarily due to an increase in headcount related and consulting expenses. Sales and marketing expenses for the remainder of 2009 are expected to remain consistent with current spending levels.

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 our technology initiatives. Technology expenses increased to $1.0 million for the three months ended March 31, 2009, from $0.8 million for the comparable period in 2008. The increase was primarily due to an increase in headcount related expenses and software licenses. Technology expenses for the remainder of 2009 are expected to remain consistent with current spending levels.

General and Administrative. General and administrative expenses consist primarily of payroll and related expenses, including employee benefits, facility costs, telecommunications and systems costs, for our general management, administrative and accounting personnel, as well as other general corporate expenses. General and administrative expenses decreased to $0.8 million for the three months ended March 31, 2009, compared to $1.0 million for the comparable period in 2008. The decrease was primarily due to a decrease in share-based compensation expense. General and administrative expenses are expected to remain consistent with current spending levels for the remainder of 2009.

Income Taxes.

The benefit from income taxes was $35,000 for the three months ended March 31, 2009, compared to a provision for income taxes of $9,000 for the three months ended March 31, 2008.

Interest Income

Interest income was $14,000 for the three months ended March 31, 2009, a decrease from $89,000 for the comparable period in 2008 relating to the decrease in InsWeb's cash and investment balances. Interest income represents interest earned on InsWeb's investment securities.

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 1, "Financial Statements - Note 12 - Commitments and Contingencies."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; and 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. 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. 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. Generally, compensation cost is recognized over the requisite service period. However, to the extent performance conditions affect the vesting of an award; compensation cost will be recognized only if the performance condition is satisfied. Compensation cost will not be recognized, and any previously recognized compensation cost will be reversed, if the performance condition is not satisfied.

Critical Accounting Policies (continued)

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.

InsWeb has unrecognized tax benefits of approximately $0.3 million (none of which, if recognized, would favorably affect InsWeb's effective tax rate). InsWeb does not believe there will be 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 approximately $190 million for federal income tax purposes and $76 million for state income tax purposes, respectively. The federal net operating loss carry forwards will begin to expire in the year 2011 and state net operating loss carry forwards will begin to expire in 2012. InsWeb's ability to utilize a portion of its net operating loss carry forwards to offset future taxable income may be subject to restrictions attributable to equity transactions that result in changes in ownership as defined in the Tax Reform Act of 1986. These restrictions may limit, on an annual basis, InsWeb's future use of its net operating loss carry forwards.

The carrying value of our deferred tax assets, which was approximately $70 million at December 31, 2008, is dependent upon our ability to generate sufficient future taxable income. We have established a full valuation allowance against our net deferred tax assets to reflect the uncertainty of realizing the deferred tax benefits, given historical losses. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. This assessment requires a review and consideration of all available positive and negative evidence, including our past and future performance, the market environment in which we operate, the utilization of tax attributes in the past, and the length of carryforward periods and evaluation of potential tax planning strategies. We expect to continue to maintain a full valuation allowance until an appropriate level of profitability is sustained or we are able to develop tax strategies that would enable us to conclude that it is more likely than not that a portion of our deferred tax assets would be realizable.

Liquidity and Capital Resources

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

                                                        Three months ended
                                                             March 31,
                                                       2009           2008
      Cash provided (used) by operating activities   $    (974 )   $     1,146
      Cash used in investing activities                 (4,227 )           (68 )
      Cash provided by financing activities                 22             306

At March 31, 2009, InsWeb's principal source of liquidity was $4.1 million in cash and cash equivalents. Since inception, we have financed our operations primarily through the sale of preferred and common stock.

For the three months ended March 31, 2009, net cash used by operating activities primarily consisted of our net loss adjusted for non-cash share-based compensation of $0.1 million and depreciation and amortization of property, equipment and intangible assets of $47,000. An increase in accounts receivable of $2.0 million decreased cash provided by operations, but was partially offset by an increase in accounts payable of $1.2 million and a decrease in prepaid expenses and other assets of $0.2 million. For the comparable three month period ended March 31, 2008, net cash provided by operating activities primarily consisted of our net income adjusted for non-cash share-based compensation of $0.3 million and depreciation and amortization of property and equipment of $34,000. An increase in accounts receivable of $1.1 million decreased cash provided by operations, but was largely offset by an increase in accounts payable and accrued expenses of $1.0 million. The increase in accounts receivable was primarily the result of higher first quarter of 2008 revenues than the preceding 2007 fourth quarter revenues.

For the three months ended March 31, 2009 net cash used in investing activities was $4.2 million representing $2.0 million relating to purchases of short term investments and $2.2 million relating to cash restricted for the use as collateral to obtain a commercial credit line. InsWeb uses this commercial credit line for many of its larger, recurring accounts payable, and we will earn a cash rebate of approximately 50-95 basis points, dependent upon the purchase volume during the 2009 calendar year. For the comparable three month period ending March 31, 2008, net cash used in investing activities was $68,000, representing purchases of property and equipment.

For the three months ended March 31, 2009 and 2008, net cash provided by financing activities was $22,000 and $0.3 million respectively, and was primarily attributable to proceeds from employee stock plans.

We have a non-cancelable 10-year operating lease agreement through April 2011 for office space in the Sacramento area which currently houses our corporate headquarters. We have options to extend the lease at the end of the lease term, and have the right of first refusal on other office space in the complex.

Aggregate contractual cash obligations, net of contractual sublease income, as of March 31, 2009 is summarized as follows (in thousands):

                                          Gross lease      Sublease      Net lease
                                           commitments      income       commitment
   Nine months ending December 31, 2009   $         809   $      (50)   $        759
   Year ending December 31, 2010                  1,078          (15)          1,063
   Year ending December 31, 2011                    359             -            359
   Thereafter                                         -             -              -
                                          $       2,246   $      (65)   $      2,181

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