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 third party lead aggregators who provide leads to their networks of insurance providers 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. InsWeb also distributes leads to (and buys leads from) other lead aggregators/lead distributors, such as NetQuote. In these situations, InsWeb receives a share of the revenues earned by these aggregators on leads we send them (and pays them a share of revenues we earn on leads we receive from them).

Beginning in 2008, substantially all of our term life insurance revenues are generated by the sale of leads to third parties and to local agents.

Also, beginning in 2008, InsWeb began generating both subscription and display advertising revenues 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.

Beginning in 2009, our health and small business insurance revenues were being generated by the sale of leads to third parties and to local agents.

We have focused our efforts on automobile insurance, which accounted for approximately 84% of our transaction revenues in 2008 and 2007. For the nine month period ending September 30, 2009 automobile insurance accounted for 83% of our transaction revenues. For the comparable nine month period in 2008, automobile insurance accounted for approximately 85% 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                   Nine months Ended
                                 September 30,      September 30,     September 30,     September 30,
                                     2009               2008              2009              2008
Revenues (in thousands):
Auto                            $         7,296    $         7,574   $        21,836   $        26,036
Property                                    896                862             2,651             2,807
Term life                                   562                377             1,370             1,222
Agent directory                             105                134               339               590
Other                                        48                  8               136                22
Total transaction fees          $         8,907    $         8,955   $        26,332   $        30,677

Direct marketing costs (in      $                  $
thousands):                               5,834              6,497   $        17,713   $        22,040

Direct marketing costs as a
percent of transaction
revenues:                                    65 %               73 %              67 %              72 %

Cash, cash equivalents and
restricted cash (in thousands): $         7,941    $         9,125   $         7,941   $         9,125
Account receivable (in          $                  $
thousands):                               2,286              2,410   $         2,286   $         2,410
Day sales outstanding (DSO):                 22                 24                22                24
Headcount:                                   61                 89                61                89

Transaction Fees.

Automobile insurance transaction fees (consisting of lead fees and click through fees) decreased to $7.3 million and $21.8 million for the three and nine months ended September 30, 2009, from $7.6 million and $26.0 million for the comparable periods in 2008. Revenue per consumer was $2.68 and $2.72 for the three and nine months ended September 30, 2009, a decrease from $3.37 and $3.64 for the comparable periods in 2008. The decrease in revenue per consumer is a direct result of more consumers being acquired through other lead aggregators. Consumers acquired through 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. We expect revenue per consumer to remain at current levels for the remainder of 2009 as we do not expect significant changes in our marketing sources.

Property insurance transaction fees (consisting primarily of lead fees) remained level at $0.9 million for the three months ended September 30, 2009 compared to the same period in 2008, but decreased to $2.7 million for the nine months ended September 30, 2009, from $2.8 million for the comparable period in 2008. Revenue per consumer was $2.77 and $3.14 for the three and nine months ended September 30, 2009, a decrease from $4.06 and $4.62 for the comparable periods in 2008. The decrease in revenue per consumer can be partially attributed to 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. We expect revenue per consumer to remain at current levels for the remainder of 2009, as we do not expect significant changes in our marketing sources.

Term life insurance transaction fees (consisting primarily of lead fees) increased to $0.6 million and $1.4 million for the three and nine months ended September 30, 2009 from $0.4 million and $1.2 million for the comparable periods in 2008. The increase in term life transaction revenues in 2009 compared to 2008 is primarily due to expanded distribution in July 2008 of term life leads to agents through our AgentInsider program.

Compared to the third quarter, auto, property and term life transaction fees are expected to decrease during our traditionally slower fourth quarter.

Transaction Fees (continued).

Agent directory revenues (consisting of subscription revenue and advertising revenues) remained level at $0.1 million for the three months ended September 30, 2009 and 2008, and decreased to $0.3 million for nine months ended September 30, 2009, from $0.6 million for the comparable period in 2008. This decrease was due primarily to lower advertising revenues generated from sales of banner ads on the agent directory site. Agent directory revenues are expected to remain at current levels for the remainder of 2009.

Fees from sales of leads in all other lines of business (including health and small business) were immaterial and are expected to decrease in the fourth quarter.

Operating Expenses


                                       Three months ended     Percentage
                                         September 30,        change from
(in thousands, except percentages)      2009         2008     prior period

Operating expenses:
Direct marketing                     $    5,834    $  6,497            (10 ) %
Sales and marketing                       1,865       1,505             24   %
Technology                                1,092         774             41   %
General and administrative                1,031         877             18   %




                                       Nine months ended     Percentage
                                         September 30,       change from
(in thousands, except percentages)      2009        2008     prior period

Operating expenses:
Direct marketing                     $   17,713   $ 22,040            (20 ) %

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 and other online lead generators that use our network to complement their network of providers. 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 and nine months ending September 30, 2009 decreased to $5.8 million and $17.7 million from $6.5 million and $22.0 million in the comparable periods in 2008. Direct marketing expenses as a percent of total revenues were 65% and 67% for the three and nine months ended September 30, 2009, compared to 72% and 71% for the comparable periods in 2008. Direct marketing expenses per consumer for all products were $1.30 and $1.33 for the three and nine months ended September 30, 2009, a decrease from $2.27 and $2.35 for the comparable periods in 2008. The preceding numbers reflect a significant increase in consumers acquired through InsWeb's agent directory program, with minimal costs associated with the acquisition of these consumers. Also, more consumers were acquired from other aggregators with whom we have revenue sharing arrangements. As mentioned earlier, consumers acquired through other aggregators generate less revenue per consumer. As a result, direct marketing expenses per consumer, excluding consumers acquired through the agent directory, fell to $1.77 and $1.90 for the three and nine months ending September 30, 2009 from $2.59 and $2.75 for the comparable periods in 2008. Compared to the third quarter, direct marketing expenses are expected to be lower during the traditionally slower fourth quarter. Marketing costs per consumer are expected to remain at current levels for the remainder of 2009.

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 $1.9 million and $5.3 million for the three and nine months ended September 30, 2009, from $1.5 million and $4.2 million for the comparable periods in 2008. The increase was due to an increase in headcount related expenses in 2009 compared to 2008, and also reflects costs associated with the September 2009 staff reduction, share-based compensation expenses and consulting expenses. Sales and marketing expenses are expected to decrease for the remainder of 2009 and for the foreseeable future, primarily as a result of the September 2009 staff reduction.

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 $1.1 million and $3.0 million for the three and nine months ended September 30, 2009, from $0.8 million and $2.4 million for the comparable periods in 2008. The increase was primarily due to an increase in headcount related expenses in 2009 compared to 2008, and also reflects costs associated with the September 2009 staff reduction, share-based compensation expenses and software licenses. Technology expenses are expected to decrease for the remainder of 2009 and for the foreseeable future, primarily reflecting lower costs associated with the September 2009 staff reduction.

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 increased to $1.0 million for the three months ended September 30, 2009 from $0.9 million for the comparable period in 2008, and decreased to $2.5 million for the nine months ended September 30, 2009, from $3.3 million for the comparable period in 2008. The increase in costs for the three-month period ending September 2009 was primarily due to costs associated with the staff reduction in September 2009. The decrease in costs for the nine month period ending September 2009 was primarily due to a decrease in legal costs following the patent litigation settlement in April 2009, a decrease in costs associated with accounting services, and recognition of severance related costs associated with the departure of the chief operating officer in June 2008. These decreases were offset by an increase in costs associated with the staff reduction in September 2009 and share-based compensation expense. General and administrative expenses are expected to decrease for the remainder of 2009 and for the foreseeable future.

Income Taxes.

No provision or benefit for income taxes was recognized for the three and nine months ended September 30, 2009, compared to a benefit from income taxes of $44,000 for the three and nine months ended September 30, 2008.

Interest Income

Interest income was $3,000 and $23,000 for the three and nine months ended September 30, 2009, a decrease from $47,000 and $196,000 for the comparable periods in 2008 relating to the decrease in InsWeb's cash and investment balances and decrease in yield on InsWeb's investment securities. 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 ASC 718 "Compensation - Stock Compensation." Under the provisions of ASC 718, 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. Under the asset and liability method prescribed under ASC 740, Income Taxes, InsWeb recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized 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):

                                                 Nine months ended
                                                   September 30,
                                                  2009          2008
Cash used by operating activities              $    (1,339 )   $ (582 )
Cash used in investing activities                   (2,108 )     (606 )
Cash provided (used) by financing activities            45       (464 )

At September 30, 2009, InsWeb's principal source of liquidity was $5.8 million in cash and cash equivalents. Since inception, we have financed our operations primarily through the sale of preferred and common stock.

For the nine months ended September 30, 2009, net cash used by operating activities was $1.3 million, primarily consisting of our net loss adjusted for non-cash share-based compensation and depreciation and amortization of property, equipment and intangible assets of $1.0 million. An increase in accounts receivable of $0.8 million and a decrease in accrued expenses of $0.4 million decreased cash provided by operations, but were partially offset by an increase in accounts payable of $0.7 million and a decrease in prepaid expenses and other assets of $0.2 million. For the comparable nine months ended September 30, 2008, net cash used by operating activities was $582,000, primarily due to our net loss of $859,000 as adjusted for non-cash share-based compensation of $576,000, depreciation and amortization of property, equipment and intangible assets of $119,000, an decrease in accounts receivable of $18,000, an increase in prepaid expenses of $356,000 and decrease in accrued expenses of $319,000, offset by an increase in accounts payable of $220,000.

For the nine months ended September 30, 2009, net cash used in investing activities was $2.1 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 will earn a cash rebate of approximately 50-95 basis points, dependent upon the purchase volume during the 2009 calendar year. For the comparable nine months ended September 30, 2008, net cash used in investing activities was $606,000 primarily due to purchases of property, equipment and intangibles of $354,000 and notes receivable from employees for $252,000.

For the nine months ended September 30, 2009, net cash provided by financing activities was $45,000, and was primarily attributable to proceeds from our employee stock purchase plan. For the comparable nine month period ended September 30, 2008, net cash used by financing activities was $464,000, representing principally of $850,000 for the cash settlement of equity awards in connection with the departure of the president and COO in June, 2008, offset by proceeds from the exercise of stock options and stock issued from our employee stock purchase plan of $386,000.

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 September 30, 2009 is summarized as follows (in thousands):

                                       Gross lease      Sublease      Net lease
                                        commitments      income       commitment
Nine months ending December 31, 2009   $         269   $      (15)   $        254
Year ending December 31, 2010                  1,078          (17)          1,061
Year ending December 31, 2011                    359             -            359
. . .