UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC. 20549










FORM 10-K





(Mark
One)





x
            
            Annual report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
    1934for
      the fiscal year ended December 31, 2008oro
            
            Transition report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
    1934for
      the transition period from to





Commission
File Number 0-26083










INSWEB
CORPORATION


(Exact
name of registrant as specified in its charter)





DELAWARE
              (State
      or other jurisdiction of
              Incorporation
      or organization)
            
            94-3220749
              (I.R.S.
      Employer
              Identification
      No.)





11290
Pyrites Way, Gold River, California 95670


(Address
of principal executive offices)





(916) 853-3300


(Registrant’s
telephone number, including area code)










Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            
            Name
      of Exchange on which registeredNone
            
            None





Securities
registered pursuant to Section 12(g) of the Act:





Common
Stock, $0.001 par value


(Title of
Class)










Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. YES o NO x





Indicate
by check mark whether the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. YES o NO x





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer”,
“acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large
Accelerated Filer  o                                           Accelerated
Filer  o





Non-Accelerated
Filer  o                                           Smaller
Reporting Company  x





Indicate
by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). YES o  NO x





The
aggregate market value of registrant’s voting and non-voting common equity held
by non-affiliates of registrant, based upon the closing sale price of the common
stock as of the last business day of registrant’s most recently completed second
fiscal quarter (June 30, 2008), as reported on the Nasdaq Global Market,
was approximately $18,106,000. Registrant is a smaller reporting company as
defined in Regulation S-K. Shares of common stock held by each officer, director
and holder of 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.





Outstanding
shares of registrant’s common stock, $0.001 par value, as of March 16,
2009: 4,791,394





DOCUMENTS
INCORPORATED BY REFERENCE





Parts of
the definitive Proxy Statement for registrant’s 2008 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report
are incorporated by reference into Part III of this Form 10-K
Report.








INSWEB
CORPORATION





Annual
Report on Form 10-K


For
the Fiscal Year Ended December 31, 2008





Table
of Contents





PART IItem
      1.
              
              Business
              2Item
      1A.
              
              Risk
      Factors
              9Item
      1B.
              
              Unresolved
      Staff Comments
              14Item
      2.
              
              Properties
              14Item
      3.
              
              Legal
      Proceedings
              15Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              16PART IIItem
      5.
              
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              16Item
      6.
              
              Selected
      Financial Data
              17Item
      7.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              18Item
      7A.
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              26Item
      8.
              
              Financial
      Statements and Supplementary Data
              26Item
      9.
              
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              27Item
      9A(T).
              
              Controls
      and Procedures
              27Item
      9B.
              
              Other
      Information
              27PART IIIItem
      10.
              
              Directors,
      Executive Officers and Corporate Governance
              28Item
      11.
              
              Executive
      Compensation
              28Item
      12.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              28Item
      13.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              28Item
      14.
              
              Principal
      Accountant Fees and Services
              28PART IVItem
      15.
              
              Exhibits
      and Financial Statement Schedules
              28Signatures
              
              
              29Exhibit Index
              
              30Schedule
      II
              
              Valuation
      and Qualifying Accounts
              31








PART I





Unless
otherwise indicated or required by the context, as used in this Annual Report on
Form 10-K, the terms “we,” “our” and “us” refer to InsWeb Corporation
(“InsWeb”) and its subsidiaries that are consolidated in conformity with
accounting principles generally accepted in the United
States.





Certain
information contained in this Annual Report on Form 10-K should be
considered “forward-looking statements” as defined by Section 21E of the
Private Securities Litigation Reform Act of 1995. All statements in this report
other than historical information may be deemed forward-looking statements.
These statements present (without limitation) the expectations, beliefs, plans
and objectives of management and future financial performance and assumptions
underlying, or judgments concerning, the matters discussed in the statements.
The words “believe,” “estimate,” “anticipate,” “project” and “expect,” and
similar expressions, are intended to identify forward-looking statements.
Forward-looking statements involve certain risks, estimates, assumptions and
uncertainties, including our ability to generate significant revenues from our
core business; our ability to achieve or maintain profitability; our reliance on
automobile insurance; our ability to expand our operations; and our success in
developing and maintaining cost efficient online relationships to attract
consumers to our website. A variety of factors could cause actual results or
outcomes to differ materially from those expected and expressed in our
forward-looking statements. Some important risk factors that could cause actual
results or outcomes to differ from those expressed in the forward-looking
statements are described in “Item 1ARisk Factors” of this
report.





The
list of factors that may affect future performance and the accuracy of
forward-looking statements described in “Item 1A  Risk Factors”
of this report is illustrative, but by no means exhaustive. Additional risk
factors may be described from time to time in our future filings with the
U.S. Securities and Exchange Commission. Accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent
uncertainty. All such risk factors are difficult to predict, contain material
uncertainties that may affect actual results and may be beyond our
control.





Item
1. Business.





InsWeb
was originally incorporated in California in February 1995 and
re-incorporated in Delaware in October 1996, and is headquartered outside
Sacramento, California. InsWeb’s headquarters mailing address is 11290 Pyrites
Way, Gold River CA, 95670, and the telephone number at that location is
(916) 853-3300. The InsWeb website is www.InsWeb.com.








The
InsWeb Online Insurance Marketplace





InsWeb
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 number of insurance companies, agents and other
providers to develop an integrated online marketplace. InsWeb’s marketplace
enables consumers to research insurance-related topics, search for, analyze and
compare insurance products, and apply for and receive quotes for coverage for
automobile, homeowners and term life insurance. Management believes that InsWeb
provides insurance providers with pre-qualified consumers at attractive
acquisition costs, with the scalable, cost-efficient distribution capabilities
of InsWeb’s Internet-based model.





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.”








The
Quote Generation and Purchase Process





For those
consumers that proceed with an InsWeb application, the quote generation and
purchase process generally involves the following steps:





·           data entry by the
consumer;





·
            underwriting and rating, the
      latter through InsWeb engines or through insurance providers’ proprietary
      systems;





·           presentation of quotes to the consumer,
either instantly or on a delayed basis;





·           delivery
of leads to participating insurance providers;








·           potentially, purchase of the insurance
policy.





Data
Entry. To complete a shopping session, a consumer fills out an online
form that requests information such as the consumer’s age, address and coverage
requirements, a process that InsWeb estimates takes approximately 10 minutes,
depending on the type of insurance sought and the complexity of the consumer’s
profile. The quote form captures a comprehensive set of information designed to
address basic underwriting and rating criteria. To assist consumers in
evaluating and fulfilling their insurance needs, InsWeb provides consumers with
a variety of interactive website features and insurance-related information. In
addition, InsWeb provides online help and customer service throughout the data
entry process. The consumer completes only one online form for a particular type
of insurance, but may receive quotes from multiple participating companies
depending on which companies have qualified that consumer. This information can
also be used to automatically complete portions of the quote form for other
insurance products. Because the information insurance companies use to
underwrite, rate and provide quotes to a consumer is entered directly by the
consumer, the insurance companies can reduce or eliminate the expense associated
with collecting consumer data. Moreover, information entered directly by
consumers typically contains fewer errors than information provided orally to an
agent or insurance company representative, who must then enter that information
manually into the insurance company’s system.





Underwriting.InsWeb’s software uses criteria set by each participating insurance
company to analyze a consumer’s data and determine whether it fits within the
insurance provider’s targeted risk profile. Electronic underwriting eliminates
the expense of screening and quoting risks that an insurance company ultimately
may not want to accept. Additionally, InsWeb’s system can provide rapid feedback
to an insurance company regarding the impact that particular criteria are having
on the number of leads being directed to that company and also permits
individual criteria to be easily added or removed.





Presentation of
Quotes. After a consumer has completed the form for a particular product,
the consumer is presented with a “quote pad.” The quote pad contains the logos
of insurance providers (either a local agent or an insurance company) who are
interested in presenting a quote to the consumer. In some cases the rates
charged by the insurance companies will also be displayed. When rates are not
displayed, the quote pad informs the consumer which insurance providers will
present a quote on a delayed basis, either via e-mail or telephone. The response
method varies among insurance products and providers.





Delivery of
Leads. InsWeb earns revenues from participating insurance providers based
on the delivery of qualified leads. With auto insurance providers (including
insurance companies, third-party local agent networks and InsWeb’s AgentInsider
network, which provides leads directly to local personal lines insurance
agents), InsWeb usually is paid a transaction fee based on the delivery of a
lead, whether or not the consumer actually purchases a policy. For auto and home
insurance coverage, qualified leads are produced when a consumer clicks to view
insurance company quotes. These leads are produced both for insurance companies
providing instant online quotes and for insurance companies and local insurance
agents who provide email or other offline quotes. For term life insurance
coverage, until April 2007, consumer leads were sent to InsWeb’s licensed
subsidiary, InsWeb Insurance Services, Inc., which earned a commission when
a policy is sold.  Since April 2007, with the winding down of the
term-life agency, leads are sent to insurance agents and third party providers
of fulfillment services.





Purchase of
Policy. After InsWeb generates and delivers a qualified lead, insurance
providers may respond directly to the interested consumer by e-mail or telephone
to close the purchase of the policy. The delivery of a qualified lead to the
insurance company or local agent does not require further involvement by InsWeb,
although InsWeb monitors insurance company responses and works with companies
and agents to ensure that they are responding to leads generated from the online
insurance marketplace in a timely fashion.








Interactive
Website Features and Information





To assist
consumers in evaluating and fulfilling their insurance needs, InsWeb provides
consumers with a variety of interactive website features and insurance-related
information, including:





·           tools to help consumers estimate their
coverage requirements for auto and term life insurance;





·           research capabilities to help consumers
review the financial strength of insurance companies
nationwide;





·           answers to frequently asked questions
on insurance;





·           articles on a wide variety of insurance
and personal finance topics; and





·           glossaries
of insurance-related terms;








Insurance
Products





Insurance
companies participating in InsWeb’s online insurance marketplace currently offer
automobile, homeowners, and term life insurance. In addition, InsWeb has
contractual relationships with third-party providers for small business,
renters, condominium insurance, home warranty, RV, motorcycle, critical illness
and health insurance.





Automobile
Insurance.
Automobile insurance comprises the largest segment of the consumer insurance
market, and, to date, has accounted for most of the consumer traffic on InsWeb’s
online marketplace, and a majority of its revenues. At December 31, 2008,
InsWeb’s online marketplace generated leads or clickthroughs to insurance
providers in all 50 states, plus the District of Columbia.





Homeowners’
Insurance. At
December 31, 2008, the InsWeb online marketplace generated leads for
homeowners’ insurance to providers in all 50 states, plus the District of
Columbia.





Term life
Insurance. At
December 31, 2008, the InsWeb online marketplace generated leads for term
life insurance to providers in all 50 states, plus the District of
Columbia.





Agent
Directory. At December 31, 2008, the InsWeb online marketplace offered
both subscription and display 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.





Other
Products.
InsWeb’s online marketplace also allows consumers to shop for small business,
renters and condominium insurance, as well as home warranty, motorcycle and RV
insurance, and health and critical illness insurance in certain states. At
present, the InsWeb online marketplace does not enable consumers to view
multiple providers with respect to these types of insurance; instead, consumers
seeking quotes for these products are linked to a single insurance company or
third party for each product in the states in which it is
available.








Insurance
Company Relationships





InsWeb
believes that establishing long-term relationships with reputable insurance
companies is essential to its ability to offer a desirable insurance marketplace
on its website. InsWeb’s focus is to maintain and expand the product offerings
available on the online marketplace by selling InsWeb’s services to additional
companies and expanding InsWeb’s relationship with participating insurance
companies and agencies. At December 31, 2008, InsWeb had relationships with
29 insurance companies for automobile, homeowners and term life insurance,
including many large companies with established brand names that InsWeb believes
are attractive to consumers.








Insurance
Agent Network





In 2004,
InsWeb launched its agent network program, which provides online auto and
homeowners’ insurance consumers direct access to insurance agencies. Prior to
September 2005, direct consumer access to such agencies was possible only
through an intermediary, NetQuote, Inc. With the launch of InsWeb’s
proprietary agent network offering (“AgentInsider”) in September 2005,
InsWeb began selling leads directly to insurance agents. Through the
AgentInsider platform, agents can bid for participation in InsWeb’s marketplace
and receive leads for automobile, homeowners’ and term life insurance. In
addition, InsWeb has entered into agreements with several large insurance
companies to allow their agents to participate in AgentInsider without bidding.
Whether the lead is obtained by the agent through bidding or participating
through a sponsoring insurance company, InsWeb is paid a fee for each consumer
lead sent to an agent, regardless of whether or not a policy is sold to the
applicant. As of December 31, 2008, there are approximately 7,400 personal
lines insurance agents who were approved to actively purchase consumer leads
through AgentInsider. For the year ended, December 31, 2008, Agent Insider,
represented 25% of auto,  homeowners’ and term life transaction fees.
Separately, certain carriers purchase leads from InsWeb and redistribute them to
their agents. At December 31, 2008, approximately 3,500 such agents were
indirectly accessible to consumers. Consumer leads for which InsWeb has a
limited offering continue to be distributed on a revenue share basis to
third-party intermediaries, including NetQuote.








Marketing
and Sales





InsWeb’s
marketing program consists of a two-pronged effort, with substantial resources
directed both at attracting increased consumer traffic to the InsWeb website,
and building and expanding relationships with participating insurance companies
and with local personal lines insurance agents. InsWeb believes that increased
traffic will encourage insurance providers to develop and expand their
relationship with InsWeb, and that enhancing the comparative shopping
opportunities available through increased insurance provider participation will
drive further increases in consumer traffic.








Consumer
Marketing





InsWeb’s
marketing strategy is designed to cost effectively 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, portal advertising, e-mail campaigns, strategic partnerships with
high-profile online companies that can drive significant traffic to its site,
and sponsored search. In addition, InsWeb operates a number of complimentary
websites, including LowestPolicy.com and InsuranceRates.com, which provide
consumers with a variety of free interactive tools and content to begin their
research for insurance coverage.





Online
Direct-Response Advertising.InsWeb’s online direct-response advertising,
which drives the majority of InsWeb’s consumer traffic, is intended to create a
presence for InsWeb on a wide range of websites. InsWeb’s key advertisements are
delivered through content sponsorships, banners and keywords on financial, news,
real estate, classifieds, automobile, directory and general interest sites.
InsWeb and some of its third-party marketing providers also conduct advertising
campaigns promoting InsWeb through emails and electronic newsletters. InsWeb’s
advertisements are targeted primarily at consumers who may be actively seeking
insurance.





Online
Relationships. InsWeb seeks out relationships with companies whose
websites feature a high volume of traffic or a substantive focus that is related
to the purchase of insurance coverage, such as sites related to automobiles,
homes or personal finances. Agreements with these online companies typically
provide that InsWeb pay the online company a transaction fee (based on
click-throughs or consumer leads) and in very limited cases, a fixed fee. Online
companies integrate links into their websites connecting to InsWeb’s
marketplace. InsWeb provides functionality to further integrate with online
companies and, in some cases, provides co-branding functionality whereby the
online company’s logo is presented on the InsWeb marketplace to those consumers
directed to InsWeb’s marketplace from a company’s site. Finally, InsWeb has
relationships with a number of companies that offer insurance shopping
functionality to consumers. InsWeb’s relationship with these companies allows
consumers who complete the online insurance questionnaire on the other company’s
website to be transferred to InsWeb to be presented with additional insurance
providers. Many of InsWeb’s online advertising and marketing agreements have a
30 to 90 day term, with either party having a right to terminate the agreement
on seven days notice or less.





Traditional
Consumer Marketing. Currently, InsWeb’s consumer marketing is focused on
online marketing efforts. However, in the past, InsWeb has engaged in
traditional advertising, including radio, television and print advertising, and
may do so again in the future.





Local
Insurance Agent Marketing and Acquisition





InsWeb’s
local agent sales and marketing efforts seek to identify, through direct mail,
email and telephone solicitation, referrals from other local agents and general
advertising, personal lines insurance agents interested in participating in the
AgentInsider program. In addition, sales efforts are directed toward securing
carrier assistance, either through sponsored agreements, whereby insurance
carriers promote and market the AgentInsider program to their participating
local agents, or simply by inviting InsWeb sales personnel to agent gatherings.
At December 31, 2008, InsWeb had four major insurance carriers who have
contracted to promote or sponsor AgentInsider for their local
agents.








Technology





Architecture
and Interfaces





InsWeb
has invested significant resources to develop and deploy its two proprietary
technology platforms: the original, consumer-facing platform, and the newer
AgentInsider platform. InsWeb believes these platforms constitute a significant
competitive advantage.





InsWeb’s
software architecture facilitates interoperability among software components to
maximize responsiveness, flexibility and reliability. This architecture enables
InsWeb to efficiently develop and deploy new insurance company-specific modules
for underwriting and data delivery. It also simplifies the process of providing
InsWeb’s core marketplace functionality for use on insurance company sites. In
order to speed implementation for each participating insurance company, InsWeb
has developed transmission software components which allow consumer data to be
custom-formatted for delivery to each insurance company based on the
requirements of the insurance company’s computer system. InsWeb has developed
custom communication software to provide multiple types of real-time
telecommunication links to its participating insurance companies. These
components provide a variety of solutions to the insurance companies to best
meet their needs and interface with their legacy systems. InsWeb has devoted
significant time and resources to maximize the efficiency of integrating new
insurance companies into its online marketplace and to create a flexible,
customizable Web interface.





InsWeb’s
front-end user interface is accessible to consumers via standard Web browsers
and is designed without unnecessary graphics that would increase download
time.





InsWeb’s
AgentInsider platform, launched in September 2005, powers a self-service
web site which allows agents to manage their accounts entirely online, including
registration, the choice of zip codes in which the agent wishes to receive
leads, the number of leads they wish to receive, their bids for different types
of leads, and finally the financial end of the transaction, namely the entry and
automatic processing of their credit card information. This platform enables
InsWeb to transact with thousands of agents with only a handful of customer
service representatives.





InsWeb’s
server software is designed as a high-volume transaction-processing environment,
with a focus on reliability, redundancy and around-the-clock availability. It is
designed to enable the system to respond rapidly and to simultaneously
underwrite and rate a consumer’s profile against all participating insurance
companies’ criteria. The software is also designed for scalability, enabling
InsWeb to expand processing capacity through the addition of more processors and
servers as transaction volumes increase.





Security





InsWeb
employs third-party firewall technology to protect its corporate network from
intrusion and uses proprietary designs to isolate confidential data on its
network so that only selected information is publicly available on its website.
Consumer information is transmitted to InsWeb’s site using Secure Socket Layer
encryption technology, a widely used technology for transmitting encoded data
via a Web browser. InsWeb employs a number of other encryption methods for
delivery of consumer information to insurance companies or local agents. InsWeb
protects its system management functions using security models integrated with
the operating system. Additionally, some sensitive software applications
incorporate proprietary authentication schemes.





Site
Operations





InsWeb’s
hardware servers, storage systems, Internet connections, back-up strategies and
network are designed to allow its online marketplace to operate continuously.
InsWeb’s main Web servers are located at its headquarters facility in Gold
River, California. InsWeb uses a number of internally-developed and third-party
software products to monitor the performance and availability of its website and
core products. InsWeb continuously monitors consumer traffic, response times and
capacity to ensure a high quality of service for consumers and insurance
companies. InsWeb maintains a disaster recovery site in the Sacramento,
California area to facilitate the operation of its online marketplace in case of
a failure at its main facility.





Product
Development





InsWeb
devotes resources to improving the structure of its products and delivering
additional tools that allow insurance providers to effectively reach consumers.
InsWeb continually releases new versions of its online user interface , which
may incorporate technology advances, new product features and improvements in
consumer interactivity. InsWeb also invests in refining its online consumer
tools and research materials, as well as developing new support products. InsWeb
continues to research new methods of designing more useful insurance-related
material and presenting it to the consumer in a more meaningful
context.





InsWeb’s
technology expenses were approximately $3.3 million in 2008, $3.1 million
in 2007, and $4.5 million in 2006.





Privacy
Policy





InsWeb
believes that the privacy of personally identifiable information of Internet
users is becoming increasingly important as the use of the Internet for
electronic commerce continues to grow. InsWeb has adopted a privacy policy
regarding the use and disclosure of consumer information that is collected on
its online marketplace. InsWeb is a licensee of the TRUSTe Privacy Program and
adheres to these standards regarding the protection of the personally
identifiable information of Internet users.





Competition





The
online insurance distribution market, like the broader electronic commerce
market, is highly competitive. InsWeb competes with other companies that provide
quotes and sell insurance policies online, as well as with:





·
            single insurance company websites
      that offer quotes for their own insurance products online or by
      telephone;





·
            other
      lead generation services that provide consumer leads to insurance
      agents;





·
            Web-based information delivery
      services that use generic filings with state regulators to deliver
      estimated price quotes from various insurance
      companies;





·
            Web-assisted agency distribution
      services, that provide an Internet-based distribution channel for
      traditional insurance
agencies;





·
            online workplace marketers that
      sell insurance to employees over their employer’s intranet;
      and





·
            providers of software technology
      to insurance companies and other competitors that may target electronic
      commerce solutions for the insurance
  industry.





InsWeb
believes the principal bases for competition in the online insurance
distribution market include:





·
            brand
      awareness;





·
            variety and quality of insurance
      company selection;





·
            strength of relationships and
      depth of technology integration with insurance
      companies;





·
            accuracy of insurance
      quotes;





·
            breadth and pricing of insurance
      product selection;





·
            speed, accessibility and
      convenience;





·
            quality and quantity of website
      content; and





·
            relationships with other online
      companies.





Government
Regulation





The
insurance industry is subject to extensive regulation under state laws.
Insurance laws and regulations cover all aspects of the insurance process,
including sales techniques, underwriting for eligibility, rates, compensation,
claim payments and record keeping by licensed insurance companies and insurance
agents. InsWeb performs functions for licensed insurance companies and is,
therefore, required to comply with a complex set of rules and regulations
that typically vary from state to state. If InsWeb fails to comply with these
rules and regulations, InsWeb, an insurance company doing business with
InsWeb, our officers, or agents with whom we contract could be subject to
various sanctions, including censure, fines, a cease-and-desist order or other
penalties. This risk, as well as changes in the regulatory climate or the
enforcement or interpretation of existing law, could require changes to InsWeb’s
business or otherwise harm InsWeb’s business. Furthermore, because the
application of online commerce to the insurance market continues to evolve, the
impact of current or future regulations on InsWeb’s business is difficult to
anticipate.





In order to provide the types of
services that require an insurance license, InsWeb established InsWeb Insurance
Services, Inc. in 1998 and currently maintains property and casualty
licenses in 50 states and the District of Columbia and life and health licenses
in 45 states and the District of Columbia. InsWeb’s operations depend on the
validity of and continued good standing under the licenses and approvals
pursuant to which InsWeb’s subsidiaries, licensed officers and agents operate.
Licensing laws and regulations vary depending on the jurisdiction. The
applicable licensing laws and regulations are subject to amendment or
interpretation by regulatory authorities. Such authorities generally are vested
with broad discretion concerning the allowance, renewal and revocation of
licenses and approvals. The inability to obtain the requisite agent licenses or
other necessary licenses, permits, or authorizations could harm InsWeb’s
business.





Intellectual
Property





InsWeb regards its intellectual
property as critical to its success, and relies upon patent, trademark,
copyright and trade secrets laws in the United States and other jurisdictions to
protect its proprietary rights. The INSWEB mark has been registered in the
United States, France, Germany, South Korea, Japan and the United Kingdom, and
many other countries. Other U.S. and worldwide trademark applications and
registrations include, but are not limited to, AgentInsider, AgentInsider.com,
InsWeb.com, Where You and Your Insurance Really Click, and Lower Your Insurance
Costs, Not Your Expectations. InsWeb has applied for various patents on its core
technology and related patentable subject matter; and three patents have been
issued: U.S. Patent No. 6,898,597 (Event Log); U.S. Patent No. 7,107, 325
(System and method for optimizing and processing electronic pages in multiple
languages); U.S Patent No. 7,389,246 (Insurance rating calculation software
component architecture). InsWeb’s pending trademark registrations and patent
applications may not be approved or granted; or, if granted, may be successfully
challenged by others or invalidated through administrative process or
litigation. In addition, effective patent, copyright, trademark, and trade
secret protection may be unavailable or limited in some foreign countries.
InsWeb also seeks to protect its proprietary rights through physical and
technological security measures, and through the use of confidentiality or
license agreements with its business partners, employees, consultants, advisors
and others. Despite InsWeb’s efforts to protect its proprietary rights from
unauthorized use or disclosure, employees, consultants, advisors or others may
not maintain the confidentiality of InsWeb’s proprietary information, and this
proprietary information may otherwise become known, or be independently
developed, by competitors. The steps InsWeb has taken may not prevent
misappropriation of its proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect its proprietary rights
as fully as in the United States.





InsWeb
licenses its trademarks and similar proprietary rights to third parties. While
InsWeb attempts to ensure that the quality of its brand and product offering is
maintained by these companies, they may nevertheless misuse the licensed
intellectual property in ways that lessen the value of InsWeb’s proprietary
rights or the reputation of InsWeb or its services.





From time
to time, InsWeb receives notice of claims of infringement of other parties’
proprietary rights or claims that its own patents or other intellectual property
rights are invalid.  We are currently a party, as both defendant and
plaintiff, to pending litigation, as described in “Item 3. Legal Proceedings”.
In the past, InsWeb has been subject to other infringement claims in the
ordinary course of its business, including the patent infringement claims
described in the section titled “Legal Proceedings” and other claims of alleged
infringement of the trademark rights of third parties by InsWeb and the
companies with which it does business. Any of these claims, with or without
merit, could be time consuming to defend, result in costly litigation, divert
management attention and resources or require InsWeb to enter into royalty or
licensing agreements. Licenses may not be available on reasonable terms, if at
all, and the assertion or prosecution of any infringement claims could
significantly harm InsWeb’s business.





Employees





As of
December 31, 2008, InsWeb had 88 full-time employees. InsWeb has never had
a work stoppage, and none of its employees are currently represented under
collective bargaining agreements. InsWeb considers its relations with its
employees to be good. InsWeb believes that its future success will depend in
part on the continued service of its senior management and key technical
personnel and its ability to attract, integrate, retain and motivate highly
qualified technical and managerial personnel. Competition for qualified
personnel in InsWeb’s industry and geographical location is intense. InsWeb may
not continue to be successful in attracting and retaining a sufficient number of
qualified personnel to conduct its business in the future.





We have
no long-term employment agreements with any of our key personnel. However, the
executive officers and certain other key members of management are eligible to
participate in the InsWeb Executive Retention and Severance Plan (the “Plan”)
approved by the Board of Directors on June 14, 2004 and revised on December
22, 2008. Participants in the Plan are entitled to receive cash severance
payments and health and medical benefits in the event their employment is
terminated in connection with a change in control. Participants will also
receive these benefits if InsWeb terminates their employment other than for
“cause” or if the participant voluntarily terminates his employment for “good
reason” following certain specified actions by InsWeb. Upon any other
termination of employment, the participant will be entitled only to accrued
salary through the date of termination and any other vested benefits. Benefits
under the plan are reduced or eliminated if the employee obtains substitute
employment.





Available
Information





For
further discussion concerning our business, see the information included in
“Item 7 Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “Item 8 Financial Statements and Supplementary Data” of this
report.





We make
available free of charge through our Web site at www.insweb.com our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and all amendments to those reports, if applicable, pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after the material is electronically
filed with or furnished to the Securities and Exchange Commission
(“SEC”).














Item
1A. Risk Factors.





Set
forth below are the risks that we believe are material to our investors. This
section contains forward-looking statements. You should refer to the explanation
of the qualifications and limitations on forward-looking statements set forth at
the beginning of Item 1 of this report.





We
have a history of losses and we may not achieve or maintain
profitability





We
incurred operating losses of $2.5 million in 2008, generated operating income of
$2.1 million in 2007 and incurred a $5.8 million operating loss in 2006. As
of December 31, 2008, our accumulated deficit was $191.7 million. Our
operating results for future periods are subject to numerous uncertainties, and
we may not generate sufficient revenues to achieve or maintain profitability on
a quarterly or annual basis. If we are unable to sustain profitability, we may
need to seek additional financing to continue our business operations. Such
financing could be on terms that are dilutive to our existing stockholders or
could involve the issuance of securities that have rights and preferences that
are senior to those associated with our common stock. Moreover, if such
financing were not available or were available only upon terms that were
unacceptable to us, we could be required to delay, reduce, or cease certain of
our operations, any of which could materially harm our business and financial
results.





Depressed
general economic conditions or further adverse changes in general economic
conditions could adversely affect our operating results





The
recent, severe economic downturn in the United States has impacted the financial
services sector of which our customers (insurance companies and their agents)
are a part. As a result of this downturn, insurance companies may choose to
scale back the number of policies they write as they file new rates with the
state insurance regulators. Similarly, many agents who purchase leads from us
operate as a small business, and as such may be less prepared to withstand an
extended period of recession. In addition, consumer demand for our insurance
shopping service is adversely impacted by the current economic climate because
fewer consumers are shopping for cars and homes.  Accordingly, the
uncertainty about the impact of  economic conditions on our business
makes it difficult for us to forecast operating results and to make decisions
about future investments.





If
we are unable to continue generating positive cash flows from operations, our
ability to operate could suffer or cease





While we
were profitable for 2007, our operating activities in 2008 and prior to 2007,
have consumed substantial amounts of cash, cash equivalents and short-term
investments: during 2008 our operations used cash of $0.8 million; in 2007 our
operations provided cash of $2.5 million; and in 2006 our operations used cash
of $3.6 million. At December 31, 2008, we had cash and cash equivalents of
$9.2 million. In order to remain competitive, we must continue to make
investments essential to our ability to operate, including in particular,
investments in direct consumer marketing. In addition, we will continue to face
the costs of being a public company. In the event that we are unable to generate
revenues sufficient to offset our costs, or if our costs of marketing and
operations are greater than we anticipate, we may be unable to grow our business
at the rate desired or may be required to delay, reduce, or cease certain of our
operations, any of which could materially harm our business and financial
results.





Our
future revenues are unpredictable and our operating results are likely to
fluctuate from quarter to quarter





An
evaluation of our future prospects is very difficult. An investor in our common
stock must consider the possibility that we may not be able to successfully
address the uncertainties inherent in a relatively new and rapidly evolving
business model. Moreover, due to recent changes in our business model, including
the evolution of InsWeb’s agent


network
program, InsWeb believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.





Factors
that may cause fluctuations in our operating results include the following, many
of which are outside our control:





·
            We may experience consumer
      dissatisfaction with our online marketplace as we add or change features,
      or as the insurance coverage offered by participating insurance companies
      varies;





·
            We may experience increases in
      our direct marketing expenses due to unanticipated increases in the cost
      of online advertising for
insurance;





·
            Consumer traffic may also
      fluctuate as a result of changes in level of advertising by entities with
      which we have insurance marketing
  relationships;





·
            Our revenues may be harmed if we
      lose one or more significant insurance company relationships or if any of
      our participating insurance companies merge with one
      another;





·
            Our revenues may be harmed by
      inadequate levels of participation by local personal lines insurance
      agents in our agent network initiative, if the agent network programs
      offered by third-party intermediaries are unsuccessful or discontinued and
      we are unsuccessful in securing a
  replacement;





·
            Use of the Internet by consumers
      may fluctuate due to seasonal factors or other uncontrollable factors
      affecting consumer behavior;





·
            Our ability to convert site
      visits into transaction fees and/or revenue from insurance agency
      activities may fluctuate due to changes in our user interface or other
      features on our site; and





·
            Our ability to generate
      transaction fees and/or revenue from insurance agency activities may also
      be harmed due to technical difficulties on our website that hamper a
      consumer’s ability to start or complete a shopping
      session.





Seasonality
affecting insurance shopping and Internet advertising may cause fluctuations in
our operating results





We have
experienced seasonality in our business associated with general slowness in the
insurance industry during the year-end holiday period. In addition, online
advertising for insurance products becomes more expensive during the holiday
period as internet portals and other online firms dedicate an increasing
percentage of their inventory to seasonal goods and services. Because of this
seasonality, investors may not be able to predict our annual operating results
based on a quarter-to-quarter comparison of our operating results. We believe
seasonality will have an ongoing impact on our business.





Because
a significant portion of our revenue is attributable to automobile insurance
shopping on our online marketplace, we are especially vulnerable to risks
related to the online market for automobile insurance or the automobile
insurance industry generally





Automobile
insurance accounted for approximately 84% of our transaction revenues in 2008,
approximately 84% of our transaction revenues 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. As a result, if
we fail to attract a broad base of consumers to shop for automobile insurance on
our site, our ability to generate revenue will be reduced and our business will
be harmed. In addition, property and casualty insurance, including automobile
insurance, is subject to operating cycles. During a cycle in which loss ratios
rise, insurance companies may choose to restrict the amount of business they
write while they await approval of rate increases from the various state
insurance departments. Our business could be harmed if our participating
insurance companies reduce their participation in our online
marketplace.





We
are exposed to increased costs and risks associated with complying with the
increasing regulation of corporate governance and disclosure
standards





We have spent a significant amount of
management time and external resources to comply with changing laws, regulations
and standards relating to corporate governance and public disclosure, including
the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market
rules. In particular, Section 404 of the Sarbanes-Oxley Act of 2002
requires management’s annual review and evaluation of our internal control
systems, and attestations of the effectiveness of these systems by our
independent registered public accounting firm. This process may require us to
hire additional personnel and outside advisory services which will result in
significant additional accounting and legal expenses. We may be unsuccessful in
obtaining an unqualified report on the effectiveness of our internal controls
over financial reporting from our independent auditors. In the event that our
chief executive officer or chief financial officer determine that our controls
over financial reporting are not effective as defined under Section 404,
investor perceptions of our company may be adversely affected and could cause a
decline in the market price of our stock.





If
we are unable to promote our brands and expand our brand recognition, our
ability to draw consumers and agents to our services will be
limited





A growing
number of websites offer services that are similar to and competitive with the
services offered on our online insurance marketplace. Therefore, a positive
recognition of our brand is critical to attracting additional consumers to our
website. Our current consumer marketing program consists of the maintenance of
certain network online relationships and other selective cost effective
marketing campaigns, designed to maintain consumer awareness of InsWeb and our
online insurance marketplace. InsWeb’s local agent sales and marketing efforts
seek to identify personal line insurance agents interested in participating in
the AgentInsider program through direct mail, email and telephone solicitation,
referrals from other local agents and general advertising. In addition, sales
efforts are directed toward signing carrier sponsored agreements, whereby
insurance carriers promote and market the AgentInsider program to their
participating local agents, both captive and independent. In order to attract
and retain consumers and local agents and to promote and maintain our brands, we
are continuing our financial commitment to both the consumer and agent marketing
efforts. However, if our marketing efforts do not generate a corresponding
increase in revenues or we otherwise fail to successfully promote our brand, or
if these efforts require excessive expenditures, our business will be harmed.
Moreover, if consumers or agents do not perceive our existing services to be of
high quality, or if we alter or modify our brand image, introduce new services
or enter into new business ventures that are not favorably received, the value
of our brand could be harmed.





Our
ability to maintain a positive recognition of our brand also depends in part on
the quality of the products and services consumers receive from our
participating providers, including timely response to requests for quotes or
coverage. If we are unable to provide consumers with high-quality products and
services, the value of our brand may be harmed and the number of consumers using
our services may decline.





Competition
in the market for online distribution of insurance is intense, and if we are
unable to compete effectively with current competitors or new competitors that
enter the market, the fees paid to us by participating insurance companies may
fall, the fees charged by online companies with which we have strategic
relationships may rise, and our market share may suffer





The
online insurance distribution market, like the broader electronic commerce
market, is both rapidly evolving and highly competitive. Increased competition,
particularly by companies offering online insurance distribution, could reduce
the fees we are able to charge our participating insurance providers or increase
the fees we are required to pay for online advertising, resulting in reduced
margins or loss of market share, any of which could harm our business. In
addition, our current and future competitors may be able to:





·      undertake more extensive marketing
campaigns for their brands and services;





·      devote more resources to website and
systems development;





·      adopt more aggressive pricing policies;
and





·      make more attractive offers to
potential employees, online companies and third-party service
providers.





Accordingly,
we may not be able to maintain or grow consumer traffic to our website and our
base of participating insurance companies, our competitors may grow faster than
we do, or companies with whom we have strategic relationships may discontinue
their relationships with us, any of which would harm our business.





We
do not have exclusive relationships or long-term contracts with insurance
companies, which may limit our ability to retain these insurance companies as
participants in our marketplace and maintain the attractiveness of our services
to consumers





We do not
have an exclusive relationship with any of the insurance companies whose
insurance products are offered on our online marketplace, and thus, consumers
may obtain quotes and coverage from these insurance companies without using our
website. Our participating insurance companies also offer their products
directly to consumers through insurance agents, mass marketing campaigns or
through other traditional methods of insurance distribution. In most cases, our
participating insurance companies also offer their products and services over
the Internet, either directly to consumers or through one or more of our online
competitors, or both. In addition, most of our agreements with our participating
insurance companies are cancelable at the option of either party upon
90 days’ notice or less. Furthermore, our agreements permit the insurance
company to limit its participation to certain states. We have experienced, and
expect to continue to experience, reductions in the level of participation in
our marketplace or complete termination by participating insurance
companies.





These
reductions in participation, terminations, or an inability to attract additional
insurance companies to our marketplace could materially affect our revenues and
harm our business.





The
outcome and impact of the securities class action lawsuit involving InsWeb is
uncertain





A
securities class action lawsuit was filed on December 5, 2001 in the United
States District Court for the Southern District of New York, (the “Court”)
purportedly on behalf of all persons who purchased our common stock from
July 22, 1999 through December 6, 2000. The complaint named as
defendants InsWeb, certain current and former officers and directors, and three
investment banking firms that served as underwriters for InsWeb’s initial public
offering in July 1999. The complaint, as subsequently amended, alleges
violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10
and 20 of the Securities Exchange Act of 1934, on the grounds that the
prospectuses incorporated in the registration statements for the offering failed
to disclose, among other things, that (i) the underwriters had solicited
and received excessive and undisclosed commissions from certain investors in
exchange for which the underwriters allocated to those investors material
portions of the shares of our stock sold in the offerings and (ii) the
underwriters had entered into agreements with customers whereby the underwriters
agreed to allocated shares of the stock sold in the offering to those customers
in exchange for which the customers agreed to purchase additional shares of
InsWeb stock in the aftermarket at pre-determined prices. No specific damages
are claimed. Similar allegations have been made in lawsuits relating to more
than 300 other initial public offerings conducted in 1999 and 2000, all of which
have been consolidated for pretrial purposes. In October 2002, all claims
against the individual defendants were dismissed without prejudice. In
February 2003, the Court dismissed the claims in the InsWeb action alleging
violations of the Securities Exchange Act of 1934 but allowed the plaintiffs to
proceed with the remaining claims. In June 2003, the plaintiffs in all of
the cases presented a settlement proposal to all of the issuer defendants. Under
the proposed settlement, the plaintiffs would dismiss and release all claims
against participating defendants in exchange for a contingent payment guaranty
by the insurance companies collectively responsible for insuring the issuers in
all the related cases, and the assignment or surrender to the plaintiffs of
certain claims the issuer defendants may have against the underwriters. InsWeb
and most of the other issuer defendants have accepted the settlement proposal.
While the District Court was considering final approval of the settlement, the
Second Circuit Court of Appeals vacated the class certification of plaintiffs’
claims against the underwriters in six cases designated as focus or test cases.
On December 14, 2006, the District Court ordered a stay of all proceedings
in all of the lawsuits pending the outcome of plaintiffs’ petition to the Second
Circuit for rehearing en banc and resolution of the class certification issue.
On April 6, 2007, the Second Circuit denied the plaintiffs’ petition for
rehearing, but clarified that the plaintiffs may seek to certify a more limited
class in the District Court. Because of the significant technical barriers
presented by the Court’s decision, the parties withdrew the proposed settlement
and the plaintiffs filed an amended complaint. In September 2008, all of the
parties to the IPO litigation agreed in principle to a revised settlement,
subject to preparation of formal documentation. As with the earlier settlement
proposal, the revised settlement proposal does not require InsWeb to contribute
any cash. There is no assurance that the new settlement will be finalized, and
then approved. If the settlement is not finalized and subsequently approved,
InsWeb intends to defend the lawsuit vigorously. The litigation and settlement
process is inherently uncertain and management cannot predict the outcome,
though, if unfavorable, it could have a material adverse effect on InsWeb’s
financial condition, results of operations and cash flows.





Laws
and regulations that govern the insurance industry could expose us, or our
participating insurance companies, our officers, or agents with whom we
contract, to legal penalties if we fail to comply, and could require changes to
our business





We
perform functions for licensed insurance companies and are, therefore, required
to comply with a complex set of rules and regulations that often vary from
state to state. If we fail to comply with these rules and regulations, we,
an insurance company doing business with us, our officers, or agents with whom
we contract, could be subject to various sanctions, including censure, fines, a
cease-and-desist order or other penalties. This risk, as well as changes in the
regulatory climate or the enforcement or interpretation of existing law, could
expose us to additional costs, including indemnification of participating
insurance companies for their costs, and could require changes to our business
or otherwise harm our business. Furthermore, because the application of online
commerce to the consumer insurance market is relatively new, the impact of
current or future regulations on InsWeb’s business is difficult to
anticipate.





If
we are unable to safeguard the security and privacy of consumers’ and
participating insurance companies’ confidential data, consumers and insurance
companies may not use our services and our business may be harmed





A
significant barrier to electronic commerce and communications is the secure
transmission of personally identifiable information of Internet users as well as
other confidential information over public networks. If any compromise or breach
of security were to occur, it could harm our reputation and expose us to
possible liability. A party who is able to circumvent our security measures
could misappropriate proprietary information or cause interruptions in our
operations. We may be required to make significant expenditures to protect
against security breaches or to alleviate problems caused by any breaches. To
date, we have experienced no breaches in our network security. We rely on
encryption and authentication





technology
licensed from third parties to provide the security and authentication necessary
to effect secure transmission of confidential information, such as names,
addresses, Social Security and credit card numbers, user names and passwords and
insurance company rate information. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments could
result in a compromise or breach of the algorithms we use to protect consumers’
and insurance companies’ confidential information.





System
failures could reduce or limit traffic on our website or interrupt our
communications with individual insurance companies and harm our ability to
generate revenue





Since
launching our online marketplace, we have experienced occasional minor system
failures or outages that have resulted in the online marketplace being out of
service for a period ranging from several minutes to three hours while our
technicians brought backup systems online. We may experience further system
failures or outages in the future that could disrupt the operation of our
website and could harm our business. Our revenues depend in large part on the
volume of traffic on our website and, more particularly, on the number of
insurance quotes generated by our website in response to consumer inquiries.
Accordingly, the performance, reliability and availability of our website,
quote-generating systems and network infrastructure are critical to our
reputation and our ability to attract a high volume of traffic to our website
and to attract and retain participating insurance companies. Moreover, we
believe that consumers who have a negative experience with an electronic
commerce website may be reluctant to return to that site. Thus, a significant
failure or outage affecting our systems could result in severe long-term damage
to our business.





Additionally,
several of our participating insurance companies have chosen a technical
solution that requires that our website servers communicate with these insurance
companies’ computer systems in order to perform the underwriting and risk
analysis and rating functions required to generate quotes. Thus, the
availability of quotes from a given insurance company may depend in large part
upon the reliability of that insurance company’s own computer systems, over
which we have no control.





Our
facilities and systems are vulnerable to natural disasters and other unexpected
losses, and we may not have adequate insurance to cover such losses





Our
computer hardware operations are located in leased facilities in Gold River,
California. If this location experienced a system failure, the performance of
our website would be harmed. These systems are also vulnerable to damage from
fire, power loss, telecommunications failures, break-ins, natural disasters and
similar events. If we seek to replicate our systems at other locations, we will
face a number of technical challenges, particularly with respect to database
replications, which we may not be able to address successfully. Although we
carry property and business interruption insurance, our coverage may not be
adequate to compensate us for all losses that may occur. Our servers may also be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions.





We
rely on the services of our executive officers and other key personnel, whose
knowledge of our business and the insurance industry and technical expertise
would be extremely difficult to replace





Our
future success is substantially dependent on the continued services and
continuing contributions of our senior management and other key personnel,
particularly Hussein A. Enan, Chairman of our Board and Chief Executive Officer,
and the loss of the services of any of our executive officers or other key
employees could harm our business. We have no long-term employment agreements
with any of our key personnel, although Kiran Rasaretnam, our Chief Financial
Officer, L. Eric Loewe, our Senior Vice President and General Counsel, and
Steven Yasuda, our Controller and Chief Accounting Officer and certain other key
employees are entitled to certain severance benefits should their employment be
involuntarily terminated. We maintain a $2 million life insurance policy on
Mr. Enan that names InsWeb as the beneficiary, but we maintain no similar
insurance on any of our other key employees. InsWeb has granted stock options as
incentives to executive officers, new employees and certain other key personnel.
As the value of these incentives is highly dependent on an increase in the
market price of our common stock, we may be unable to retain such key employees,
nor retain or recruit other officers and key employees in the
future.





We
are subject to claims for infringement of intellectual property, which, with or
without merit, could be costly to defend or settle





From time
to time we have been subject to claims of infringement of other parties’
proprietary rights or claims that our own trademarks, patents or other
intellectual property rights are invalid. We are currently a party, as both
defendant and plaintiff, to pending patent litigation, as described in “Item
3.  Legal Proceedings.”  In the past, we have been subject
to other infringement claims in the ordinary course of business, including
claims of alleged infringement of the patent and trademark rights of third
parties by us and companies with which we have business relationships. The
pending litigation, and future





claims of
this type, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management attention and resources or require us to
enter into royalty or license agreements. License agreements may not be
available on reasonable terms, if at all, and the assertion or prosecution of
any infringement claims could significantly harm our business.





Our
stock price has fluctuated widely





The
trading price of our common stock has been volatile and may be significantly
affected by factors including actual or anticipated fluctuations in our
operating results, new products or new contracts by us or our competitors, loss
of key insurance providers, conditions and trends in the electronic commerce and
insurance industries, general market conditions and other factors. These
fluctuations may continue and could harm our stock price. Any negative change in
the public’s perception of the prospects of Internet or electronic commerce
companies could also depress our stock price regardless of our
results.





Delaware
law and our charter documents contain provisions that could discourage or
prevent a potential takeover, even if such a transaction would be beneficial to
our stockholders





Provisions
of Delaware law and our certificate of incorporation and bylaws could make more
difficult the acquisition of us by means of a tender offer, a proxy contest, or
otherwise, and the removal of incumbent officers and directors.





Item
1B. Unresolved Staff Comments.





None.





Item
2. Properties.





InsWeb’s
corporate headquarters and its principal administrative, product development,
sales and marketing operations are located in a 55,000 square foot facility in
the Sacramento, California area, which InsWeb occupies under a lease expiring in
2011. InsWeb also leased approximately 75,000 square feet of office space in
Redwood City, California under leases that expired in September 2008. These
facilities were formerly occupied by InsWeb as its headquarters and were vacated
by InsWeb in December 2000 when it consolidated its operations at its
present facility.





InsWeb
believes that its existing facilities are adequate to meet its needs for future
growth, and there should be no need to lease additional or alternative space in
the near term.











Item
3. Legal Proceedings.





Securities
Class Action





A
securities class action lawsuit was filed on December 5, 2001 in the United
States District Court for the Southern District of New York, (the “Court”)
purportedly on behalf of all persons who purchased our common stock from
July 22, 1999 through December 6, 2000. The complaint named as
defendants InsWeb, certain current and former officers and directors, and three
investment banking firms that served as underwriters for InsWeb’s initial public
offering in July 1999. The complaint, as subsequently amended, alleges
violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10
and 20 of the Securities Exchange Act of 1934, on the grounds that the
prospectuses incorporated in the registration statements for the offering failed
to disclose, among other things, that (i) the underwriters had solicited
and received excessive and undisclosed commissions from certain investors in
exchange for which the underwriters allocated to those investors material
portions of the shares of our stock sold in the offerings and (ii) the
underwriters had entered into agreements with customers whereby the underwriters
agreed to allocated shares of the stock sold in the offering to those customers
in exchange for which the customers agreed to purchase additional shares of
InsWeb stock in the aftermarket at pre-determined prices. No specific damages
are claimed. Similar allegations have been made in lawsuits relating to more
than 300 other initial public offerings conducted in 1999 and 2000, all of which
have been consolidated for pretrial purposes. In October 2002, all claims
against the individual defendants were dismissed without prejudice. In
February 2003, the Court dismissed the claims in the InsWeb action alleging
violations of the Securities Exchange Act of 1934 but allowed the plaintiffs to
proceed with the remaining claims. In June 2003, the plaintiffs in all of
the cases presented a settlement proposal to all of the issuer defendants. Under
the proposed settlement, the plaintiffs would dismiss and release all claims
against participating defendants in exchange for a contingent payment guaranty
by the insurance companies collectively responsible for insuring the issuers in
all the related cases, and the assignment or surrender to the plaintiffs of
certain claims the issuer defendants may have against the underwriters. InsWeb
and most of the other issuer defendants have accepted the settlement proposal.
While the District Court was considering final approval of the settlement, the
Second Circuit Court of Appeals vacated the class certification of plaintiffs’
claims against the underwriters in six cases designated as focus or test cases.
On December 14, 2006, the District Court ordered a stay of all proceedings
in all of the lawsuits pending the outcome of plaintiffs’ petition to the Second
Circuit for rehearing en banc and resolution of the class certification issue.
On April 6, 2007, the Second Circuit denied plaintiffs’ petition for
rehearing, but clarified that the plaintiffs may seek to certify a more limited
class in the District Court. Because of the significant technical barriers
presented by the Court’s decision, the parties withdrew the proposed settlement
and the plaintiffs filed an amended complaint.  In September 2008, all
of the parties to the IPO litigation agreed in principle to a revised
settlement, subject to preparation of formal documentation. As with the earlier
settlement proposal, the revised settlement proposal does not require InsWeb to
contribute any cash. There is no assurance that the new settlement will be
finalized, and then approved. If the settlement is not finalized and
subsequently approved, InsWeb intends to defend the lawsuit vigorously. The
litigation and settlement process is inherently uncertain and management cannot
predict the outcome, though, if unfavorable, it could have a material adverse
effect on InsWeb’s financial condition, results of operations and cash
flows.





Section 16(b) Lawsuit





On
October 12, 2007, Vanessa Simmonds, a purported stockholder of InsWeb,
filed a complaint in the United States District Court for the Western District
of Washington, against InsWeb and two investment banking firms that served as
underwriters for the initial public offering of our common stock in
July 1999. The complaint alleges that:  (i) the defendants, other
underwriters of the offering, and unspecified officers, directors and principal
stockholders of InsWeb constituted a “group” that owned in excess of 10% of
InsWeb’s outstanding common stock between July 23, 1999 and July 20,
2000; (ii) the defendants were therefore subject to the “short swing”
prohibitions of Section 16(b) of the Securities Exchange Act of 1934;
and (iii) the defendants engaged in purchases and sales, or sales and
purchases, of InsWeb’s common stock within periods of less than six months in
violation of the provisions of Section 16(b). The complaint seeks
disgorgement of all profits allegedly received by the defendants, with interest
and attorneys fees, for transactions in violation of Section 16(b). InsWeb,
as the statutory beneficiary of any potential Section 16(b) recovery,
is named as a nominal defendant in the complaint. A number of similar lawsuits
against underwriters of other public offerings have recently been filed by the
same plaintiff and law firm. On February 11, 2008, the court approved a
stipulated order that InsWeb need not answer or otherwise respond to the
complaint. On February 28, 2008, the plaintiff filed an amended complaint,
and InsWeb was again  excused from filing an answer. On March 12, 2009
the court issued an order dismissing the case with prejudice, but plaintiffs may
appeal this order. If the lawsuit is reinstated on appeal, InsWeb intends to
defend the lawsuit vigorously. The litigation and settlement process is
inherently uncertain and management cannot predict the outcome, though, if
unfavorable, it could have a material adverse effect on InsWeb’s financial
condition, results of operations and cash flows.








Patent
Litigation





On
November 30, 2007, Autobytel, Inc.filed a complaint in the United
States District Court for the Eastern District of Texas against InsWeb and three
other defendants. The complaint alleges that InsWeb and the other defendants
infringed U.S. Patent No. 6,282,517 (“the ‘517 patent”), which appears to
disclose a method and apparatus to allow a potential automobile purchaser to
create and submit a purchase request for a new or used automobile over a
computer network. The complaint contains generic allegations that InsWeb
infringed the ‘517 patent by making, using, offering to sell and selling systems
and/or methods that embody the invention claimed in the ‘517 patent and/or
actively inducing and/or contributing to others’ infringement of such
inventions. The complaint seeks unspecified monetary damages and injunctive
relief. On February 25, 2008, InsWeb filed an answer and counterclaim
denying infringement of the ‘517 patent and asserting invalidity of the patent
and other affirmative defenses. The court set May 2, 2011 as the trial
date.




On
March 11, 2008, InsWeb filed a complaint in the United States District
Court for the Southern District of California against Autobytel, Inc.,
Autobytel I Corporation (formerly known as AVV, Inc.) and Dominion
Enterprises. InsWeb filed an amended complaint on July 3, 2008 adding
OneCommand, Inc. as a defendant. The amended complaint alleges that the
defendants have infringed InsWeb’s U.S. Patent No. 6,898,597 (“the ‘597
patent”), which relates to an event logging system that monitors for the
occurrence of predefined website usage events. Defendant Autobytel, through its
wholly-owned subsidiary AVV, marketed and sold a product known as WebControl
that embodies the invention claimed in the ‘597 patent. In January 2008,
Autobytel sold AVV, including the WebControl product, to Dominion Enterprises.
Autobytel also owned an asset named Retention Performance Marketing (RPM) that
embodied the invention claimed in InsWeb’s patent. Autobytel sold the RPM asset
to OneCommand in July 2007. The amended complaint also adds Internet
Brands, Inc., Leadpoint, Inc., and Auto Internet Marketing, Inc.
as co-plaintiffs with InsWeb following InsWeb’s assignment of a partial interest
in the ‘597 Patent to these companies. InsWeb and its co-plaintiff are seeking
monetary damages in an amount to be determined at trial from each defendant and
a permanent injunction against further acts of infringement.




InsWeb
intends to vigorously defend the Texas lawsuit and prosecute the California
action. The litigation and settlement process is inherently uncertain and
management cannot predict the outcome, though, if unfavorable, it could have a
material adverse effect on InsWeb’s financial condition, results of operations
and cash flows.





Item
4. Submission of Matters to a Vote of Security Holders.





InsWeb
did not submit any matters to a vote of our security holders during the fourth
quarter of 2008.





PART II





Item
5. Market for the Registrant’s Common Equity and Related Stockholder Matters.





InsWeb’s
common stock is quoted on the Nasdaq Global Market under the symbol “INSW.” As
of December 31, 2008, there were approximately 1,800 stockholders of
record. Certain shares are held by brokers and other institutions on behalf of
stockholders, and we are unable to determine the total number of stockholders
represented by these record holders. The following table sets forth, for the
quarters indicated, the high and low sales price per share of InsWeb’s common
stock as reported on the Nasdaq Global Market:





Price Range
                  Quarter EndedHigh
                
                Low2008December 31,
      2008
                
                $
                5.76
                
                $
                1.57September 30,
      2008
                
                $
                9.29
                
                $
                4.53June 30,
      2008
                
                $
                12.50
                
                $
                9.00March 31,
      2008
                
                $
                11.80
                
                $
                6.612007December 31,
      2007
                
                $
                11.40
                
                $
                8.28September 30,
      2007
                
                $
                9.15
                
                $
                6.72June 30,
      2007
                
                $
                8.67
                
                $
                3.06March 31,
      2007
                
                $
                4.71
                
                $
                2.93





InsWeb
has not paid any cash dividends on its capital stock. InsWeb currently intends
to retain future earnings, if any, for use in the operation and expansion of our
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.








Item
6. Selected Financial Data.





The
following selected consolidated financial data should be read in conjunction
with “Item 7—Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements and the notes
thereto included elsewhere in this Annual Report on Form 10-K.





CONSOLIDATED
STATEMENT OF OPERATIONS DATA:





Year ended December 31,(in thousands, except per share
      amounts)
                2008
                
                2007
                
                2006
                
                2005
                
                2004Revenues:Transaction
      fees
                $
                37,275
                
                $
                32,940
                
                $
                28,161
                
                $
                24,650
                
                $
                13,987Other
                222
                
                258
                
                340
                
                365
                
                673Total
      revenues
                37,497
                
                33,198
                
                28,501
                
                25,015
                
                14,660Operating
      expenses:Direct
      marketing
                26,650
                
                19,567
                
                18,576
                
                15,207
                
                8,327Sales
      and marketing
                5,982
                
                5,246
                
                7,512
                
                6,770
                
                5,541Technology
                3,292
                
                3,075
                
                4,459
                
                5,354
                
                5,416General
      and administrative
                4,024
                
                4,213
                
                3,799
                
                4,023
                
                4,544Lease
      loss accrual (1)
                —
                
                (985
                )
                —
                
                —
                
                —Total
      operating expenses
                39,948
                
                31,116
                
                34,346
                
                31,354
                
                23,828Income
      (loss) from operations
                (2,451
                )
                2,082
                
                (5,845
                )
                (6,339
                )
                (9,168
                )Interest
      and other income, net (2)
                244
                
                384
                
                2,475
                
                398
                
                235Income
      (loss) before income taxes
                
                (2,207
                )
                
                2,466
                
                
                (3,370
                )
                
                (5,941
                )
                
                (8,933
                )Provision
      (benefit) for income taxes
                (44
                )
                45
                
                —
                
                —
                
                —Income
      (loss) before income taxes
                $
                (2,163)
                
                $
                2,421
                
                $
                (3,370
                )
                $
                (5,941
                )
                $
                (8,933
                )Net
      income (loss) per share:Basic
                $
                (0.46
                )
                $
                0.55
                
                $
                (0.82
                )
                $
                (1.40
                )
                $
                (1.90
                )Diluted
                $
                (0.46
                )
                $
                0.46
                
                $
                (0.82
                )
                $
                (1.40
                )
                $
                (1.90
                )Shares
      used in computing net income (loss) per share:Basic
                4,703
                
                4,387
                
                4,092
                
                4,234
                
                4,711Diluted
                4,703
                
                5,295
                
                4,092
                
                4,234
                
                4,711








(1)
            Represents management’s change in
      estimate of lease loss accrual. See Note 5 of Notes to Consolidated
      Financial Statements.





(2)
            Interest
      and other income, net, for 2006 includes a $2.0 million gain recorded in
      connection with the sale of InsWeb Insurance Services’ property and
      casualty agency book of business.





CONSOLIDATED BALANCE SHEET
DATA:





As of December 31,(in
      thousands)
                
                2008
                
                2007
                
                2006
                
                2005
                
                2004Cash
      and cash equivalents
                
                $
                9,238
                
                $
                10,777
                
                $
                6,750
                
                $
                9,073
                
                $
                9,334Short-term
      investments
                
                —
                
                —
                
                —
                
                1,233
                
                8,145Working
      capital
                
                7,810
                
                10,011
                
                4,787
                
                7,271
                
                14,451Total
      assets
                
                12,281
                
                14,133
                
                10,456
                
                14,018
                
                20,475Total
      stockholders’ equity
                
                8,692
                
                10,343
                
                5,291
                
                8,141
                
                15,715











Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.





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:





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





Year ended December 31,
                
                Percentage Change
                  from Prior Year(In thousands, except per consumer amounts)
                
                2008
                
                2007
                
                2006
                
                2008
                
                2007Auto
      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:





Year ended December 31,
                
                Percentage Change
                  from Prior Year(In thousands, except per consumer and per policy amounts)
                
                2008
                
                2007
                
                2006
                
                2008
                
                2007Term
      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:





Year ended December 31,
                
                Percentage Change
                  from Prior Year(In thousands, except per consumer amounts)
                
                2008
                
                2007
                
                2006
                
                2008
                
                2007Homeowner
      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





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





Year ended December 31,
                
                Percentage Change
                  from Prior Year(In thousands, except percentages and per consumer amounts)
                
                2008
                
                2007
                
                2006
                
                2008
                
                2007Direct
      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
approximately $190,000,000 for federal income tax purposes and $76,000,000 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):





Year ended December 31,2008
                
                2007
                
                2006Cash
      (used in) provided by operating activities
                
                $
                (754
                )
                $
                2,530
                
                $
                (3,560
                )Cash
      (used in) provided by investing activities
                
                (656
                )
                (20
                )
                1,159Cash
      (used in) provided by financing activities
                
                (129
                )
                1,517
                
                78





At
December 31, 2008, InsWeb’s principal source of liquidity was
$9.2 million in cash and cash equivalents. Since inception, InsWeb has
financed its operations primarily through the sale of preferred and common
stock.





In 2008,
net cash used by operating activities primarily consisted of InsWeb’s net loss
of $2.2 million and a decrease in accrued expenses of $0.4 million. This was
offset by noncash depreciation and amortization of $0.2 million, noncash
share-based compensation of $0.6 million, a decrease in accounts receivable of
$1.0 million, an increase of prepaid expenses and other current assets of $0.1
million, and an increase of deferred revenue of $0.2 million. In 2007, net cash
provided by operating activities primarily consisted of InsWeb’s income of $2.4
million and noncash share-based compensation of $1.1 million, decrease in
accrued expenses of $0.3 million and depreciation of property and equipment of
$0.2 million. This was offset by reductions in the lease loss accrual of $1.0
million and accounts payable and accrued expenses of $0.4 million. In 2006, net
cash used in operating activities primarily consisted of InsWeb’s net loss,
partially offset by noncash share-based compensation of $0.4 million and
depreciation of property and equipment of $0.2 million. An increase in accounts
receivable and reductions in accounts payable and accrued expenses also
contributed to cash used by operations.





Net cash
used in investing activities in 2008 of $0.7 million consisted primarily of $0.4
million of purchases of property and equipment and $0.3 million in notes
receivable from employees.  Net cash used in investing activities in
2007 resulted from the purchase of property, equipment, and intangible assets.
Net cash provided by investing activities in 2006 resulted primarily from
redemptions of short-term investments of $1.5 million, offset by purchases
of short-term investments of $0.2 million and  purchase of property
and equipments for $0.1 million.





Net cash
used in financing activities in 2008 of $0.1 million resulted primarily from the
cash settlement of an equity award of $0.9 million offset by $0.7 million in
proceeds from the issuance of common stock through employee stock
plans.





Net
cash provided by financing activities in 2007 and 2006, resulted primarily from
the proceeds from the issuance of common stock through employee stock
plans.





InsWeb
leases its current office facilities under non-cancelable operating leases,
which expire at various dates through April 2011, including a 10-year lease
agreement through April 2011 for office space in the Sacramento area which
houses its corporate headquarters. InsWeb has an option to extend the lease at
the end of the lease term, and has the right of first refusal on other office
space in the complex.


Aggregate
contractual cash obligations, net of contractual sublease income, as of
December 31, 2008 is summarized as follows (in thousands):





Years ending December 31,
                  
                  Gross lease
                    commitments
                  
                  Sublease
                    income
                  
                  Net lease
                    commitment2009
                  
                  1,078
                  
                  (110
                  )
                  9682010
                  
                  1,078
                  
                  (120
                  )
                  9582011
                  
                  359
                  
                  (20
                  )
                  339Thereafter
                  
                  —
                  
                  —
                  
                  —$
                  2,515
                  
                  $
                  (250
                  )
                  $
                  2,265





InsWeb
currently anticipates that its cash and cash equivalents will be sufficient to
meet its anticipated cash needs to fund operations and capital expenditures for
at least the next 12 months. Although InsWeb does not anticipate the need
for additional financing, InsWeb nevertheless may require additional funds to
meet operating needs, or to expand its business internally or through
acquisition. 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, its business could be
materially harmed. If additional funds were raised through the issuance of
equity securities, the percentage ownership of InsWeb’s then-current
stockholders would be reduced.





Recently
Issued Accounting Standards




In
December 2007, the Financial Accounting Standard Board (FASB) revised Statement
of Financial Accounting Standards No. 141, Business Combinations(“Statement 141(R)”).
Statement 141(R) retains the fundamental requirements in Statement 141 that
the acquisition method of accounting (which Statement 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. Statement 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. InsWeb adopted Statement141(R) at the
beginning of 2009, with no material impact to InsWeb’s consolidated financial
statements upon adoption.




In
December 2007, the Financial Accounting Standard Board (FASB) issued Statement
of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“Statement 160”).
Statement 160 amends FASB Accounting Research Bulletin No. 51 to establish
accounting and reporting standards for the on controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Statement 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. InsWeb adopted
Statement 160 at the beginning of 2009, with no material impact to InsWeb’s
consolidated financial statements upon adoption.








Item
7A. Quantitative and Qualitative Disclosures About Market Risk.





The
primary objective of our investment strategy is to preserve principal while
maximizing the income we receive from investments without significantly
increasing risk. To minimize this risk, as of December 31, 2008, we have
maintained our portfolio of cash equivalents in short-term and overnight
investments that are subject to minimal market risk, as the interest paid on
such investments fluctuates with the prevailing interest rates. As of
December 31, 2008, all of our cash equivalents mature in less than three
months.





Item
8. Financial Statements and Supplementary Data.





The
Report of Independent Registered Public Accounting Firm, Consolidated Financial
Statements and Notes to Consolidated Financial Statements follow below on pages
F-1 to F-19.








INSWEB
CORPORATION





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





Report
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
            
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2008, 2007
      and 2006
            
            F-4Consolidated
      Statements of Stockholders’ Equity for the years ended December 31,
      2008, 2007 and 2006
            
            F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007
      and 2006
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7





Report
of Independent Registered Public Accounting Firm





The
Board of Directors and Stockholders of InsWeb Corporation





We have
audited the accompanying consolidated balance sheets of InsWeb Corporation
(“Company”) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2008. Our audits also included
the financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of InsWeb Corporation at
December 31, 2008 and 2007, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.








/s/
ERNST & YOUNG LLP








Sacramento,
California


March 31,
2009





INSWEB
CORPORATION


CONSOLIDATED
BALANCE SHEETS


(Amounts
in thousands, except per share amounts)





December 31,2008
                
                2007AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                9,238
                
                $
                10,777Accounts
      receivable, net of allowances of $8 at 2008 and $36 at
2007
                
                1,450
                
                2,428Related
      party receivable
                
                —
                
                48Prepaid
      expenses and other current assets
                
                711
                
                548Total
      current assets
                
                11,399
                
                13,801Related
      party receivables
                
                304
                
                —Property
      and equipment, net
                
                249
                
                257Other
      assets
                
                329
                
                75Total
      assets
                
                $
                12,281
                
                $
                14,133Liabilities
      and stockholders’ equityCurrent
      liabilities:Accounts
      payable
                
                $
                2,138
                
                $
                2,118Accrued
      expenses
                
                1,014
                
                1,426Deferred
      revenue
                
                437
                
                246Total
      current liabilities
                
                3,589
                
                3,790Commitments
      and contingenciesStockholders’
      equity:Convertible
      preferred stock, $0.001 par value. Authorized: 5,000 shares; no shares
      issued or outstanding at 2008 and 2007
                
                —
                
                —Common
      stock, $0.001 par value. Authorized: 25,000 shares; 8,004 shares issued
      and 4,780 shares outstanding at 2008; and 7,807 shares issued and 4,583
      shares outstanding at 2007
                
                8
                
                8Paid-in
      capital
                
                206,719
                
                206,208Treasury
      stock, 3,224 shares at 2008 and 2007
                
                (6,334
                )
                (6,334
                )Accumulated
      other comprehensive income (loss)
                
                1
                
                —Accumulated
      deficit
                
                (191,702
                )
                (189,539
                )Total
      stockholders’ equity
                
                8,692
                
                10,343Total
      liabilities and stockholders’ equity
                
                $
                12,281
                
                $
                14,133





See
accompanying notes.





INSWEB
CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Amounts
in thousands, except per share amounts)





Years Ended December 31,2008
                
                2007
                
                2006Revenues:Transaction
      fees
                
                $
                37,275
                
                $
                32,940
                
                $
                28,161Other
                
                222
                
                258
                
                340Total
      revenues
                
                37,497
                
                33,198
                
                28,501Operating
      expenses:Direct marketing
                
                26,650
                
                19,567
                
                18,576Sales
      and marketing
                
                5,982
                
                5,246
                
                7,512Technology
                
                3,292
                
                3,075
                
                4,459General
      and administrative
                
                4,024
                
                4,213
                
                3,799Lease
      loss accrual
                
                —
                
                (985
                )
                —Total
      operating expenses
                
                39,948
                
                31,116
                
                34,346(Loss)
      income from operations
                
                (2,451
                )
                2,082
                
                (5,845
                )Interest
      income
                
                244
                
                378
                
                425Other
      income, net
                
                —
                
                6
                
                2,050(Loss)
      income before income taxes
                
                (2,207
                )
                2,466
                
                (3,370
                )(Benefit)
      provision for income taxes
                
                (44
                )
                45
                
                —Net
      (loss) income
                
                $
                (2,163
                )
                $
                2,421
                
                $
                (3,370
                )Net
      (loss) income per share:Basic
                
                $
                (0.46
                )
                $
                0.55
                
                $
                (0.82
                )Diluted
                
                $
                (0.46
                )
                $
                0.46
                
                $
                (0.82
                )Shares
      used in computing net (loss) income per share:Basic
                
                4,703
                
                4,387
                
                4,092Diluted
                
                4,703
                
                5,295
                
                4,092





See
accompanying notes.





INSWEB
CORPORATION


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


Years
ended December 31, 2008, 2007 and 2006


(Amounts
in thousands, except per share amounts)





Common Stock
                
                
                
                Treasury Stock
                
                Accumulated OtherShares
                
                Amount
                
                Paid-in
      Capital
                
                Shares
                
                Amount
                
                Comprehensive
                  Income
      (Loss)
                
                Accumulated
      Deficit
                
                TotalBalances,
      December 31, 2005
                
                7,301
                
                $                  7
                
                $   203,059
                
                (3,224
                )
                $
      (6,334
                )
                $                              (1
                )
                $        (188,590
                )
                $      8,141Issuance
      of shares through employee stock purchase plan and stock option
      plan
                
                37
                
                —
                
                88
                
                —
                
                —
                
                —
                
                —
                
                88Share-based
      compensation expense
                
                —
                
                —
                
                431
                
                —
                
                —
                
                —
                
                —
                
                431Comprehensive
      loss:Change
      in unrealized gain (loss) on investments
                
                —
                
                —
                
                —
                
                —
                
                —
                
                1
                
                —
                
                1Net
      loss
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                (3,370
                )
                (3,370
                )Comprehensive
      loss
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                (3,369
                )Balances,
      December 31, 2006
                
                7,338
                
                7
                
                203,578
                
                (3,224
                )
                (6,334
                )
                —
                
                (191,960
                )
                5,291Issuance
      of shares through employee stock purchase plan and stock option
      plan
                
                469
                
                1
                
                1,516
                
                —
                
                —
                
                —
                
                —
                
                1,517Share-based
      compensation expense
                
                —
                
                —
                
                1,114
                
                —
                
                —
                
                —
                
                —
                
                1,114Comprehensive
      income:Net
      income
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                2,421
                
                2,421Comprehensive
      income
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                —
                
                2,421Balances,
      December 31, 2007
                
                7,807
                
                
                8
                
                
                206,208
                
                (3,224
                )
                
                (6,334
                )
                
                —
                
                
                (189,539
                )
                
                10,343Issuance
      of shares through employee stock purchase plan and stock option
      plan
                
                197
                
                
                —
                
                
                721
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                721Share-based
      compensation expense
                
                —
                
                
                —
                
                
                640
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                640Cash
      settlement of equity award
                
                —
                
                
                —
                
                
                (850
                )
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (850
                )Comprehensive
      loss:Change
      in unrealized gain (loss) on investments
                
                —
                
                
                —
                
                
                —
                
                —
                
                
                —
                
                
                1
                
                
                —
                
                
                1Net
      loss
                
                —
                
                
                —
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                (2,163
                )
                
                (2,163
                )Comprehensive
      loss
                
                —
                
                
                —
                
                
                —
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (2,162
                )Balances,
      December 31, 2008
                
                8,004
                
                $
                8
                
                $
                206,719
                
                (3,224
                )
                $
                (6,334
                )
                $
                1
                
                $
                (191,702
                )
                $
                8,692





See
accompanying notes.





INSWEB
CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS


(Amounts
in thousands)





Years Ended December 31,2008
                
                2007
                
                2006Cash
      flows from operating activities:Net
      (loss) income
                
                $
                (2,163
                )
                $
                2,421
                
                $
                (3,370
                )Adjustments
      to reconcile net (loss) income to net cash used in operating
      activities:Lease
      loss accrual
                
                —
                
                (985
                )
                —Share-based
      compensation
                
                640
                
                1,114
                
                431Depreciation
      and amortization
                
                170
                
                152
                
                210Net
      changes in operating assets and liabilities:Accounts
      receivable
                
                978
                
                376
                
                (507
                )Prepaid
      expenses and other current assets
                
                (115
                )
                (198
                )
                147Other
      assets
                
                (59
                )
                40
                
                231Accounts
      payable
                
                19
                
                (130
                )
                (407
                )Accrued
      expenses
                
                (411
                )
                (261
                )
                (412
                )Deferred
      revenue
                
                191
                
                1
                
                117Interest
      on notes receivable from employees
                
                (4
                )
                —
                
                —Net
      cash (used in) provided by operating activities
                
                (754
                )
                2,530
                
                (3,560
                )Cash
      flows from investing activities:Redemptions
      of short-term investments
                
                —
                
                —
                
                1,462Purchases
      of short-term investments
                
                —
                
                —
                
                (228
                )Purchases
      of property, equipment and intangible assets
                
                (356
                )
                (20
                )
                (75
                )Note
      receivable from employees
                
                (300
                )
                —
                
                —Net
      cash (used in) provided by investing activities
                
                (656
                )
                (20
                )
                1,159Cash
      flows from financing activities:Proceeds
      from issuance of common stock through stock plans
                
                721
                
                1,517
                
                88Cash
      settlement of equity award
                
                (850
                )
                —
                
                —Repayment
      of debt
                
                —
                
                —
                
                (10
                )Net
      cash (used in) provided by financing activities
                
                (129
                )
                1,517
                
                78Net
      (decrease) increase in cash and cash equivalents
                
                (1,539
                )
                4,027
                
                (2,323
                )Cash
      and cash equivalents, beginning of year
                
                10,777
                
                6,750
                
                9,073Cash
      and cash equivalents, end of year
                
                $
                9,238
                
                $
                10,777
                
                $
                6,750





See
accompanying notes.








INSWEB
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.           Business of InsWeb
Corporation





InsWeb
Corporation (“InsWeb”) operates an online insurance marketplace that
electronically matches consumers and insurance providers. InsWeb’s marketplace
enables consumers to research insurance-related topics, search for, analyze and
compare insurance products, apply for and to receive insurance company-sponsored
quotes for coverage for automobile, homeowners and term life
insurance.





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, generally, 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.”





InsWeb is
subject to all of the risks inherent in the electronic commerce industry and
special risks related to the online insurance industry. These risks include, but
are not limited to, uncertain economic conditions which could result in lower
growth rates, the changing nature of the electronic commerce industry,
variations in the availability and cost of acquiring consumer traffic,
unpredictability of future revenues, reliance on key customers –insurance
carriers, agents and other providers – who are themselves subject to volatility
in their operating cycles, and reliance on a third-party intermediary who
provides leads to local insurance agents on InsWeb’s behalf. These risks and
uncertainties, among others, could cause InsWeb’s actual results to differ
materially from historical results or those currently anticipated. In light of
the evolving nature of InsWeb’s business to better capitalize on its position as
a leading insurance portal, including the current expansion of InsWeb’s agent
network program, InsWeb believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance. Moreover, there is no assurance that
InsWeb will be able to achieve and sustain profitability.





2.           Summary of Significant Accounting
Policies





Basis
of presentation





The
consolidated financial statements include the accounts of InsWeb Corporation and
its wholly-owned subsidiaries, InsWeb Insurance Services, Inc. and Goldrush
Insurance Services, Inc. All significant inter-company accounts and
transactions have been eliminated in the consolidated financial
statements.





Use
of estimates





The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.





Cash,
cash equivalents and short-term investments





InsWeb
considers all highly liquid investments with original maturities of three months
or less at the date of purchase to be cash equivalents. Investments with
maturities greater than three months at the date of purchase but less than one
year are classified as short-term investments. Cash and cash equivalents are
stated at cost, which approximates fair value, given the relatively short
duration of the underlying securities.





Revenue
recognition





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.





Transaction fee revenue from
consumer leads, for both auto insurance and term life insurance, is recognized
when such lead (either as a consumer click-through or after completion of the
InsWeb application) is delivered to a participating








2.           Summary of Significant Accounting
Policies (continued)





insurance
company. Transaction fee revenue from closed policies is recognized in the
period that the insurance company has sold an insurance policy from a qualified
consumer lead.





InsWeb
agency commission revenue is based on a percentage of the insurance policy
premium related to each insurance policy sale where InsWeb has acted as the
agent. Agency commission revenue is recognized on the effective date of the
policy, less an estimate for early cancellations of the underlying insurance
policies.





Online
marketing and direct marketing expense





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 its site. 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. Online advertising payments based on per unit
transactions are expensed in the period in which the consumer traffic occurred
and are included in direct marketing expense.





Costs
related to advertising and promotions of products are charged to sales and
marketing expense as incurred. Direct marketing expense for the years ended
December 31, 2008, 2007 and 2006 were $26,650,000, $19,567,000, and
$18,576,000, respectively.





Property
and equipment and other long-lived assets





Property
and equipment are stated at cost less accumulated depreciation. Depreciation on
computer and office equipment, furniture and fixtures and purchased software is
calculated using the straight-line method over the estimated useful lives of the
assets, generally two to five years. Amortization on leasehold improvements is
calculated using the straight-line method over the estimated useful lives of the
improvements or the remaining term of the lease, whichever is shorter.
Expenditures for maintenance and repairs are charged to expense as
incurred.





InsWeb
evaluates the recoverability of its long-lived assets in accordance with
Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires
the recognition of impairment losses related to long-lived assets in the event
the net carrying value of such assets exceeds fair value. InsWeb assesses the
impairment of its long-lived assets annually or when events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.





Concentration
of risk—credit





Financial
instruments that potentially subject InsWeb to concentrations of credit risk, as
defined by Statement of Financial Accounting Standard No. 105, “Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk,” consist principally of cash, cash
equivalents, and accounts receivable. InsWeb deposits its cash and cash
equivalents with various domestic financial institutions. Such deposits may
exceed federal deposit insurance limits.





InsWeb’s
investments consist of diversified investment grade securities. InsWeb’s
investment policy limits the amount of credit exposure to investments in any one
issue, and InsWeb believes no significant concentration of credit risk exists
with respect to these investments.





InsWeb’s
customer base is dispersed across many different geographic areas, and most
customers are in the insurance industry in the United States. Collection of
trade receivables may be affected by changes in economic or other industry
conditions and may, accordingly, impact InsWeb’s overall credit risk. InsWeb
performs ongoing credit evaluations of its customers and generally does not
require collateral. InsWeb reviews the need for allowances for potential credit
losses based on historical losses, and records a provision when collectibility
is uncertain. InsWeb has not experienced significant credit losses to date.
Generally, receivables are due 30 days from the invoice date and are
considered past due after this date.








2.           Summary of Significant Accounting
Policies (continued)





Concentration
of risk—significant customers





For the year ended December 31, 2008,
three customers (Netquote, 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.





Income
taxes





InsWeb
uses the asset and liability method of accounting for income taxes. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing 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 recovered or settled. To the extent a deferred tax asset cannot be recognized
under the preceding criteria, allowances are established. At December 31,
2008 and 2007, all deferred tax assets, without offsetting liabilities in the
same jurisdiction, were fully offset by a valuation allowance.





In
July 2006, the Financial Accounting Standards Board ( “FASB”) issued
Financial Interpretation (FIN) No. 48, Accounting for Uncertainty in Income
Taxes(FIN 48), which clarifies the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with the Statement of
Financial Accounting Standards  (“SFAS”) No. 109, Accounting for Income Taxes.FIN 48 provides that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained
upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. Income tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized.





InsWeb
accrues interest and penalties on underpayment of income taxes related to
unrecognized tax benefits as a component of income tax expense in our
consolidated statements of operations. No amounts were recognized for interest
and penalties upon adoption of FIN 48 on January 1, 2007 or during the years
ended December 31, 2008 and 2007.





Net
income (loss) per share





Basic net
income (loss) per share is computed using the weighted-average number of shares
of common stock outstanding. Diluted earnings per share is a measure of the
potential dilution that would occur if stock options had been exercised.
Potentially dilutive securities have been excluded from the computation of
diluted net loss per share, for the years ended 2008 and 2006, as their effect
would be antidilutive.





The
following table reconciles the numerator and denominator used to calculate basic
and diluted net loss per share of common stock:





Year Ended December 31,(In
      thousands, except per share amounts)
                
                2008
                
                2007
                
                2006Numerator
      for basic and diluted net loss per share:Net
      income (loss) available to common stockholders
                
                $
                (2,163
                )
                $
                2,421
                
                $
                (3,370
                )Denominator
      for net income (loss) per share:Basic—weighted
      average shares of common stock outstanding
                
                4,703
                
                4,387
                
                4,092Dilutive
      effect of employee stock options
                
                —
                
                908
                
                —Diluted
                
                4,703
                
                5,295
                
                4,092Net
      income (loss) per share:Basic—as
      reported
                
                $
                (0.46
                )
                $
                0.55
                
                $
                (0.82
                )Diluted—as
      reported
                
                $
                (0.46
                )
                $
                0.46
                
                $
                (0.82
                )





2.           Summary
of Significant Accounting Policies (continued)





Potentially
dilutive securities that are not included in the diluted net loss calculation
because they would be antidilutive are employee stock options to purchase shares
totaling 787,000 as of December 31, 2008 and 970,000 as of December 31,
2006.





Segment
information





InsWeb
operates in one segment, business-to-consumer electronic insurance services.
InsWeb markets its online marketplace in the United States. The Chief Executive
Officer has been identified as the Chief Operating Decision Maker because he has
final authority over resource allocation decisions and performance
assessment.








Recently
issued accounting standards




In
December 2007, the Financial Accounting Standard Board (FASB) revised Statement
of Financial Accounting Standards No. 141, Business Combinations(“Statement 141(R)”).
Statement 141(R) retains the fundamental requirements in Statement 141 that
the acquisition method of accounting (which Statement 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. Statement 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. InsWeb adopted Statement141(R) at the
beginning of 2009, with no material impact to InsWeb’s consolidated financial
statements upon adoption.




In
December 2007, the Financial Accounting Standard Board (FASB) issued Statement
of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“Statement 160”).
Statement 160 amends FASB Accounting Research Bulletin No. 51 to establish
accounting and reporting standards for the on controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Statement 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. InsWeb adopted
Statement 160 at the beginning of 2009, with no material impact to InsWeb’s
consolidated financial statements upon adoption.





3.           Share-Based
Payments





In
July 1997, InsWeb authorized the 1997 Stock Option Plan (the “Option Plan”)
and the Senior Executive Option Plan (the “Executive Plan”). Under the Option
Plan, the Board of Directors may issue incentive stock options to employees of
InsWeb and its subsidiaries and may also issue nonqualified stock options to
employees, officers, directors, independent contractors and consultants of
InsWeb and its subsidiaries. Under the Executive Plan, the Board of Directors
may issue nonqualified stock options to employees, officers and directors of
InsWeb and its subsidiaries.





In
May 2003, the Option Plan was amended, with stockholder approval, to
provide that each director would receive a fully-vested option to purchase 5,000
shares of common stock on July 1st (or the
first business day thereafter) of each year in which the director remains in
office.





The
Option Plan provided for an automatic annual increase in the share reserve, to
be effective on the first day of each fiscal year, by a number of shares equal
to 5% of the number of common shares outstanding as of the last day of the
preceding fiscal year. With the expiration of the 1997 Stock Option Plan and
Senior Executive Option Plan, in July 2007, InsWeb authorized the 2008 Stock
Option Plan in February 2008, and options to purchase 1,500,000 shares of common
stock were authorized under this plan.





Options
granted under the above plans are priced at the fair market value on the date of
grant and prior to January 1, 2006 generally vested in equal monthly
installments over a three-year period; options granted subsequent to
January 1, 2006 generally vest ratably over a one-year period. Beginning in
2007, performance based options have also been granted. Certain options granted
to members of InsWeb’s Board of Directors vest immediately.





Prior to
January 1, 2006, options expired ten years from the date of grant; options
granted subsequent to January 1, 2006 expire five years from the date of
grant.





Options
outstanding and currently exercisable by exercise price at December 31,
2008 are as follows:





Options Outstanding
                
                Options Currently ExercisableExercise Prices
                
                Number
                  Outstanding
                
                Weighted Average
                  Remaining Contractual
                  Life (in years)
                
                Number
                  Outstanding
                
                Weighted Average
                  Exercise Price(in
      thousands, except contractual life and exercise price
    amounts)$1.40-$2.04
                
                116
                
                2.77
                
                116
                
                $
                2.02$2.05-$2.05
                
                226
                
                2.70
                
                200
                
                $
                2.05$2.30-$2.84
                
                218
                
                5.42
                
                217
                
                $
                2.74$2.85-$3.40
                
                185
                
                5.29
                
                185
                
                $
                3.08$3.41-$4.85
                
                426
                
                3.81
                
                425
                
                $
                3.87$4.86-$6.30
                
                284
                
                3.38
                
                284
                
                $
                5.20$6.31-$270.00
                
                379
                
                3.58
                
                221
                
                $
                22.191,834
                
                3.83
                
                1,648
                
                $
                5.97





InsWeb
has an Employee Stock Purchase Plan (the “Purchase Plan”) under which eligible
employees may authorize payroll deductions of up to 15% of their compensation to
purchase shares at 85% of the lower of the fair market value of the common stock
on the date of commencement of the offering or on the last day of the six-month
purchase period. During 2008, 2007 and 2006, 10,177, 7,861 and 8,246 shares
respectively, were distributed to employees at prices ranging from $1.97 per
share to $6.01 per share. The weighted average fair values of the 2008, 2007 and
2006 awards were $5.51, $2.44 and $2.26 per share, respectively. At
December 31, 2008, InsWeb had 447,000 shares of its common stock reserved
for future issuance under the Purchase Plan. The number of shares of common
stock issuable under the 1999 Plan is increased by 50,000 shares each year until
January 1, 2008 and 0 shares thereafter .





3.           Share-Based
Payments (continued)





On
January 1, 2006, InsWeb adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), “Share-Based Payments,” (“SFAS
123(R)”) requiring it to recognize expense related to the fair value of its
share-based compensation awards. InsWeb elected to use the modified prospective
transition method as permitted by SFAS 123(R) and therefore has not
restated its financial results for prior periods. Under this transition method,
share-based compensation expense for the year ended December 31, 2006
includes all share-based compensation awards granted subsequent to
January 1, 2006 based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123(R). InsWeb recognizes compensation expense for
stock option awards issued subsequent to January 1, 2006 on a straight-line
basis over the requisite service period of the award. All options issued
prior to January 1, 2006 were fully vested at the date of adoption of SFAS
123(R), and therefore, no compensation expense was recognized for these options
for the years ended December 31, 2008, 2007 and 2006.





The
following table sets forth the total share-based compensation expense resulting
from stock options and the Purchase Plan included in InsWeb’s operating expenses
in its condensed consolidated statements of operations for the years ended
December 31, 2008, 2007 and 2006 (in thousands):





Year Ended December 31,2008
                
                2007
                
                2006Sales
      and marketing
                
                $
                170
                
                $
                239
                
                $
                126Technology
                
                59
                
                92
                
                32General
      and administrative
                
                411
                
                783
                
                273Total
      share-based compensation expense
                
                $
                640
                
                $
                1,114
                
                $
                431





The fair
value of share-based awards granted pursuant to InsWeb’s stock option plans was
estimated using the Black-Scholes model with the following assumptions for the
years ended December 31, 2008, 2007 and 2006:





Year Ended December 31,2008
                
                2007
                
                2006Expected
      term (in years)
                
                3.44
                
                3.00
                
                3.68Expected
      volatility
                
                0.65
                
                0.66
                
                0.72Risk-free
      interest rate
                
                1.9
                %
                4.8
                %
                4.0
                %Expected
      dividend
                
                —
                
                —
                
                —Weighted-average
      fair value at grant date
                
                $
                5.05
                
                $
                1.91
                
                $
                1.17





The
Black-Scholes model is also used to determine the fair value of the shares
issued for the Purchase Plan for the years ended December 31, 2008, 2007
and 2006. In connection with the Purchase Plan, for 2008, 2007 and 2006,
assumptions used for expected term (in years), volatility and risk-free interest
rate were approximately 0.50, 0.66 and 0.4% for the year ended December 31, 2008
and 0.50, 0.50 and 4.0% for the years ended December 31, 2007 and 2006
respectively.





Expected
term. The expected term represents the period that InsWeb’s share-based
awards are expected to be outstanding. InsWeb’s expected term was determined
based on historical experience of similar awards, giving consideration to the
contractual terms of the share-based awards, vesting schedules and expectations
of future employee behavior.





Expected
volatility. InsWeb uses the trading history of its common stock in
determining an estimated volatility factor when using the Black-Scholes
option-pricing formula to determine the fair value of options
granted.





Risk-free
interest rate. InsWeb bases the risk-free interest rate used in the
Black-Scholes valuation method on the implied yield currently available on U.S.
Treasury zero-coupon issues with the same or substantially equivalent remaining
term.





Expected
dividend.InsWeb has not declared dividends to date. Therefore, InsWeb
uses a zero value for the expected dividend value factor when using the
Black-Scholes option-pricing formula to determine the fair value of options
granted.





3.           Share-Based
Payments (continued)





Estimated
forfeitures. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from initial estimates. When estimating forfeitures, InsWeb
considers historical voluntary and involuntary termination behavior as well as
analysis of actual option forfeitures.





Activity
under all of InsWeb’s stock option plans is as follows:





(in thousands, except exercise price amounts)
                  
                  Shares Available
                    for Grant
                  
                  Shares
                    Outstanding
                  
                  Weighted Average
                    Exercise PriceBalances,
      December 31, 2005
                  
                  888
                  
                  1,464
                  
                  $
                  6.98Additional
      shares reserved
                  
                  206
                  
                  —
                  
                  —Granted
                  
                  (652
                  )
                  652
                  
                  $
                  2.19Exercised
                  
                  —
                  
                  (29
                  )
                  $
                  2.39Canceled/forfeited
                  
                  164
                  
                  (164
                  )
                  $
                  5.57Balances,
      December 31, 2006
                  
                  606
                  
                  1,923
                  
                  $
                  5.88Additional
      shares reserved
                  
                  206
                  
                  —
                  
                  —Granted
                  
                  (552
                  )
                  552
                  
                  $
                  3.98Exercised
                  
                  —
                  
                  (460)
                  
                  
                  3.25Canceled/forfeited
                  
                  62
                  
                  (62
                  )
                  $
                  3.81Expiration
      of 1997 stock option plan on July 1, 2007
                  
                  (322
                  )Balances,
      December 31, 2007
                  
                  —
                  
                  1,953
                  
                  $
                  5.70Additional
      shares reserved
                  
                  1,500
                  
                  —
                  
                  —Granted
                  
                  (326)
                  
                  326
                  
                  $
                  10.94Exercised
                  
                  —
                  
                  (308
                  )
                  $
                  3.13Canceled/forfeited
                  
                  137
                  
                  (137
                  )
                  $
                  15.22Balances,
      December 31, 2008
                  
                  1,311
                  
                  1,834
                  
                  $
                  6.35





The
aggregate intrinsic values of options outstanding and exercisable at
December 31, 2008 and 2007 were $109,000, and $9,071,000, respectively.
Aggregate intrinsic value represents the total intrinsic value (the aggregate
difference between the closing stock price of InsWeb’s common stock on
December 31, 2008 and 2007 and the exercise price for in-the-money options)
that would have been received by the option holders if all options had been
exercised on December 31, 2008 and 2007, respectively. The total intrinsic
value of options exercised for the years ended December 31, 2008, 2007 and
2006 were $1,713,000, $1,903,000 and $15,000, respectively. The weighted-average
remaining contractual terms of options outstanding and exercisable at
December 31, 2008 and 2007 were 3.55 and 4.73 years,
respectively.





As of
December 31, 2008, there was $152,000 in unrecognized compensation cost for
all stock options outstanding that were unvested. This amount is expected to be
recognized over the weighted-average period of 2.6 years. InsWeb’s current
practice is to issue new shares to satisfy share option exercises.





Cash
received from stock option exercises and purchases under the Purchase Plan for
December 31, 2008, 2007 and 2006 were $721,000, $1,517,000 and $88,000
respectively.





4.           Consolidated Financial Statement
Details





Cash
and cash equivalents





Cash and
cash equivalents consist of the following (in thousands):





December 31,2008
                
                2007Cash
                
                $
                1,289
                
                $
                2,407Money
      market funds
                
                2,006
                
                1,343Commercial
      paper
                
                4,443
                
                3,315Government
      sponsored enterprises
                
                1,500
                
                3,712$
                9,238
                
                $
                10,777








4.           Consolidated
Financial Statement Details (continued)





InsWeb accounts for its short-term
investments under Statement of Financial Accounting Standards No. 115,
“Accounting for Certain
Investments in Debt and Equity Securities” (“SFAS 115”). Management
determines the appropriate classification of its debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. InsWeb
holds no short-term investments at December 31, 2008 and 2007.





At
December 31, 2008, the contractual maturities of InsWeb’s investment
portfolio are less than one year. The gains and losses from the sale of
available-for-sale securities have not been significant to date.





Prepaid
expenses, related party receivable and other current assets





Prepaid
expenses, related party receivable and other current assets consist of the
following (in thousands):





December 31,2008
                
                2007Prepaid
      insurance
                
                $
                124
                
                $
                139Related
      party receivable
                
                —
                
                48Other
                
                587
                
                409$
                711
                
                $
                596





On December 27, 2007, $48,000 was
paid by InsWeb to the respective governmental agencies on behalf of the Chairman
and CEO to cover his portion of withholding taxes for exercises of non-qualified
stock options. This amount was subsequently repaid by the Chairman and CEO to
InsWeb in January 2008.





Non
Current related party
receivable




December 31,2008
                  
                  2007Related
      party receivable
                  
                  $
                  304
                  
                  $
                  —$
                  304
                  
                  $
                  —




As of
December 31, 2008, related party receivable relates to promissory notes totaling
$300,000 received from three non-officer employees of InsWeb in exchange for
cash.  These notes are unsecured loans with a per annum rate of
2.42%.  Principal and interest are payable in full on or before July,
2011.





Property
and equipment





Property
and equipment, net, consists of the following (in thousands):





December 31,2008
                
                2007Computer
      and office equipment
                
                $
                909
                
                $
                819Furniture
      and fixtures
                
                450
                
                450Leasehold
      improvements
                
                687
                
                687Software
                
                621
                
                5752,667
                
                2,531Less
      accumulated depreciation
                
                (2,418
                )
                (2,274
                )$
                249
                
                $
                257





Depreciation
expense was $169,000, $152,000, and $210,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.





4.           Consolidated
Financial Statement Details (continued)








Other
assets





Other
assets consist of the following (in thousands):





December 31,2008
                
                2007Deposits
      for operating leases
                
                $
                75
                
                $
                75Intangible
      assets
                
                195
                
                —Other
                
                59
                
                —$
                329
                
                $
                75





Accrued
expenses





Accrued
expenses consist of the following (in thousands):





December 31,2008
                
                2007Accrued
      employee compensation
                
                $
                481
                
                $
                402Deferred
      rent
                
                262
                
                374Accrued
      lease obligations
                
                —
                
                248Other
                
                271
                
                402$
                1,014
                
                $
                1,426





5.           Commitments and
Contingencies





Leases





InsWeb
leases its current office facilities under non-cancelable operating leases,
which expire at various dates through April 2011, including a 10-year lease
agreement through April 2011 for office space in the Sacramento area which
houses its corporate headquarters. InsWeb has an option to extend the lease at
the end of the lease term, and has the right of first refusal on other office
space in the complex.





Net
contractual lease commitments as of December 31, 2008 are summarized as
follows (in thousands):





Years ending December 31,
                  
                  Gross lease
                    commitments
                  
                  Sublease
                    income
                  
                  Net lease
                    commitment2009
                  
                  1,078
                  
                  (110
                  )
                  9682010
                  
                  1,078
                  
                  (120
                  )
                  9582011
                  
                  359
                  
                  (20
                  )
                  339Thereafter
                  
                  —
                  
                  —
                  
                  —$
                  2,515
                  
                  $
                  (250
                  )
                  $
                  2,265








Rent
expense for the years ended December 31, 2008, 2007, and 2006 was $785,000,
$916,000, and $1,010,000 (net of sublease rental income of $1,814,000,
$2,167,000, and $2,030,000), respectively.








5.           Commitments
and Contingencies (continued)





Securities
Class Action





A
securities class action lawsuit was filed on December 5, 2001 in the United
States District Court for the Southern District of New York, (the “Court”)
purportedly on behalf of all persons who purchased our common stock from
July 22, 1999 through December 6, 2000. The complaint named as
defendants InsWeb, certain current and former officers and directors, and three
investment banking firms that served as underwriters for InsWeb’s initial public
offering in July 1999. The complaint, as subsequently amended, alleges
violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10
and 20 of the Securities Exchange Act of 1934, on the grounds that the
prospectuses incorporated in the registration statements for the offering failed
to disclose, among other things, that (i) the underwriters had solicited
and received excessive and undisclosed commissions from certain investors in
exchange for which the underwriters allocated to those investors material
portions of the shares of our stock sold in the offerings and (ii) the
underwriters had entered into agreements with customers whereby the underwriters
agreed to allocated shares of the stock sold in the offering to those customers
in exchange for which the customers agreed to purchase additional shares of
InsWeb stock in the aftermarket at pre-determined prices. No specific damages
are claimed. Similar allegations have been made in lawsuits relating to more
than


300 other
initial public offerings conducted in 1999 and 2000, all of which have been
consolidated for pretrial purposes. In October 2002, all claims against the
individual defendants were dismissed without prejudice. In February 2003,
the Court dismissed the claims in the InsWeb action alleging violations of the
Securities Exchange Act of 1934 but allowed the plaintiffs to proceed with the
remaining claims. In June 2003, the plaintiffs in all of the cases
presented a settlement proposal to all of the issuer defendants. Under the
proposed settlement, the plaintiffs would dismiss and release all claims against
participating defendants in exchange for a contingent payment guaranty by the
insurance companies collectively responsible for insuring the issuers in all the
related cases, and the assignment or surrender to the plaintiffs of certain
claims the issuer defendants may have against the underwriters. InsWeb and most
of the other issuer defendants have accepted the settlement proposal. While the
District Court was considering final approval of the settlement, the Second
Circuit Court of Appeals vacated the class certification of plaintiffs’ claims
against the underwriters in six cases designated as focus or test cases. On
December 14, 2006, the District Court ordered a stay of all proceedings in
all of the lawsuits pending the outcome of plaintiffs’ petition to the Second
Circuit for rehearing en banc and resolution of the class certification issue.
On April 6, 2007, the Second Circuit denied plaintiffs’ petition for
rehearing, but clarified that the plaintiffs may seek to certify a more limited
class in the District Court. Because of the significant technical barriers
presented by the Court’s decision, the parties withdrew the proposed settlement
and the plaintiffs filed an amended complaint.  In September 2008, all
of the parties to the IPO litigation agreed in principle to a revised
settlement, subject to preparation of formal documentation. As with the earlier
settlement proposal, the revised settlement proposal does not require InsWeb to
contribute any cash. There is no assurance that the new settlement will be
finalized, and then approved. If the settlement is not finalized and
subsequently approved, InsWeb intends to defend the lawsuit vigorously. The
litigation and settlement process is inherently uncertain and management cannot
predict the outcome, though, if unfavorable, it could have a material adverse
effect on InsWeb’s financial condition, results of operations and cash
flows.





Section 16(b) Lawsuit





On
October 12, 2007, Vanessa Simmonds, a purported stockholder of InsWeb,
filed a complaint in the United States District Court for the Western District
of Washington, against InsWeb and two investment banking firms that served as
underwriters for the initial public offering of our common stock in
July 1999. The complaint alleges that:  (i) the defendants, other
underwriters of the offering, and unspecified officers, directors and principal
stockholders of InsWeb constituted a “group” that owned in excess of 10% of
InsWeb’s outstanding common stock between July 23, 1999 and July 20,
2000; (ii) the defendants were therefore subject to the “short swing”
prohibitions of Section 16(b) of the Securities Exchange Actgroup of
1934; and (iii) the defendants engaged in purchases and sales, or sales and
purchases, of InsWeb’s common stock within periods of less than six months in
violation of the provisions of Section 16(b). The complaint seeks
disgorgement of all profits allegedly received by the defendants, with interest
and attorneys fees, for transactions in violation of Section 16(b). InsWeb,
as the statutory beneficiary of any potential Section 16(b) recovery,
is named as a nominal defendant in the complaint. A number of similar lawsuits
against underwriters of other public offerings have recently been filed by the
same plaintiff and law firm. On February 11, 2008, the court approved a
stipulated order that InsWeb need not answer or otherwise respond to the
complaint. On February 28, 2008, the plaintiff filed an amended complaint,
and InsWeb was again excused from filing an answer. On March 12, 2009 the court
issued an order dismissing the lawsuit with prejudice, but the plaintiff may
appeal this order.  If the lawsuit is reinstated on appeal, InsWeb
intends to defend the lawsuit vigorously. The litigation and settlement process
is inherently uncertain and management cannot predict the outcome, though, if
unfavorable, it could have a material adverse effect on InsWeb’s financial
condition, results of operations and cash flows.





5.           Commitments
and Contingencies (continued)





Patent Litigation





On
November 30, 2007, Autobytel, Inc.filed a complaint in the United
States District Court for the Eastern District of Texas against InsWeb and three
other defendants. The complaint alleges that InsWeb and the other defendants
infringed U.S. Patent No. 6,282,517 (the “ ‘517 patent”), which appears to
disclose a method and apparatus to allow a potential automobile purchaser to
create and submit a purchase request for a new or used automobile over a
computer network. The complaint contains generic allegations that InsWeb
infringed the ‘517 patent by making, using, offering to sell and selling systems
and/or methods that embody the invention claimed in the ‘517 patent and/or
actively inducing and/or contributing to others’ infringement of such
inventions. The complaint seeks unspecified monetary damages and injunctive
relief. On February 25, 2008, InsWeb filed an answer and counterclaim
denying infringement of the ‘517 patent and asserting invalidity of the patent
and other affirmative defenses. The court set May 2, 2011 as the trial
date.





On March 11, 2008,
InsWeb filed a complaint in the United States District Court for the Southern
District of California against Autobytel, Inc., Autobytel I Corporation
(formerly known as AVV, Inc.) and Dominion Enterprises. InsWeb filed an
amended complaint on July 3, 2008 adding OneCommand, Inc. as a
defendant.The amended complaint alleges that the defendants have infringed
InsWeb’s U.S. Patent No. 6,898,597, which relates to an event logging
system that monitors for the occurrence of predefined website usage events.
Defendant Autobytel, through its wholly-owned subsidiary AVV, marketed and sold
a product known as WebControl that embodies the invention claimed in the ‘597
patent. In January 2008, Autobytel sold AVV, including the WebControl
product, to Dominion Enterprises. Autobytel also owned an asset named Retention
Performance Marketing (RPM) that embodied the invention claimed in InsWeb’s
patent. Autobytel sold the RPM asset to OneCommand in July 2007. The
amended complaint also adds Internet Brands, Inc., Leadpoint, Inc.,
and Auto Internet Marketing, Inc. as co-plaintiffs with InsWeb following
InsWeb’s assignment of a partial interest in the ‘597 patent to these companies.
InsWeb and its co-plaintiff are seeking monetary damages in an amount to be
determined at trial from each defendant and a permanent injunction against
further acts of infringement.




InsWeb
intends to vigorously defend the Texas lawsuit and prosecute the California
action. The litigation and settlement process is inherently uncertain and
management cannot predict the outcome, though, if unfavorable, it could have a
material adverse effect on InsWeb’s financial condition, results of operations
and cash flows.








6.           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.





As of
December 31, 2008, InsWeb had net operating loss carry forwards of
approximately $190,000,000 for federal income tax purposes and $76,000,000 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
components of the net deferred tax assets and liabilities are presented below
(in thousands):





December 31,2008
                
                2007Net
      operating loss carry forwards
                
                $
                68,969
                
                $
                67,590Tax
      credit carry forwards
                
                958
                
                958Accruals
      and allowances
                
                93
                
                210Other
                
                875
                
                1,04870,895
                
                69,806Less
      valuation allowance
                
                (70,895
                )
                (69,806
                )Net
      deferred tax asset
                
                $
                —
                
                $
                —





Due to
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns, InsWeb has recorded a valuation allowance against its net
deferred tax asset. The valuation allowance recorded for the years ended
December 31, 2008 and 2006 increased by $1,089,000 and $1,413,000
respectively and decreased by





6.           Income
Taxes (continued)





$5,815,000
in 2007. Deferred tax assets relating to net operating loss carry forwards for
federal and state purposes includes approximately $2,700,000 associated with
stock compensation activity, for which subsequent realized tax benefits, if any,
will be credited directly to equity in the future.





The
difference between the income tax benefit at the federal statutory rate of 34%
and InsWeb’s effective tax rate is due primarily to the valuation allowance
established to offset the deferred tax assets. The provision for income taxes is
different than the amount computed using the applicable statutory federal income
tax rate with the difference for each year summarized below:





December 31,2008
                
                2007
                
                2006Federal
      tax (benefit) at statutory rate
                
                34
                %
                34
                %
                34
                %Share
      based compensation
                
                6
                %
                (8)
                %
                —
                %Other
                
                15
                %
                2
                %
                —
                %Adjustment
      due to change in valuation allowance
                
                (53
                )%
                (26
                )%
                (34
                )%Provision
      for income taxes
                
                2
                %
                2%
                
                0
                %





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.





A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows (in
thousands):





2008
                
                2007Balance
      at January 1
                $
                300
                
                $
                300Increases
      (decrease) related to prior year tax positions
                —
                
                —Increases
      related to current year tax positions
                —
                
                —Settlements
                —
                
                —Reductions
      due to lapse of applicable statute of limitations
                —
                
                —Balance
      at December 31
                $
                300
                
                $
                300





Interest
and penalty costs related to unrecognized tax benefits, if any, are classified
as a component of interest income and other income (expense), net in the
accompanying Statements of Operations. InsWeb, however, did not recognize any
interest and penalty expense related to unrecognized tax benefits for the year
ended December 31, 2008 and 2007.





InsWeb files income tax returns in the
U.S. federal jurisdiction and various state jurisdictions. InsWeb is subject to
U.S. federal and state examination for the calendar tax years ending 1996
through 2008.





7.           Employee
Benefit Plan





InsWeb
has a defined contribution plan offered to all eligible employees, which is
qualified under section 401(k) of the Internal Revenue Code. InsWeb
will match 50% of the first 6% of elective contributions made by each qualifying
employee. Each participant is 100% vested in elective contributions and is
incrementally vested one-third at the end of each of three consecutive years of
service in employer contributions. Employer contributions for the years ended
December 31, 2008, 2007 and 2006 were $118,000, $92,000, and $119,000
respectively.











8.           Quarterly Financial Information
(unaudited)





Quarter ended(amounts in thousands, except per share amounts)
                
                Mar. 31
                
                Jun. 30
                
                Sept. 30
                
                Dec. 31Fiscal
      2008:Total
      revenues
                
                $
                13,032
                
                $
                8,809
                
                $
                9,010
                
                $
                6,646Operating
      expenses
                
                12,442
                
                9,855
                
                9,653
                
                7,998Income
      (loss) from operations
                
                590
                
                (1,046
                )
                (643
                )
                (1,352
                )Other
      income
                
                89
                
                60
                
                47
                
                48Provision
      (benefit) for income taxes
                
                9
                
                (9
                )
                (44
                )
                —Net
      income (loss)
                
                $
                670
                
                $
                (977
                )
                $
                (552
                )
                $
                (1,304
                )Net
      income (loss) per shareBasic
                
                $
                0.14
                
                $
                (0.21
                )
                $
                (0.12
                )
                $
                (0.27
                )Diluted
                
                $
                0.12
                
                $
                (0.21
                )
                $
                (0.12
                )
                $
                (0.27
                )Fiscal
      2007:Total
      revenues
                
                $
                8,110
                
                $
                8,129
                
                $
                9,231
                
                $
                7,728Operating
      expenses
                
                7,784
                
                8,024
                
                8,875
                
                6,433Income
      from operations
                
                326
                
                105
                
                356
                
                1,295Other
      income
                
                76
                
                109
                
                108
                
                91Provision
      for income taxes
                
                —
                
                —
                
                —
                
                45Net
      income
                
                $
                402
                
                $
                214
                
                $
                464
                
                $
                1,341Net
      income per share:Basic
                
                $
                0.10
                
                $
                0.05
                
                $
                0.10
                
                $
                0.29Diluted
                
                $
                0.09
                
                $
                0.04
                
                $
                0.08
                
                $
                0.23





Item
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure.





None.





Item
      9A. Controls and Procedures.





(a)
            Evaluation
      of disclosure controls and procedures. Under the supervision and with
      the participation of our management, including our Chief Executive Officer
      and Chief Financial officer, we evaluated the effectiveness of our
      disclosure controls and procedures, as such term is defined under
      Rule 13a-15(e) and 15d-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended. Based upon that evaluation,
      our principal executive officer and principal financial officer concluded
      that our disclosure controls and procedures were effective as of the end
      of the period covered by this annual
  report.





(b)
            Management’s
      report on internal control over financial reporting.Our management is responsible for
      establishing and maintaining adequate internal control over financial
      reporting.  Internal control over financial reporting is a
      process designed by, or under the supervision of, our Chief Executive
      Officer and Chief Financial Officer, and effected by our board of
      directors, management and other personnel, to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally
      accepted accounting principles (“GAAP”), and includes those policies and
      procedures that:





1.      pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of InsWeb;





2.      provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and





3.      provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in condition, or that the degree of
compliance with the policies or procedures may deteriorate.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on criteria
established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.  Based on our
evaluation using criteria established in Internal Control – Integrated Framework
our management concluded that our internal control over financial reporting was
effective as of December 31, 2008.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only management’s report in this annual
report.





(c)
            Changes
      in internal control over financial reporting.There has been no change in
      InsWeb’s internal control over financial reporting during the quarter
      ended December 31, 2008 that has materially affected, or is
      reasonably likely to affect, InsWeb’s internal control over financial
      reporting.





Item
9B. Other Information.





None.





PART III





The SEC
allows us to include information required in this report by referring to other
documents or reports we have already filed or will soon be filing. This is
called “incorporation by reference.” We intend to file our definitive proxy
statement pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report, and certain information therein
is incorporated in this report by reference.











Item
10. Directors and Executive Officers and Corporate Governance.





The
information required by this Item is incorporated by reference to information
set forth in our definitive proxy statement under the heading
“Management”.





The
information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated
by reference to information set forth in our definitive proxy statement under
the heading “Section 16(a) Beneficial Ownership Reporting
Compliance.”





The
information required by this Item with respect to our code of ethics is
incorporated by reference to information set forth in our definitive proxy
statement under the heading “Proposal No. 1 – Election of Directors –
Committee Charters and other Corporate Governance Materials.”





Item
11. Executive Compensation.





The
information required by this Item is incorporated by reference to information
set forth in our definitive proxy statement under the heading “Executive
Compensation and Other Matters.”





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.





The
information required by this Item is incorporated by reference to information
set forth in our definitive proxy statement under the heading “Stock Ownership
of Certain Beneficial Owners and Management.”





Item
13. Certain Relationships and Related Transactions, and Director Independence.





The
information required by this Item is incorporated by reference to information
set forth in our definitive proxy statement under the heading “Certain
Relationships and Related Transactions, and Director Independence.”





Item
14. Principal Accountant Fees and Services





The
information required by this Item is incorporated by reference to information
set forth in our definitive proxy statement under the heading “Principal
Accountant Fees and Services.”





PART IV





Item
15. Exhibits and Financial Statement Schedules.





(a)           The following documents are filed as
part of this Form:





1.           Financial
Statements:





PageReport
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Balance Sheets
            
            F-3Consolidated
      Statements of Operations
            
            F-4Consolidated
      Statements of Stockholders’ Equity
            
            F-5Consolidated
      Statements of Cash Flows
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7





2.           Financial Statement
Schedules:





The
following financial statement schedule of InsWeb Corporation for the years ended
December 31, 2008, 2007 and 2006 is filed as part of this report and should
be read in conjunction with the consolidated financial statements of InsWeb
Corporation.





Schedule II—Valuation
and Qualifying Accounts





Other
schedules have been omitted because the required information is not present or
not present in amounts sufficient to require submission of the schedules or
because the information required is included in the consolidated financial
statements or notes thereto.





3.           Exhibits:





See Index
to Exhibits. The Exhibits listed in the accompanying Index are filed as part of
this report.








SIGNATURES





Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 31,
2009.





INSWEB
      CORPORATIONBy:
            /s/
      KIRAN RASARETNAMKiran
      Rasaretnam
              Chief
      Financial Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:





Signature
            
            Title
            
            Date/s/
      HUSSEIN A. ENAN
            
            Chairman
      of the Board and Chief Executive Officer
            
            March 31,
      2009Hussein
      A. Enan/s/
      KIRAN RASARETNAM
            
            Chief
      Financial Officer (Principal Financial Officer)
            
            March 31,
      2009Kiran
      Rasaretnam/s/
      STEVEN J. YASUDA
            
            Chief
      Accounting Officer (Principal Accounting Officer)
            
            March 31,
      2009Steven
      J. Yasuda/s/
      JAMES M. CORROON
            
            Vice
      Chairman of the Board
            
            March 31,
      2009James
      M. Corroon/s/
      DENNIS H. CHOOKASZIAN
            
            Director
            
            March 31,
      2009Dennis
      H. Chookaszian/s/
      THOMAS W. ORR
            
            Director
            
            March 31,
      2009Thomas
      W. Orr/s/
      ROBERT A. PUCCINELLI
            
            Director
            
            March 31,
      2009Robert
      A. Puccinelli





INSWEB
CORPORATION


EXHIBITS
TO FORM 10-K ANNUAL REPORT


FOR
THE YEAR ENDED DECEMBER 31, 2008





Exhibit
              Number
            
            Description of Document3.1
            
            Amended
      and Restated Certificate of Incorporation of Registrant.
    (1)3.2
            
            Bylaws
      of Registrant. (1)4.1
            
            Fourth
      Amended and Restated Investor Rights Agreement between Registrant and
      certain Stockholders of Registrant, dated as of January 24, 2001.
      (2)10.1*
            
            Form of
      Indemnification Agreement between Registrant and Registrant’s directors
      and officers. (1)10.2*
            
            Registrant’s
      1997 Stock Option Plan. (1)10.3*
            
            Registrant’s
      1999 Employee Stock Purchase Plan. (1)10.11
            
            Lease
      Agreement between Registrant and Oates/Allegheny Venture I, LLC,
      dated September 29, 2000. (3)10.12
            
            Third
      Amendment to Sublease Agreement between Registrant and Seven
      Networks, Inc., dated May 1, 2002. (4)10.16*
            
            InsWeb
      Corporation Executive Retention and Severance Plan Revised and Restated as
      of December 22, 2008. (5)10.22†
      10.23†
              10.24†
            
            InsWeb
      Services Agreement by and between Registrant and NetQuote, Inc.,
      dated as of September 26, 2006. (8) Services Agreement between
      registrant and NetQuote, Inc. effective as of July 10,
      2007.(9)
              Services
      Agreement Amendment between registrant and NetQuote, Inc. effective
      as of May 1, 2008.(10)14.1
            
            Code
      of Business Conduct and Ethics. (6)21.1
            
            Subsidiaries
      of Registrant. (11)23.1
            
            Consent
      of Independent Registered Public Accounting Firm. (11)31.1
            
            Certification
      of Chief Executive Officer, pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended.
      (11)31.2
            
            Certification
      of Chief Financial Officer, pursuant to Rule 13a-14(a) and
      Rule 15d-14(a) of the Securities Exchange Act, as amended.
      (11)32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer, pursuant to
      18 U.S.C. Section 1350.
(11)







(1)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Registration
      Statement on Form S-1 (File No. 333-78095), as amended (the
      “Form S-1”).(2)
            Incorporated
      by reference to Exhibit 2.3 to Registrant’s Current Report on
      Form 8-K filed on February 8, 2002.(3)
            Incorporated
      by reference to Exhibit 10.23 to Registrant’s Quarterly Report on
      Form 10-Q for the quarter ended September 30,
    2000.(4)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Annual Report
      on Form 10-K for the year ended December 31,
    2002.(5)
            Filed
      contemporaneously with the Annual Report on Form 10-K for the year ended
      December 31, 2008.(6)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Annual Report
      on Form 10-K for the year ended December 31,
    2003.(7)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Annual Report
      on Form 10-K for the year ended December 31,
    2005.(8)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Quarterly
      Report on Form 10-Q for the three months ended September 30,
      2006.(9)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Quarterly
      report on Form
              10-Q
      for the three months ended September 30, 2007.(10)
            Incorporated
      by reference to identically numbered exhibit to Registrant’s Quarterly
      report on Form
              10-Q
      for the three months ended September 30, 2008.(11)
            Filed
      herewith.





†
            Confidential treatment has been
      granted as to a portion of this
Exhibit.


*
            Constitutes
      a management contract or a compensatory plan or
    arrangement.








INSWEB
CORPORATION


SCHEDULE
II


VALUATION
AND QUALIFYING ACCOUNTS


Years
ended December 31, 2008, 2007 and 2006





Description
                
                Balance
      at
                  Beginning
                  of Period
                
                Charged to
                  Costs and
                  Expenses
                
                Charged
                  to Other
                  Accounts
                
                Deductions
                
                Balance at
                  End of
                  PeriodYear
      ended December 31, 2008:Allowance
      for doubtful accounts
                
                $
                36,000
                
                
                
                
                
                $
                (28,000
                )
                $
                8,000Year
      ended December 31, 2007:Allowance
      for doubtful accounts
                
                $
                12,000
                
                $
                —
                
                $
                24,000
                
                $
                —
                
                $
                36,000Year
      ended December 31, 2006:Allowance
      for doubtful accounts
                
                $
                36,000
                
                $
                —
                
                $
                —
                
                $
                (24,000
                )
                $
                12,000