How might insurers crack the code to sell insurance directlyonline to small-business consumers without involving an agent orbroker?

And what lessons might agency carriers learn from direct-sellingpioneers to enhance the value proposition of their traditionalchannel and avoid losing significant market share to thisalternative distribution model?

To explore the potential risks and opportunities of sellingdirect, the Deloitte Center for Financial Services beganits second research study of this segment earlier this year.

Interviews were conducted with 150 small-business insurancebuyers from a wide variety of industries and company sizes,pre-screened to include only those who were at least somewhatlikely (57%) or very likely (43%) to consider buying direct. Thepurpose was to dive deeper into buyer motivations, expectations,and concerns, as well as determine what insurers might need to doto convince those who say they have an open mind about bypassingtheir agent to actually do so.

Related: How might small-business agents rise to thechallenge of direct online sellers?

When Deloitte first studied this segment in March 2013, thereappeared to be a sizable direct marketing opportunity. Half of the751 small businesses we surveyed online back then said they wouldbe at least somewhat likely to consider buying one or moreinsurance coverages straight from a carrier — especially if cuttingout the intermediary meant saving them money. Nearly one in fivewent so far as to say they were very likely to go this route.

Direct sale of small-business insurance has been slow todevelop

However, while a few U.S. insurers have tried bypassing agents,the direct sale of small-business insurance has been slow todevelop. As both our research studies found, that’s likely becauseof the greater complexity of some commercial policies, theinsecurities expressed by prospects about dropping their agents,and the personal touch more common in the small-businessrelationship.

These hurdles — psychological and practical — may beparticularly challenging for direct writers to clear, if only forfear of the unknown. Few small businesses have ever had analternative purchase option to consider, given that the independentagency channel has long dominated this market.

On the other hand, the status quo will likely be difficult foragency insurers to maintain, considering the relatively highfrictional costs of interacting with a live agent, the growingcommoditization of small-business policies, and the increasingtendency among consumers to shop for and buy more of their productsand services online.

(Photo: Thinkstock)

That said, carriers trying a direct approach will still need toovercome some considerable entry barriers uncovered by ourresearch, not only by providing price discounts but likelyadditional self-service capabilities as well. The ultimatechallenge will be to accomplish that while making a direct salesoperation worth the risk to the consumer, as well as economicallyfeasible for the insurer.

Related: Agents need strategy that responds to direct sales,changing consumer behaviors

Our research found that while there may be growth potential forinsurers that choose to embrace the Internet for direct sales —particularly among younger buyers running smaller businesses —there will also be space for those more comfortable leaving the“pioneer” role to others and fortifying their agency force instead.This could perhaps be accomplished by adapting some of thetechnology solutions employed by emerging online players, such asestablishing more information-rich, interactive websites, mobileapplications, and even robo advisors to supplement but notnecessarily replace the agent’s role.

4 strategies to adapt to the digitalrevolution

In our latest paper—“Small-business insurance in transition: Agentsdifficult to displace, but direct sellers challenge statusquo”—we examine four potential strategies that small-businessinsurers could deploy to adapt to the digital revolution indistribution. The first would entail fully embracing a Web-directoption, the second rejects disintermediation outright, while theother two facilitate experimentation with direct outreach withoutnecessarily undermining the agency system.

The options are:

• Move forward with direct distribution as a stand-alonelaunch.
• Eschew an online option altogether, but increase value in thetraditional agent channel to head off a potential digitalinsurgency.
• Leverage the technology of direct-to-consumer marketing todevelop warm leads for agents, but stop short of closing thetransaction online.
• Offer a hybrid, parallel sales approach, providing buyers withboth a direct online purchase channel as well as an agentoption.

In our paper, we analyze each option based on findings from oursurveys and the experience in direct sales initiatives provided byour consulting team. We urge you to read our full report and get back to us withany questions or observations you might have.

Listen to the voices of small-businessconsumers

While small-business insurers and their agents may notnecessarily be facing an existential threat of disintermediation bydirect sellers at the moment, the escalating ease and pervasivenessof Web technology for direct-to-consumer distribution isrevolutionizing the way most U.S. industries interact with clients,and insurance is no exception.

Whether a pioneer, a traditionalist, or some model in between,insurers depending on agency sales will likely need to take actionto avoid losing market share to digital-driven competitors. The keywill be listening to the voice of the small-business consumer,resolving their conflicting needs, and addressing what is mostimportant to them in their insurance relationship — regardless ofwhether they deal with an agent, directly with a carrier, orboth.

Sam J. Friedman ([email protected]) isinsurance research leader with Deloitte’s Center for FinancialServices in New York. For many years, he was Editor-in-Chief ofNational Underwriter. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.

John Lucker ([email protected]) is aprincipal and Global Advanced Analytics and Modeling Market Leaderwith Deloitte Consulting LLP. Follow John on Twitter (@johnlucker) as well as LinkedIn.