In personal-lines insurance,particularly in the highly commoditized world of Personal Auto,carriers offering direct-to-consumer sales via the Web haveachieved what the Independent Insurance Agents & Brokers ofAmerica (IIABA) characterizes as “unmistakable” success.

In its latest Property-Casualty Insurance Market report, theIIABA found that 1 in every 6 dollars in Personal Auto premiumscomes through the direct-response channel.

But while producers are clearly feeling the competitive pinch inpersonal lines, for the most part they aren't concerned withencroachment into their territory by companies offering directonline sales of commercial insurance—at least not yet.

“I still think agents have a very strong position in this marketbecause of the range and number of policies a business needs,” saysJeff Yates, executive director of the IIABA's Agents Council forTechnology (ACT).

Indeed, conventional wisdom suggests that even small-businessinsurance needs are too complicated and intimidating for theaverage buyer to navigate online.

“Small-business folks need Workers' Comp, Property, Liability,Health and maybe Surety,” says Clay Ricord, senior consultant atRobert E. Nolan Co., an operations and technology consulting firmspecializing in insurance. “That's too complex for the typicalsmall-business owner; they don't want to be their own risk manager.They benefit from the knowledge, advice and support of anagent.”

And although many commercial-lines carriers offer online quotingor application capabilities for their agent and broker partners,insurers by and large aren't extending those tools to the ultimatepurchaser.

Liberty Mutual, Zurich, The Hartford, Philadelphia, CNA,Chartis, Chubb, Ace—none report offering direct online sales tobusinesses or having any near-term plans to do so.

MAKING IT WORK FOR SMALL & SPECIALTYLINES

But a small handful of providers have managed to begin carvingout a successful niche selling directly to buyers online—and theysee a lot of future opportunity in this approach.

Specialty-insurer Hiscox began direct online business sales inthe U.S. in November 2010, and it advertises this abilityextensively across the Web.

Capson Physicians Insurance Co., formed in late 2010, writesMedical Malpractice insurance in 25 states exclusively through anonline channel.

Hiscox targets very small businesses and currently limits itsofferings to such professional-services firms as consultants,marketing firms, health and beauty providers, and realtors, withmost firms recording less than $150,000 in annual revenues andemploying three or fewer employees.

Hiscox attests that it already is enjoying robust business, withits direct channel growing at 10 times the rate of its brokerchannel, although it wouldn't divulge premium figures of the twoand how they compare.

“We've seen growth in the first half of 2012 at triple thelevels of weekly sales during the same time period last year,” saysKevin Kerridge, director of Small Business Insurance for Hiscox.“Overall, we've seen more growth in General Liability thanProfessional Liability so far.”

Kerridge adds that in almost all circumstances, Hiscox isacquiring new customers in the small-commercial sector that itwouldn't have landed through its brokers. “[We] are accessing arich seam of new business that is too small to be handled by thetraditional broker channel,” he says.

“This [online] offering is providing smaller businesses with aneasy, efficient and understandable channel to protect theirbusinesses from risk,” he adds. “Businesses of this size are nowable to get the coverage they need quickly.”

BATTLING AGENT ALIENATION, FORM COMPLEXITY

One of the factors surely keeping other carriers fromaggressively moving into this space is the concern of how theirproducers would respond.

 “If you go direct with a portion of your business, yourun the risk of alienating agents to the point where they move therest of the business,” says Karlyn Carnahan, principal at Novarica,an insurance-industry consulting and information firm. “It's a bigrisk for insurers—particularly those that use independentagents.”

Hiscox has taken steps to manage that risk. “We were proactivein reaching out to our broker partners to make them aware of this[direct] offering and to address any of their concerns,” saysKerridge.

Hiscox brokers accept the online program's existence, Kerridgeadds, because the overwhelming majority of the business the carriersells direct is well below the levels of company revenues andassociated premiums that brokers can profitably underwrite.

For Capson, which began life as a direct-to-buyer player, agentalienation was not an issue—but form complexity was.

To address this challenge, Capson began byredesigning the traditional, multipage Medical Malpracticeapplication and creating a streamlined online form.

Once a physician submits the form, a premium indication isreturned within seconds. If the physician chooses to accept theprovisional premium, the carrier uses rules-based processing toautomate underwriting and new-business workflow, shortening theunderwriting process from weeks to hours and, in most cases,issuing the policy the same day.

“Almost every decision around evaluating [a prospectiveclient's] risk, training, claims history, hours of practice,specific procedures, area of practice, and so on, has beenautomated,” says Capson Founder & CEO Maury Magids. “Theunderwriting algorithms and decision trees are automated.”

TIGHT-LIPPED ON TECH TOOLS

Companies are reluctant to divulge too many details on thetechnology that supports their online offerings.

Magids says that Capson has developed “propriety in-housetechnology that supports the entire consumer-facing experience fromindication to application, to payment, to policy issuance andpolicy management.”

Hiscox created a new website for its direct business andestablished a call center in Virginia Beach to support it. Hiscoxwas able to leverage a corporate technology investment the companyhas used to write commercial insurance online in the U.K. since2005.

“This re-use meant the cost was low for us, but if we were a newentrant, doing this from scratch, we would expect the cost to havebeen $10 million-plus,” Kerridge says.