After working to establish Hiscox's direct sales program forsmall businesses in the U.K., Kevin Kerridge transferred to theinsurer's U.S. headquarters in New York in 2009 to set up a similarprogram for Hiscox USA. What he found on his arrival surprisedhim. 

"I literally couldn't believe what I saw. America is so farahead [of other countries] in many online spaces—buying books,boking flights, even purchasing personal lines insurance. But forsome reason, online business insurance was probably five yearsbehind where the U.K. was," says Kerridge, head of small businessinsurance for Hiscox USA.

Hiscox USA launched its direct-to-small business online sales inNovember 2010, starting with professional liability. Over the pastthree and a half years, the program has expanded to offer BOP andgeneral liability coverage. Hiscox also has establishedpartnerships with a number of retail agents, wholesale brokerages,and even other insurance carriers who direct business through theHiscox online channel.

"We've gone from a standing start to selling about 1,200policies a week. We think we're capturing a 15% market share of newbuyers of business insurance in our target classes and, consideringthat we started in the U.S. market as a relatively unknown brand,we're very happy with that," Kerridge says.

Technology is the backbone of the online B2B sales process. "Ithas to be a low-touch process. You can't have an underwriter touchevery application or you'll never make money on this model,"Kerridge explains. Currently, 48% of applications received byHiscox pass straight through from quote to issuance without anyhuman touch.

Hiscox leveraged the system it built for U.K. business, whichuses Software AG's webMethods business process management (BPM)tools to connect a number of java-based applications behind acustom-built web UI. Even with reuse of infrastructure, systemdevelopment to serve the U.S. market cost the insurer more than $10million.

"The U.S. is a more complex place to trade in than the U.K.because there are 50 states plus D.C. That creates complexitybecause it's not just different rates, but different ratingprocedures," Kerridge says.

Although many carriers now offer some level of online capabilityfor commercial customers and prospects, the level of functionalityvaries greatly, according to Mike Bondura, insurance practicedirector at The Nolan Co.

"Some commercial lines insurers end a very abbreviated quotingsession with only the identify of an agent to contact, some end amore thorough quoting session with the promise of a return phonecall or email, while the leaders in this capability return anactual quote with varying levels of choices and follow-up serviceavailable for the customer who wants to make a purchase," Bondurasays.

Online agency insureon represents over a dozen insurers, usingrules to guide the underwriting process, determine viable markets,and present bindable quotes. Company CEO Ted Devine says that theability to present a firm price is essential to succeed in theonline space.

"There's nothing more frustrating to a small business thanfilling out 20 questions to get a quote for a BOP but having noidea if any carrier even wants the business. When we quote a price,we know the market wants the business," he says.

That confidence comes from a custom-built technology platformthat combines several key components. At the hub is a datawarehouse that serves as what insureon calls the "universalapplication," housing all the sets and subsets of criteria andspecific questions that correspond to as many as 1,000 differentbusiness types multiplied by as many different markets as insureonhas available for each type.

A custom-built UI, which insureon terms the "configurator,"presents questions customized to each prospect. For instance,selecting "restaurant" as a class of business will generatefollow-up questions about type and size, hours of operation, andpercentage of alcohol sales. "As soon as you begin making choices,the application is identifying and narrowing the number of marketsthat want that type of risk" Devine says.

Aids help guide business owners through the quote process. Forinstance, hovering over a keyword may launch a popup window with adefinition, pictures of different examples, or video links. Whenthe application is complete, XML data streams are sent to carriers'rating engines to return pricing. As a final step, before abusiness owner commits based on a quoted price, an insureon agentcalls to review details.

"We're very particular about getting the underwriting right,putting the right data in, and talking to the client for at leastfive minutes before they buy," Devine says, adding that the companytargets uses a "shot clock" for call center staff with the goal ofmaking a call within minutes. Prospects can also ask to chat at anytime during the quote process.

Insureon is growing its business at a 30% annual rate and isalso earning revenue from other agencies that have chosen to useits technology platform on a whitelabel basis.

Next page: Challenges and growthopportunities

Contending with Challenges

Although technology is essential to the online sales process,technological complexity is not the main inhibitor behind the slowgrowth in online B2B insurance sales. "The heavy lifting is outsidethe technology—getting underwriters to go from 100 questions to30," Kerridge says.

"Including all of our multiple carrier application questionscould generate a 14-page interview process. We've been able toreduce that to three pages for most accounts," says Tom Hammond,executive vice president, Bolt Insurance.

Bolt Insurance was founded in 2010 to focus on what it felt wasan underserved market for small business owners with 25 or feweremployees and premiums under $2,000. The agency's technologyplatform was built from the ground up in a cloud-architectedsolution, leveraging its past experience with carrier portal andcomparative raters. The technology and Bolt Insurance's agencyservices have since been incorporated into the Bolt Platform, theinsurance software and service solution offered by itsparent company, Bolt Solutions.

To simplify the underwriting process, Bolt Insurance created an"intelligent interview," organized around classification and lineof business, where the interview changes form depending on theanswers. The carriers Bolt represents have a range of capabilities,from those that provide online policy issuance to those that onlysupport information-gathering and require agent involvement tocomplete. Hammond reports a pass-through rate of 70% with carriersthat support online issuance.

AssureStart has distilled the entire underwriting process tofour pieces of information: a description of operations, the zipcode, the type of business location, and the number of employees.Backed by American Family, AssureStart began writing business inNovember 2013, targeting BOP policies to tech-savvy smallbusinesses with fewer than 30 employees.

The key to underwriting simplicity is augmenting the informationbusiness owners enter on the AssureStart website with externaldata. "By linking with data from Experian and other sources, we canfill in a lot of information. Years in business, annual revenue—itdepends on how robust the data is," says Greg Tacchetti,AssureStart CFO/COO of AssureStart.

The online platform also incorporates a rules engine that buildsa purchase recommendation for commercial customers. "The rulesengine replicates the experience of having an insurance agentsitting across from a client and getting to know them specificallywith respect to small commercial property or liability," Tacchettisays.

AssureStart built the web front end as well as an underwritingand rating engine, working with Deloitte, and uses MajescoMastek'ssoftware for policy administration and billing. System integrationallows AssureStart to take an application from quote to issuancewhile the customer is online.

"Customers have immediate access to policy declarations pages,certificates of insurance, and other documents immediately uponsale," Tacchetti says, adding that technology allows the company tooperate with just 30 employees.

"Other companies run 30% 35% expense ratios. We priced ourbusiness assuming a 20% ratio, and I think we can get into the lowteens," he says.

Currently writing business in 11 states, AssureStart plans toadd four to six states per month and to be operating in all statesby the first quarter of 2015. In the interim, AssureStart uses BoltSolutions' agency services to handle accounts in states where it isnot currently licensed. AssureStart is also linked to the Boltcomparative marketplace as a carrier and is actively pursuingwhite-label and co-branding opportunities, including aninsurance-purchasing website being developed by the Seattle Chamberof Commerce.

Co-branding and other partnerships are proving to be a populardevelopment among companies looking to do business in the onlinecommercial space. The Bolt Insurance agency is averaging 30% annualgrowth rate in premiums, but also derives revenue from independentagency partners who quote through the Bolt marketplace and throughaffinity partnerships with a number of carriers, includingProgressive in its online Progressive Commercial Advantageprogram.

Hiscox is also growing its partnership business. "When westarted, we thought we would focus our marketing efforts on Googleand direct mail. Instead, immediately after we launched, we hadcompanies knocking on our door that wanted to partner with us,"Kerridge says. Geico was an early partner, with business passingdirectly to Hiscox from Geico's small business portal.

Poised for Growth

Although direct sales of personal lines insurance accounts fornearly 8% of the market, the direct channel in commercial linesproduces just 1% of total premium. However, Devine expects thatpercentage to increase.

"In the next 10 years I wouldn't be surprised if 5% ofcommercial business is sold online," he says.

Some agency carriers are beginning to get in the game, includingThe Hartford, which recently introduced an online option for"micro" small businesses of fewer than five employees.

"The Hartford is committed to a multichannel distribution modelin its small commercial business and independent agents are at thecenter of the distribution strategy," says Ray Sprague, senior vicepresident of small commercial insurance at The Hartford, but addsthat the vast majority of small businesses operating in the U.S.today are often too small for many independent agents to profitablyacquire and serve.

"For customers who are increasingly finding their way to ourwebsite, we will enable them to get an online quote for a limitednumber of industries and classes or get information about an agentin their area," he says.

 "We expect small and medium size businesses to becomemore and more comfortable with purchasing business insuranceonline, much as they are becoming more and more comfortable withother aspects of their business being conducted online," saysBondura, adding that companies will eventually offer complexinsurance purchases online. "It's not a question of if it willhappen, only how quickly and to what extent."

"I would love it if we had more competition," Tacchetti says."The more companies drive traffic online, the more people will seeus, and the better we will look by comparison."