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

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

Hiscox USA launched its direct-to-small business online sales in November 2010, starting with professional liability. Over the past three and a half years, the program has expanded to offer BOP and general liability coverage. Hiscox also has established partnerships with a number of retail agents, wholesale brokerages, and even other insurance carriers who direct business through the Hiscox online channel.

"We've gone from a standing start to selling about 1,200 policies a week. We think we're capturing a 15% market share of new buyers of business insurance in our target classes and, considering that 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. "It has to be a low-touch process. You can't have an underwriter touch every application or you'll never make money on this model," Kerridge explains. Currently, 48% of applications received by Hiscox pass straight through from quote to issuance without any human touch.

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

"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 complexity because it's not just different rates, but different rating procedures," Kerridge says.

Although many carriers now offer some level of online capability for commercial customers and prospects, the level of functionality varies greatly, according to Mike Bondura, insurance practice director at The Nolan Co.

"Some commercial lines insurers end a very abbreviated quoting session with only the identify of an agent to contact, some end a more thorough quoting session with the promise of a return phone call or email, while the leaders in this capability return an actual quote with varying levels of choices and follow-up service available for the customer who wants to make a purchase," Bondura says.

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

"There's nothing more frustrating to a small business than filling out 20 questions to get a quote for a BOP but having no idea 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 platform that combines several key components. At the hub is a data warehouse that serves as what insureon calls the "universal application," housing all the sets and subsets of criteria and specific questions that correspond to as many as 1,000 different business types multiplied by as many different markets as insureon has 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 generate follow-up questions about type and size, hours of operation, and percentage of alcohol sales. "As soon as you begin making choices, the application is identifying and narrowing the number of markets that want that type of risk" Devine says.

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

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

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

Next page: Challenges and growth opportunities

Contending with Challenges

Although technology is essential to the online sales process, technological complexity is not the main inhibitor behind the slow growth in online B2B insurance sales. "The heavy lifting is outside the technology—getting underwriters to go from 100 questions to 30," Kerridge says.

"Including all of our multiple carrier application questions could generate a 14-page interview process. We've been able to reduce 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 was an underserved market for small business owners with 25 or fewer employees and premiums under $2,000. The agency's technology platform was built from the ground up in a cloud-architected solution, leveraging its past experience with carrier portal and comparative raters. The technology and Bolt Insurance's agency services have since been incorporated into the Bolt Platform, the insurance software and service solution offered by its parent company, Bolt Solutions.

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

AssureStart has distilled the entire underwriting process to four pieces of information: a description of operations, the zip code, the type of business location, and the number of employees. Backed by American Family, AssureStart began writing business in November 2013, targeting BOP policies to tech-savvy small businesses with fewer than 30 employees.

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

The online platform also incorporates a rules engine that builds a purchase recommendation for commercial customers. "The rules engine replicates the experience of having an insurance agent sitting across from a client and getting to know them specifically with respect to small commercial property or liability," Tacchetti says.

AssureStart built the web front end as well as an underwriting and rating engine, working with Deloitte, and uses MajescoMastek's software for policy administration and billing. System integration allows AssureStart to take an application from quote to issuance while the customer is online.

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

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

Currently writing business in 11 states, AssureStart plans to add four to six states per month and to be operating in all states by the first quarter of 2015. In the interim, AssureStart uses Bolt Solutions' agency services to handle accounts in states where it is not currently licensed. AssureStart is also linked to the Bolt comparative marketplace as a carrier and is actively pursuing white-label and co-branding opportunities, including an insurance-purchasing website being developed by the Seattle Chamber of Commerce.

Co-branding and other partnerships are proving to be a popular development among companies looking to do business in the online commercial space. The Bolt Insurance agency is averaging 30% annual growth rate in premiums, but also derives revenue from independent agency partners who quote through the Bolt marketplace and through affinity partnerships with a number of carriers, including Progressive in its online Progressive Commercial Advantage program.

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

Poised for Growth

Although direct sales of personal lines insurance accounts for nearly 8% of the market, the direct channel in commercial lines produces just 1% of total premium. However, Devine expects that percentage to increase.

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

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

"The Hartford is committed to a multichannel distribution model in its small commercial business and independent agents are at the center of the distribution strategy," says Ray Sprague, senior vice president of small commercial insurance at The Hartford, but adds that the vast majority of small businesses operating in the U.S. today are often too small for many independent agents to profitably acquire and serve.

"For customers who are increasingly finding their way to our website, we will enable them to get an online quote for a limited number of industries and classes or get information about an agent in their area," he says.

"We expect small and medium size businesses to become more and more comfortable with purchasing business insurance online, much as they are becoming more and more comfortable with other aspects of their business being conducted online," says Bondura, adding that companies will eventually offer complex insurance purchases online. "It's not a question of if it will happen, 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 see us, and the better we will look by comparison."

Special Reports /

Online Sales for U.S. Commercial Lines '5 Years Behind U.K.'

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