Small-business insurers that are not interested or ready to tryselling coverage directly to consumers over the web need to raisethe value and enhance the services offered by their traditionalagency channel to avoid losing market share to a growing number of onlinecompetitors.

Indeed, while some carriers may decide to delay a move online ordecline the opportunity to bypass their agents, that doesn’t meanthey can afford to stick their heads in the sand and ignore directcarriers making a play for increasingly web-savvy buyers. That wasa key takeaway from a recent study by the Deloitte Center forFinancial Services, "Small-business insurance in transition: Agentsdifficult to displace, but direct sellers challenge statusquo."

Let’s start with the pricing conundrum. The 150 small-businessowners from a wide variety of industries who were interviewed forthe latest Deloitte report were extremely cost conscious,indicating they were likely to consider a direct purchase if itmeant saving money. Agency insurers will be hard put to match the10-20% discounts those business owners expect from onlinecompetitors operating without commissioned intermediaries. (Thiswill be among the key points discussed during Deloitte’s May 17 webcast.)

Insurers need to bolster value-added components

However, while most respondents said they would welcome theprospect of lower premiums by eliminating the intermediary, thatdoesn’t mean all is lost for agency carriers. On the contrary,those we interviewed cited several aspects of working with an agentthey would be reluctant to give up to buy direct. Insurers need tobolster these value-added components to make them deal-breakingbarriers, discouraging a switch to an online purchase.

For example, a number of respondents indicated they might beinclined to keep their agent if they receive more personalizedservice. Yet this could be easier said than done. Those we surveyedmade it clear they don’t get many, if any services from theiragents beyond the basics, such as shopping for the best coverageand lowest price. To keep customers from bolting to a cheaperdirect purchase option, that will likely have to change.

Convenience is another significant differentiator, as severalrespondents said they would be more comfortable having one agentarrange all their policies rather than going to the trouble ofbuying multiple coverages separately on their own from variousinsurers. Such one-stop-shopping could be a particular advantagefor the time being, as no online carrier currently offers acomplete portfolio of small-business insurance products online.

Having someone to advocate for a small business throughout themost anxiety-inducing part of the insurance lifecycle — the claimsprocess — is another advantage an agent can invoke to retainclients. Sixty-one percent of respondents in Deloitte’s studysaid not having an agent as a proponent in case of a claims disputewould be a big concern in buying direct. However, too often agentsmerely refer clients to their insurance company’s toll-free numberor website for coverage questions or claims issues, which makesthem easier to disintermediate. Again, that will likely have tochange for agents to prove their value.

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The cost savings direct writers could dangle in front ofhighly price-conscious small-business consumers should continue toconcern intermediaries and the insurers that sell exclusivelythrough them. (Photo: Thinkstock)

Given the complexity of some business coverages, the comfort ofhaving an agent’s expertise to rely upon is another significantbenefit to promote. Small-business insurance buyers taking part infocus groups and surveys for Deloitte said dropping their agentwould mean having no one but themselves to blame if they have a gapin coverage. Many might prefer having a professional intermediaryto hold accountable — the proverbial “throat to choke.” Perhaps a“We’ve got your back” campaign to emphasize the value of agents inclaims disputes or coverage shortcomings might be worthwhile toremind buyers why they need an agent beyond just serving as aglorified shopper.

Insurers also should not discount the psychological factorsinvolved with convincing a small-business owner to drop theirinsurance agent. Independent agencies are often small businessesjust like their clients, operating in the same communities andbelonging to the same neighborhood associations. Doing business insuch close quarters can create a personal relationship that’sdifficult for a rival agent to disrupt, let alone a distant insurerlooking to impersonally sell direct to consumers online. But such“neighborly” relationships need to be cultivated for agents to lockin their local client base.

Small-business robo advisors

While these mitigating factors may to an extent insulate someagents against online-channel attrition, the cost savings directwriters could dangle in front of highly price-conscioussmall-business consumers, as well as the general proclivity forpeople to conduct more of their business virtually, should continueto concern intermediaries and the insurers that sell exclusivelythrough them. That’s especially the case if small-business roboadvisors, along the lines of those being deployed in the investmentmanagement space, are developed to do some of the hand-holding andexplanatory work handled by live agents — at a much lower cost.

If online sellers can manage to provide value-addedself-services in addition to discounts as part of theirsmall-business online package — such as automated loss controladvice customized for a customer’s particular industry, or anInternet of Things-enabled smart contract that automaticallytriggers discounts or other rewards for good performance orbehavior — there may be a growing risk of disruption anddisintermediation unless agents and their carriers respond in kind.There’s no reason why agents and their insurance companypartners can’t be cyber warriors in their own right, supplementingrather than replacing the human component in a client relationshipwith online support tools.

Bottom line

Bottom line, given that customer stickiness often results fromstrong relationships, an annual renewal touch-point will likely nolonger be sufficient to assure long-term retention for agencycarriers as direct distribution options and online capabilitiesexpand. Given that a growing number of consumers are conductingmost if not all of their personal and professional business overthe web these days, insurance likely won’t be any exception —especially for the next generation ofsmall-business insurance buyers, who probably grew upwith mobile devices in their hands.

To learn more, read Deloitte’s full report, or register for our May 17 webcast, “Shaking upsmall-business insurance distribution: Agents vs. direct sales,”which summarizes the study’s findings and lays out four potentialscenarios that could help insurers enter the direct-to-consumermarket, or more effectively compete with those who have and whowill.

Sam J. Friedman ([email protected]) isinsurance research leader with Deloitte’s Center for FinancialServices in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.