Direct sales to consumers of personal-lines products has been amajor Auto and Homeowners' insurance distribution platform foryears, keeping the heat on independent agents and brokers to provetheir added value if they want to retain market share. However, aday of reckoning on small-commercial business could be looming aswell.

Agents have tended to take small-commercial accounts forgranted, in terms of not fearing disintermediation. Theconventional wisdom is that such consumers don't have time to shopfor coverage on their own—and even if they did, their lack ofexpertise, as well as their high-maintenance service requirements,would keep them solidly entrenched in the independent-agentcamp.

However, many of the small-business consumers queried earlierthis year about their customer experience in a pair of focus groupsrun on behalf of Deloitte's Center for Financial Services weredefinitely open to the idea of buying insurance without anintermediary, given the right set of circumstances.

These anecdotal findings should at the very least give pause tothose agents who think they can take small-business consumers forgranted, as well as prompt carriers to reconsider their commitmentto selling commercial coverage and services only via commissionedintermediaries.

Deloitte's focus groups were split into two segments—those with10 or fewer employees and those with between 11 and 50 workers—andrepresented a wide range of industries. While the participants inthe first group appeared to be more intrigued than their largercounterparts by the idea of flying solo on their business-insurancepurchases, attendees at both sessions were enthusiastic in theirbrainstorming with the facilitator about how carriers mightconvince them to buy direct.

One participant from a professional-services firm opined that“the broker model is a dying business with lots of layers we don'tsee. Business insurance moving to direct sales is thereforeinevitable. There are not enough brokers to handle all of thesesmall businesses economically.”

He added that “insurance brokerage is not a hot field. Thepeople in it are aging. Younger people are not going into it in bignumbers. And with the Web, there is so much information at yourdisposal.”

“If you easily compare coverage and prices online, why not?”shrugged one small manufacturer.

So, what might it take to convince small-business consumers todrop their agents or brokers and buy direct? As you might expect,price would be a key consideration, according to those in the focusgroups. If carriers were to bypass their agents, these consumerswould expect a significant but not unreasonable discount to reflectthe lower frictional costs.

When asked point-blank how much they would expect to save bygoing direct, half of the smaller-employer group said 15-20percent, while the other half said 10 percent. Among the largeremployers, half said it would take a 10 percent discount and theother half 15 percent.

“I don't think agents and brokers make as much as people think,”said one. Another reasoned that he didn't expect more than 15percent in savings because “I want to make sure the insurer has theresources to hire qualified [customer service representatives] toprovide the help we would need without our brokers.”

Service considerations were also raised. “WillI still get my certificates of insurance within minutes, as I donow from my agent?” wondered one attendee.

The focus-group members seemed to warm to the idea of buyingdirect if the carrier catered to their needs with enhancedCSRs.

“Insurers could offer concierge service to their best customers,especially those with multiple policies, in return for handling allof [their] business,” suggested a personal-services provider. A small retailer said that “if you still want services, you couldpay for it from the carrier, like having a private banker.” Afood-services attendee in the larger-employer group agreed that “ifthe insurer gives you a one-on-one internal agent within theircompany, someone knowledgeable about your business and dedicated toyour account, it might make a difference.”

In the two focus groups, most bought multiple coverages from oneinsurer, and many had stayed with the same carrier for five yearsor more. Even one who was adamant at first about not discardingtheir broker to buy direct wondered aloud as the discussionprogressed why they really needed an intermediary if they werehappy with their carrier and renewed with them year after year,adding that if the insurance company offered them apersonal-service representative, buying direct might beacceptable.

Another suggested they could try buying direct if the price andservice options were right, but if that didn't work out, they couldalways approach an agent or broker to shop for a newcarrier.

However, a few were skeptical about the whole idea, and eventhose who were open to the suggestion expressed somereservations.

One big factor was the notion that insurance policies aredifficult to understand (a point I covered in great detail in twoearlier blogs), with the majority asserting that policies solddirectly to the consumer would have to be simpler tocomprehend.

Others weren't sure carriers could be trusted, but these sameindividuals conceded that agents and brokers aren't necessarilytrustworthy either, driven as they are by concerns over commissionincome.

A few said they liked having an agent or broker because it gavethem someone to sue if a claim exposed a coverage gap they didn'texpect or were assured did not exist.

So direct sales of small-business policies won't necessarily bea slam dunk, and it might not be for all consumers—just like it'snot for everyone buying personal lines. But the fact is that manysmall-business consumers may in fact be open to the idea of cuttingout the middle-person and buying direct from a carrier, just asmany already do with personal lines.

Agents looking to head off the loss of such business need toremember that if they are primarily a price shopper and policypeddler, they may be vulnerable not only to losing business toother intermediaries who offer more comprehensive services in losscontrol, employee benefits and the like but also to carriers whocross the final frontier and sell commercial lines to customersdirectly.

On the other side of the equation, carriers that assume an agentwill always need to be part of the distribution equation insmall-business insurance should perhaps reconsider that valueproposition. Those who ignore the potential of direct sales mightrisk losing a chunk of this increasingly commoditized customersegment to more innovative competitors.