Insurers intrigued by the idea of selling small-business coverage direct to consumers, but hesitant to take the plunge due to concerns over potential channel conflict with their existing agency force, might yet be able to leverage the best of both worlds.

That's one of the takeaways from a recent report — “Voice of the Small-Business Insurance Consumer: Are Buyers Ready to Take the Direct Sales Route?” — published by the Deloitte Center for Financial Services, and based on a survey of 751 consumers from a variety of industries and different-size companies. The study found strong interest in buying commercial insurance direct among 15-to-20 percent of respondents, and at least some interest among about 30 percent more.

That isn't to say there aren't good reasons for a carrier to take agent reaction into account when determining whether to directly reach out to small-business prospects via the Web. But channel conflicts are not necessarily inevitable. And even if they do arise, they are not necessarily unresolvable.

It would only be logical for an insurer's existing agency force to resent one of their carriers that is seemingly competing with them for clients by selling direct online. Such tension could be especially intense if some customers end up dropping their agents and buying direct from the same insurance company over the Web to get a cheaper price for similar coverage.

Insurers currently distributing through agents might hesitate to add a direct channel because they fear they'll end up alienating their independent producers, perhaps prompting some to move their books of business to other carriers that they feel are more committed to the agency channel.

But before dismissing the notion of adding a direct purchase option for small-businesses so as to avoid channel conflict, carriers should first consider how they might possibly mitigate any fallout among their producers.

One way to add a direct sales option while maintaining existing agency relationships might be to treat current policyholders who choose to buy direct as sourced through their former agency — at least for a period of time. Friction during the transition to a direct relationship could be eased by paying a reduced commission to the agency, in return for certain ongoing services and the opportunity to cross-sell to the account.

In addition, carriers adding a direct sales capability could perhaps avoid channel conflict by launching their Web-based initiative under an entirely new brand. However, the value of such a strategy in terms of pacifying existing producers should be weighed against the potential advantage of marketing a direct sales option under a carrier's already established brand.

Keeping the main brand intact might provide name recognition to the emerging channel that could conceivably make a difference among those shopping over the Web on their own for the first time. Some prospects may be more comfortable buying direct from a carrier whose name they recognize, particularly if that brand has a stellar reputation in general.

Thus, while shying away from co-branding the direct channel might alleviate any confrontations with agents, it could also make the direct option a harder sell among those prospects willing to buy online but leery of doing business with an insurer of which they have not heard.

Carriers looking to avoid channel conflicts could also consider targeting another market segment altogether with a direct initiative, or perhaps offer different products direct than those sold through their agency force.

Regardless of how an agency carrier chooses to go direct, the potential for channel conflict and its implications should not be taken lightly. Indeed, it is likely to be an ongoing balancing act.

Even if such mitigating alternatives are not employed, however, the potential for direct sales of small-business coverage over the Web may be worth the risk of channel conflict for many carriers. Deloitte's survey found interest in buying direct among half of respondents. That number is likely to grow given the increasing proclivity of people to conduct their personal and business lives online.

The risk of alienating producers and cannibalizing their agency book of business might discourage some carriers from offering a direct purchase option. But as commercial insurance becomes more available via the direct channel, and as small-business consumers grow more accustomed to shopping for their insurance online, those who avoid going direct altogether could end up forfeiting a significant amount of business to bolder, more Web-savvy competitors.

For more information about the survey results and insights into the challenges facing insurers interested in selling direct, as well as those looking to fortify their book of business against direct sellers, you may download Deloitte's “Voice of the Small-Business Insurance Consumer” report by clicking here.

In addition, you may listen to an archived webcast reviewing the main takeaways from the survey as well as the implications for carriers and their intermediaries. To register, click here.

Special Reports /

Channel Conflicts Pose Conundrum for Would-Be Direct Sellers Of Small-Business Coverage

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