Hiscox USA has been sellingcommercial-insurance products direct to small businesses since2010, and while the company has bet on a bright future for thisdistribution method, CEO Ben Walter still believes in the value ofagents and brokers as well.

“What I caution against is thinking of [the direct and brokerchannels] as mutually exclusive competitive segments,” Walter says.“I think they're complimentary.”

Some business, he says, lends itself to the direct channel whileother business does not. If it's all done the right way, saysWalter, selling some commercial business direct frees brokers up tobecome true risk advisors for the businesses that really needit.

And determining the right business for the direct channel doesnot come down to a particular line of insurance, but rather thecomplexity of risk, says Walter. The best candidates for the directchannel have “fairly homogenous” risks that can be rated in a“fairly simplistic way.” This, says Walter, is more closely, butnot always, related to the size of the business and the industry inwhich it operates, rather than the line of insurance.

Newer, smaller businesses tend to be ideal candidates for thedirect channel. There is also a generational difference amongbuyers, says Walter, with younger customers who are part of a “moretech-savvy generation” more likely to purchase coverage direct.

While large corporations may have more robust risk-managementcapabilities, Walter says as a company gets bigger and morecomplex, exposures grow, and larger companies will generally want abroker.

And Walter says some businesses should have a broker to advisethem on their risks and their needs. “We're not saying the wholeworld should go direct,” he points out, adding that it is not rightfor everyone.

In fact, he says some customers with complex businesses andinsurance needs that approach Hiscox through the direct channel arereferred to brokers. Walter also says Hiscox offers its wholesaledistribution partners access to its direct platform so businessescan “get coverage through broker partners as well.”

But he adds, “Some prefer going direct, and we support that.” Hesays commercial-insurance buyers should have options and should beable to buy coverage how they want. “The more pipes thebetter.”

But do agents and brokers view this strategy as a positive forthe world of commercial insurance or as a threat to their business?“It's been a journey,” Walter says of his conversations withdistribution partners. “In the beginning, they saw it as a solidthreat.”

He adds, “They were tough conversations at first.”

Walter says, though, that agents and brokers grew morecomfortable with the idea once they saw the type of business Hiscoxwas targeting for its direct channel, and how much business therewas to go around. He says Hiscox and its distribution partners havegrown together and that a successful tide “has lifted all boats.”

Still, he says, “I don't want to oversimplify it,” noting that“none of the conversations [with distribution partners] were or areeasy.”

He says the industry tends to be slow to change, but hemaintains there is a mindset shift occurring. Walter points outthat there is some competition in the direct commercial marketplacenow from an insurer backed by American Family. The Hartford, too,is entering the market, he says. “We welcome the competition,” saysWalter, because he feels it validates Hiscox's bet on sellingcommercial insurance direct in the U.S.

He says the concept has been slower to catch on in the U.S. inpart because “it takes a lot of courage to look distributionpartners in the eye and tell them about this.”

As competition moves into the direct space, Walter says Hiscoxwill leverage its experience in this area to win customers. Thecompany sold commercial insurance direct in Europe before launchingit in the U.S. Walter also says Hiscox has spent time and money ontechnology, on understanding customers and on marketing.

Walter says Hiscox has seen growth in its direct channel, withabout 50,000 policies in force now. He says many risks come withsmall premiums though, “so it takes a lot of customers to build upthe business.”

And Walter believes it will take time—at least 10 years—for theidea of commercial insurance sold direct to really get going. “It'sa long burn,” he says, noting that generations will turn overbefore the business really starts to shift. Still, with some biginsurers entering the space, Walter says the concept will catch on.“I think the commercial space is ready for this,” he says.

As for brokers, Walter says he believes they will survive andsucceed. He points to changes in the travel industry, noting thattravel agents have changed, but have not died off despitecompetition from online services. Walter states that insurancebrokers who understand that they can provide value-added servicesbeyond the sale will be the most successful in a world whereselling commercial insurance direct becomes more common.