What circumstances might convince small-business owners to takea leap of faith and give up their agent or broker to buy insurancecoverage directly from a carrier, and what concerns mightdiscourage them from doing so even if they're open to the idea?

Those were two of the key questions we here at the Deloitte Center for Financial Services werelooking to answer with our latest small-business research project.In my last blog on Nov. 19, I noted that Deloittehad completed a second study of this key market segment,interviewing 150 buyers from a wide variety of industries andcompany sizes, pre-screened to include only those who were at leastsomewhat likely (57%) or very likely (43%) to consider buyingdirect.

What we learned in our research is that while there is anopportunity for would-be direct sellers to connect with prospectsonline — especially younger owners of smaller businesses —disintermediating agents won't necessarily be easy, given thenature of the product, the buyer, and the intangible benefits ofworking with an expert. 

Cost savings a motivation to switch to a directdistribution channel

The majority of respondents agreed that the most obvious factorprompting a switch to a direct distribution channel would be costsavings, with 57% citing the anticipation of reduced pricing astheir primary motive to go this route. Expected discounts forcutting out the intermediary were rather modest for a large portionof respondents, with four in 10 looking to save 10% or less. Only15% of those surveyed would look to save more than 20%.

However, direct prospects we surveyed are also looking forgreater convenience and efficiency. The allure for one respondentwas "… [having] one less person to deal with … . As long as I havegood information, it would make the purchase easier." Another said:"Most of the time, if I have any kind of claim, I have to godirectly to the insurer anyway, so I don't really find a lot ofvalue in an agent. It just tends to add an extra step that isn'tnecessary."

Indeed, six in 10 of those we surveyed said they receive noparticular service from their agent beyond shopping for coverage,leaving the door wide open for disintermediation.

Concerns about giving up agent

Therefore, on the surface, creating an intuitive, convenientonline experience that carries with it a price discount seems themost obvious strategy for insurers implementing a direct option.But there are other factors in play. Respondents cited a number ofconcerns that might discourage them from giving up their agent,regardless of the added cost or lack of value-added service theymay currently receive.

Related: Insurers should be selling relationships, notpolicies

Two-thirds of those surveyed said they feared overlooking apotential exposure if they bought directly from a carrier — withone in five citing this as their biggest worry. One respondent feltanxious about "not having enough coverage or misinterpreting thecoverage," while expressing concern they would "buy something Ididn't need, couldn't use, or that I'm already covered forsomewhere else." Another said a carrier "may not mention somethingto you that you need, and you may not find out that you're lackingsomething until there's a problem."

(Photo: Shutterstock)

Another major concern was whether they would be able to get thebest price available shopping on their own.

There was also apprehension that one direct sales insurer wouldnot be able to offer the range of coverages needed to meet all of abuyer's specific business needs. Several respondents were hesitantto split up their insurance purchases among multiple carrierswithout an agent to coordinate their portfolio. This factor maymake it more difficult for a direct insurer selling just one or twocoverages online to break a buyer free from an agent placingmultiple lines of business for them.

There are steps insurers might consider to alleviate suchconcerns among direct prospects. One respondent suggested theircomfort level would rise if the direct insurer made available alive contact for consultation who has "expertise with the cost, therisks, and with my industry specifically." In addition, insurerscould set up something akin to the robo-advisor services rapidlyinfiltrating the investment management space.

It might also help to refer a client to an agent to acquirewhatever coverages the carrier doesn't sell direct, both to helpthe customer round out their portfolio as well as createcross-selling opportunities if the direct insurer has a parallelagency channel.

Ability to compare prices andcoverage 

Meanwhile, 94% of respondents said the ability to compare pricesand coverage offered by multiple insurers on one website would makethem more apt to take the plunge and buy direct. Therefore, sellingonline through third-party aggregator websites or offeringcustomers the capability to compare rates of several small-businessinsurers on their own site (as some personal lines insurers alreadydo) could potentially bolster an insurer's direct-channelstrategy.

Direct insurers may also benefit from addressing the desireamong respondents for coverage tailored to their specificindustries, as well as offering some sort of added protectionagainst policy gaps, as nearly 90% of respondents agreed suchconditions would make an online purchase much more attractive.

Related: 10 factors affecting auto and P&Cinsurers

Last but not least, respondents indicated they would expect lesscomplexity from direct writers in small-business coverage, withpolicy language a layperson could understand.

In future blogs, I'll take a look at other options carriersmight consider in either selling direct or competing moreeffectively against those who do. In the meantime, feel free toaccess our complete research report — "Small-business insurance in transition: Agentsdifficult to displace, but direct sellers challenge statusquo" — which I co-authored with my Center colleagues,Michelle Canaan and Nikhil Gokhale.

Sam J. Friedman ([email protected]) isinsurance research leader with Deloitte's Center for FinancialServices in New York. For many years, he was Editor-in-Chief ofNational Underwriter. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.  

We're on Facebook, are you?