Small-business insurers that are not interested or ready to try selling coverage directly to consumers over the web need to raise the value and enhance the services offered by their traditional agency channel to avoid losing market share to a growing number of online competitors.

Indeed, while some carriers may decide to delay a move online or decline the opportunity to bypass their agents, that doesn’t mean they can afford to stick their heads in the sand and ignore direct carriers making a play for increasingly web-savvy buyers. That was a key takeaway from a recent study by the Deloitte Center for Financial Services, "Small-business insurance in transition: Agents difficult to displace, but direct sellers challenge status quo."

Let’s start with the pricing conundrum. The 150 small-business owners from a wide variety of industries who were interviewed for the latest Deloitte report were extremely cost conscious, indicating they were likely to consider a direct purchase if it meant saving money. Agency insurers will be hard put to match the 10-20% discounts those business owners expect from online competitors operating without commissioned intermediaries. (This will 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 the prospect of lower premiums by eliminating the intermediary, that doesn’t mean all is lost for agency carriers. On the contrary, those we interviewed cited several aspects of working with an agent they would be reluctant to give up to buy direct. Insurers need to bolster these value-added components to make them deal-breaking barriers, discouraging a switch to an online purchase.

For example, a number of respondents indicated they might be inclined to keep their agent if they receive more personalized service. Yet this could be easier said than done. Those we surveyed made it clear they don’t get many, if any services from their agents beyond the basics, such as shopping for the best coverage and lowest price. To keep customers from bolting to a cheaper direct purchase option, that will likely have to change.

Convenience is another significant differentiator, as several respondents said they would be more comfortable having one agent arrange all their policies rather than going to the trouble of buying multiple coverages separately on their own from various insurers. Such one-stop-shopping could be a particular advantage for the time being, as no online carrier currently offers a complete portfolio of small-business insurance products online.

Having someone to advocate for a small business throughout the most anxiety-inducing part of the insurance lifecycle — the claims process — is another advantage an agent can invoke to retain clients. Sixty-one percent of respondents in Deloitte’s study said not having an agent as a proponent in case of a claims dispute would be a big concern in buying direct. However, too often agents merely refer clients to their insurance company’s toll-free number or website for coverage questions or claims issues, which makes them easier to disintermediate. Again, that will likely have to change for agents to prove their value.

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The cost savings direct writers could dangle in front of highly price-conscious small-business consumers should continue to concern intermediaries and the insurers that sell exclusively through them. (Photo: Thinkstock)

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

Insurers also should not discount the psychological factors involved with convincing a small-business owner to drop their insurance agent. Independent agencies are often small businesses just like their clients, operating in the same communities and belonging to the same neighborhood associations. Doing business in such close quarters can create a personal relationship that’s difficult for a rival agent to disrupt, let alone a distant insurer looking to impersonally sell direct to consumers online. But such “neighborly” relationships need to be cultivated for agents to lock in their local client base.

Small-business robo advisors

While these mitigating factors may to an extent insulate some agents against online-channel attrition, the cost savings direct writers could dangle in front of highly price-conscious small-business consumers, as well as the general proclivity for people to conduct more of their business virtually, should continue to concern intermediaries and the insurers that sell exclusively through them. That’s especially the case if small-business robo advisors, along the lines of those being deployed in the investment management space, are developed to do some of the hand-holding and explanatory work handled by live agents — at a much lower cost.

If online sellers can manage to provide value-added self-services in addition to discounts as part of their small-business online package — such as automated loss control advice customized for a customer’s particular industry, or an Internet of Things-enabled smart contract that automatically triggers discounts or other rewards for good performance or behavior — there may be a growing risk of disruption and disintermediation unless agents and their carriers respond in kind. There’s no reason why agents and their insurance company partners can’t be cyber warriors in their own right, supplementing rather than replacing the human component in a client relationship with online support tools.

Bottom line

Bottom line, given that customer stickiness often results from strong relationships, an annual renewal touch-point will likely no longer be sufficient to assure long-term retention for agency carriers as direct distribution options and online capabilities expand. Given that a growing number of consumers are conducting most if not all of their personal and professional business over the web these days, insurance likely won’t be any exception — especially for the next generation of small-business insurance buyers, who probably grew up with mobile devices in their hands.

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

Sam J. Friedman (samfriedman@deloitte.com) is insurance research leader with Deloitte’s Center for Financial Services in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.

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Small-business insurers must bolster agents to fight off online disruptors

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