Direct sales to consumers of personal-lines products has been a major distribution platform for Auto and Homeowners' insurance for years, keeping the heat on independent agents and brokers to prove their added value if they want to retain market share. And now a day of reckoning on small-commercial business could be looming.
Agents have tended to take small-commercial accounts for granted, in terms of not fearing disintermediation. The conventional wisdom is that such consumers don't have time to shop for coverage on their own—and even if they did, their lack of expertise, as well as their high-maintenance service requirements, would keep them solidly entrenched in the independent-agent camp.
However, many of the small-business consumers queried earlier this year about their customer experience in a pair of focus groups run on behalf of Deloitte's Center for Financial Services were definitely open to the idea of buying insurance without an intermediary, given the right set of circumstances.
These anecdotal findings should at the very least give pause to those agents who think they can take small-business consumers for granted—as well as prompt carriers to reconsider their commitment to selling commercial coverage and services only via commissioned intermediaries.
Deloitte's focus groups were split into two segments—those with 10 or fewer employees and those with between 11 and 50 workers—and represented a wide range of industries. While the participants in the first group appeared to be more intrigued than their larger counterparts by the idea of flying solo on their business-insurance purchases, attendees at both sessions were enthusiastic in their brainstorming with the facilitator about how carriers might convince 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't see. Business insurance moving to direct sales is therefore inevitable. There are not enough brokers to handle all of these small businesses economically."
He added that "insurance brokerage is not a hot field. The people in it are aging. Younger people are not going into it in big numbers. And with the Web, there is so much information at your disposal."
So, what might it take to convince small-business consumers to drop their agents or brokers and buy direct? As you might expect, price would be a key consideration, according to those in the focus groups. If carriers were to bypass their agents, these consumers would expect a significant but not unreasonable discount to reflect the lower frictional costs.
When asked point-blank how much they would expect to save by going direct, half of the smaller-employer group said 15-20 percent, while the other half said 10 percent. Among the larger employers, half said it would take a 10 percent discount and the other half said 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 15 percent in savings because "I want to make sure the insurer has the resources to hire qualified [customer-service representatives] to provide the help we would need without our brokers."
In the two focus groups, most buy multiple coverages from one insurer, and many had stayed with the same carrier for five years or more. As the discussion progressed, even one who was adamant at first about not discarding his broker to buy direct wondered aloud why he really needed an intermediary if he was happy with his carrier and renewed with it year after year—adding that if the insurance company offered a personal-service representative, buying direct might be acceptable.
Direct sales of small-business policies won't necessarily be a slam-dunk, and it might not be for all consumers—just like it's not for everyone buying personal lines. But the fact is that many small-business consumers may in fact be open to the idea of cutting out the middleman and buying direct from a carrier, just as many already do with personal lines.
Agents looking to head off the loss of such business need to remember that if they are primarily a price shopper and policy peddler, they may be vulnerable to losing business not only to other intermediaries who offer more comprehensive services in loss control, employee benefits and the like, but also to carriers that cross the final frontier and sell commercial lines to customers directly.
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