Which Small-Business Consumers Are Most Likely to Buy Direct?

What factors might convince a small-business consumer to buy insurance directly from an insurer, without an agent or broker to shop for them or assist them? And which demographic features distinguish potential online prospects? 

Among those "Eager Beavers" who said they were very likely to buy direct online, 84 percent noted it was because they expect to get a cheaper price — twice as many as those who thought it would be easier to buy online themselves, or to get more suitable coverage over the Web.

However, Deloitte's survey also found that while respondents anticipate a price discount for cutting out the middleman, their expectation is not necessarily all that high. Indeed, of those very likely to buy online, 23 percent expect a relatively modest discount of 10 percent or less, while 36 percent anticipate savings of between 11- and 15 percent. 

We found the same trend among those "Fence-Sitters" who said they were somewhat likely to buy direct online, and who cited discounts as a prime motivator. Thirty percent of this segment said they expect a savings of 10 percent or less. 

Participants in a pair of focus groups facilitated on Deloitte's behalf by Andrews Research Group prior to our survey found the same expectation of 15 percent or less in savings. When asked to explain their thinking, a number suggested this would roughly translate into the absence of the standard commission they figured had been paid to an intermediary.

As for demographics, going into the survey Deloitte anticipated a generation gap, based on our earlier "Voice of the Personal Lines Consumer" research showing younger respondents generally more open to direct online purchasing than their older counterparts. 

In reality, while those between 26- and 34-years old were indeed the most likely to say they would buy small-business insurance online (22 percent are very likely, and 40 percent are somewhat likely), the difference with older respondents turned out not to be all that dramatic. Eighteen percent of those between 55- and 64-years-old said they were very likely to buy online, along with 15 percent of those 65 and older. This shows how integral the Web has become in managing a business among all age groups.

However, older respondents  put much more importance on price discounts — 73 percent among the 55-64-year-old segment said this would be their prime consideration in buying direct, while younger buyers placed a higher value on being offered additional services online, such as customized loss control and risk management advice.

It turned out that size-of-business is a much greater differentiator, with buyers from smaller companies more interested in going online for commercial insurance than are their larger counterparts.

In comparing revenue groups, 28 percent of those generating under $100,000 annually described themselves as very likely to buy direct over the Web, along with 18 percent of those with revenue between $100,001 and $250,000.  On the other side of the spectrum, however, only about 10 percent of those at companies with between $1 million and $5 million in revenue said they were very likely to buy direct online. 

Meanwhile, only one-third of those doing less than $100,000 in business annually said they were very unlikely to buy direct without an agent, compared with 55 percent of those generating over $1 million.

The same tendencies were found among respondents depending upon how many people they employed. Twenty-three percent of sole proprietorships and 20 percent with between two- and five workers said they were very likely to buy direct online, compared to just 14 percent of those with six-to-10 workers, and only 10 percent of those employing between 11- and 25. 

Another interesting finding is that those respondents who have bought personal lines insurance online are not only very satisfied with their purchase experience, but are also far more likely to look to buy their small-commercial insurance business directly from carriers over the Web as well. Familiarity in this instance with the direct online buying process therefore appears to breed confidence rather than contempt.

Indeed, among the 21 percent of survey respondents who had purchased individual auto, homeowners and/or life insurance directly from a carrier online, half said they would be very likely to buy commercial property, general liability or workers' compensation coverage the same way in the future. In contrast, among those who had not bought personal lines direct online, only about one in 10 said they were very likely to purchase small-business insurance direct over the Web.

This indicates a potential opportunity for multi-line carriers to cross-sell small-business coverage to their online personal lines customers, and vice versa. 

What about the "naysayers" — the 48 percent of respondents who said they were not very likely to buy small-business insurance direct from a carrier on the Web?  Lack of trust seems to be the major hurdle by far with this segment, as 41 percent said the biggest reason they wouldn't be likely to buy online is that they don't trust an insurance company to deal with them fairly. 

No other response was even close, including concerns about their ability to properly assess the financial stability of a carrier on their own (14 percent), not receiving enough individual service (12 percent), and the possibility of overlooking a potential exposure (12 percent).  Even fewer (six percent or less) cited lack of time, concern about finding the best price, or having an agent to advocate for them in a claims dispute.

While trust may not be easy for an insurer to develop, this skeptical segment appears to have virtually no other major hesitations holding them back from taking the plunge and attempting a direct purchase. Such trust issues might fade as these respondents hear about other small-businesses buying insurance direct over the Web. 

One way to rise to this challenge might be for carriers to make the online shopping and purchase process as simple, fast, transparent, and intuitive as possible, while providing easy-to-navigate and responsive claims management systems in case of a loss.

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.