What circumstances might convince small-business owners to take a leap of faith and give up their agent or broker to buy insurance coverage directly from a carrier, and what concerns might discourage 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 were looking to answer with our latest small-business research project. In my last blog on Nov. 19, I noted that Deloitte had completed a second study of this key market segment, interviewing 150 buyers from a wide variety of industries and company sizes, pre-screened to include only those who were at least somewhat likely (57%) or very likely (43%) to consider buying direct.

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

Cost savings a motivation to switch to a direct distribution channel

The majority of respondents agreed that the most obvious factor prompting a switch to a direct distribution channel would be cost savings, with 57% citing the anticipation of reduced pricing as their primary motive to go this route. Expected discounts for cutting out the intermediary were rather modest for a large portion of respondents, with four in 10 looking to save 10% or less. Only 15% of those surveyed would look to save more than 20%.

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

Indeed, six in 10 of those we surveyed said they receive no particular 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, convenient online experience that carries with it a price discount seems the most obvious strategy for insurers implementing a direct option. But there are other factors in play. Respondents cited a number of concerns that might discourage them from giving up their agent, regardless of the added cost or lack of value-added service they may currently receive.

Two-thirds of those surveyed said they feared overlooking a potential exposure if they bought directly from a carrier — with one in five citing this as their biggest worry. One respondent felt anxious about "not having enough coverage or misinterpreting the coverage," while expressing concern they would "buy something I didn't need, couldn't use, or that I'm already covered for somewhere else." Another said a carrier "may not mention something to you that you need, and you may not find out that you're lacking something until there's a problem."

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

There was also apprehension that one direct sales insurer would not be able to offer the range of coverages needed to meet all of a buyer's specific business needs. Several respondents were hesitant to split up their insurance purchases among multiple carriers without an agent to coordinate their portfolio. This factor may make it more difficult for a direct insurer selling just one or two coverages online to break a buyer free from an agent placing multiple lines of business for them.

There are steps insurers might consider to alleviate such concerns among direct prospects. One respondent suggested their comfort level would rise if the direct insurer made available a live contact for consultation who has "expertise with the cost, the risks, and with my industry specifically." In addition, insurers could set up something akin to the robo-advisor services rapidly infiltrating the investment management space.

It might also help to refer a client to an agent to acquire whatever coverages the carrier doesn't sell direct, both to help the customer round out their portfolio as well as create cross-selling opportunities if the direct insurer has a parallel agency channel.

Ability to compare prices and coverage

Meanwhile, 94% of respondents said the ability to compare prices and coverage offered by multiple insurers on one website would make them more apt to take the plunge and buy direct. Therefore, selling online through third-party aggregator websites or offering customers the capability to compare rates of several small-business insurers on their own site (as some personal lines insurers already do) could potentially bolster an insurer's direct-channel strategy.

Direct insurers may also benefit from addressing the desire among respondents for coverage tailored to their specific industries, as well as offering some sort of added protection against policy gaps, as nearly 90% of respondents agreed such conditions would make an online purchase much more attractive.

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

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

Sam J. Friedman (samfriedman@deloitte.com) is insurance research leader with Deloitte's Center for Financial Services in New York. For many years, he was Editor-in-Chief of National Underwriter. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn.

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Selling small-biz insurance online may take more than discounts

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