Direct sales of personal lines insurance have become an online staple, putting pressure on independent agencies to provide value-added services to maintain market share. But the threat of direct online sales is evolving: commercial lines sales are now in play.
In November 2013, AssureStart, an American Family Insurance-backed provider of small commercial BOP policies, opened for business in Texas, leveraging a pure online, direct sales model. Launched by former Fireman’s Fund CEO Mike LaRocco, AssureStart plans to expand into Maryland, Pennsylvania and Washington in 2014—and eventually to all 50 states. “There’s a real need in the market,” Laracco said in a press release.
AssureStart is the second direct carrier formed to sell small commercial lines online, following in the steps of Hiscox Insurance Company. Both companies are managing general agencies holding the underwriting pen for actual insurance companies (Lloyd’s of London in the case of Hiscox), and both carriers appear poised to seize market share from agencies. A recent study by the Deloitte Center for Financial Services indicates that the smallest of small businesses—those with up to 25 employees—are open to the idea of buying BOPs both online and directly.
That’s just the size customer that AssureStart is eyeing. “Is this a threat to independent agents?” asks Donna Schlegel, director of strategy and operations, and one of several authors of the eye-opening report at Deloitte Consulting. “Yes, it’s a threat. But, it’s also an opportunity for those willing to rethink their operating model.”
Ready to Leap?
The Deloitte survey of 751 diverse small businesses reports that more than one-third (35%) are open to buying small commercial insurance online from a direct carrier, with more than one in five (22%) eager to take the plunge. As one respondent put it, “If you can easily compare coverage and prices online, why not?”
Price appears to be a key motivating factor. Schlegel says the savings can be significant—15 to 20% less than competing policies sold by independent agents. The difference, of course, comes from the agents’ commissions.
“The compensation for an independent agent on a BOP is so minimal, they’re not going to provide much in the way of value-added service, so buying direct is a thought worth considering,” says Rick Betterley, president of Betterley Risk Consultants, a Sterling, Mass.-based agency risk management consulting firm. “If they’re not getting guidance [from an agent], what’s the big deal? They might as well go direct.”
More Than Money
Another reason explains why companies like AssureStart may achieve quick traction: their e-commerce platforms. As the Deloitte study points out, “The fact that so many respondents are already going to the Web to proactively shop for small business insurance on their own rather than passively waiting for an agent to shop for them, indicates that a segment of the market is likely primed to take the next step and compete actual transactions.”
The level of education required for businesses to understand their risks and the types of insurance they need stymied early attempts at selling commercial lines online. But that problem is slowly disappearing. “Businesses can click through a series of questions they’re asked about their companies to determine the kinds of risks they confront,” says Steve Anderson, an expert in agency technology issues and editor of The Anderson Agency Report.
In many cases, a business owner may already have a BOP and is merely looking to renew it. “This reduces the level of education required, as they’ve already been apprised of what the BOP is and offers,” says Arun Prasad, principal of financial services technology at Deloitte, and another author of the study.
Simplicity is another key factor expected to drive these business owners to AssureStart, Hiscox and similar models in future. “The technology offers owners something small businesses prize besides low price, and that is time,” Anderson says.
Anderson explains that a direct writer selling online can provide a quote on a BOP instantaneously, whereas agents encumbered by comparative rating engines might require several minutes. “Depending on how many quotes they’re providing, they have to do the same work multiple times,” Anderson says. “It’s time-consuming. A business owner online is likely not going to wait around for an answer.”
All this is conspiring to alter the status quo for agents who have long relied on Main Street business for their bread and butter. “This is a wake-up call for agents,” Schlegel says. “And it’s a wake-up call for their carriers.”
Downplaying the Threat
But not all agents are concerned, because not all business coverages—even for small businesses—are cut-and-dry. “Why would anyone take insurance advice from a website, caveman or a lizard?” asks Scott Kerns, president of BayRisk.com Insurance in Alameda, Calif. “If your business is important to you, why take the risk? This isn’t Amazon where you push a button and a book arrives on a drone.”
It’s no different than what Geico is doing, says Todd Rockefeller, partner at Harrison, N.Y.-based agency DeRosa Rockefeller Sohigian & Werdal. “The buying behavior may suggest there is a place for AssureStart, but it would have to be very unsophisticated, simple business,” says Rockefeller. “These carriers may say their goal is to cut out unnecessary operational costs and agent overhead, but few businesses are right for this model. What happens when the insured needs a certificate of insurance or some special language on a certificate?”
AssureStart would likely respond that its licensed agents would attend to these needs, and a call center would direct such issues to the appropriate person. Anderson notes that many insurance carriers have crafted BOPs “that cover everything anyway,” he says. “If a particular industry needs an endorsement, it is easily provided. The bottom line is this—if small business owners don’t see agents providing value, they will go to the lowest-cost provider.”
Rockefeller adds that service comes in many forms. “I was there for my small business policyholders in New York during Superstorm Sandy,” he says. “I walked them through their business interruption claims and empathized with their plight, even though I’m not getting wealthy on this business.”
“What we offer to small businesses is a relationship, something no website can offer,” Kerns points out. “There will always be certain people that buy insurance online, and that’s fine. Some people buy Suzy’s cream cheese from an 800 number, and others take things more seriously.”
Anderson agrees a large segment of the marketplace will continue to rely on independent agents for their expertise, counsel and trustworthiness. “There are community ties and other factors that will always guide people to people,” he says. “But business owners, given how busy they are running their businesses, will also look to buy things that are the easiest way to buy them. If that’s through the agent, so be it. If it’s a website, you can’t blame them.”
Russ Banham is an IA contributor.
SIDEBAR: Bolt Out of the Blue
One way for an agency to combat the direct sales of small commercial insurance online is to fashion itself as the same thing. That’s what Bolt Insurance Agency has done, even referring to itself as a direct writer of insurance—although it actually represents multiple carriers.
Bolt’s online platform provides quotes on both business insurance and auto insurance. The website looks like that of an insurance company and not an independent agency, although it clearly states the latter in the “About” section of the home page.
“Our model is direct—we represent multiple carriers but we sell direct,” says Tim Attia, executive vice president of marketing and sales. “We look like a Geico or a Hiscox. We don’t have agents, other than in our call center. Our goal is to seize business from the people who are part of the one-click Amazon buy generation.”
Attia maintains that many business owners are fully sophisticated about how to navigate the Internet for information and products at prices suiting their wallets—and that includes insurance. “They don’t have time to sit down with an agent to discuss a BOP,” he says. “They’ll educate themselves online about what they need insurance-wise, and then buy online. The way to win for an independent agent is to go direct.”
But Bolt isn’t trying to reach every commercial customer. “We’re not going to sell insurance to midsized businesses—just those in the micro-market,” Attia says. “If you have a few dozen employees, you’re going to need risk management and loss control services, which we don’t provide. But if you don’t need these things and want a very cost-effective policy, we’re here to serve you.”
Attia says this distinction has helped the agency’s business boom. “For $100 a year in commission, an agent isn’t going to go golfing with you,” he explains. “So why pay a 20% commission for nothing in return? Those are the small businesses our carriers are quoting to.”
—R.B.
