Small-Business Insurance – Poised to Take the Direct Sales Route April 2014 BLOG POST
Online commercial insurance will be a reality soon Agents and brokers have traditionally been dominating the Property & Casualty distribution channel, and have always been the preferred choice of medium for face-to-face interaction. However, personal insurance products like auto and home are simpler and far more standardized now. They also demand lesser level of customer service and interaction. It is, therefore, likely that P&C insurers bypass, if not fully eliminate, intermediaries, and adopt multi-channel strategy to reach the marketplace. Commercial insurance products, on the other hand, are less standardized and have more complex needs. They also require a higher level of client service. In addition, commercial products are often offered as packaged policies as well as solutions tailored to suit a particular product segment. Small-business insurance market is increasingly becoming like personal insurance market with price-sensitive customers and commoditized products. Hence, insurers have started exploring the small-business space for direct selling, which is helped by the trend towards agent disintermediation. Let’s consider a few examples here. Specialty-insurer Hiscox, a US-based insurer specializing in insurance for professional services businesses, offers small-business insurance through direct selling, online and over the phone in real time. According to the company, this distribution method heralds a bright future for its insurance business. Another example is of American Family Mutual Insurance Company, which sells small-business insurance through AssureStart, the Seattle-based technology startup. It currently sells general liability and property insurance directly to small businesses on the Internet and intends to expand to commercial auto and workers’ compensation insurance market. Apart from it, a very few US insurers are exploring the direct channel, but industry experts believe more players to enter the fray.
What insurers should do to avoid losing dissatisfied agents? Understanding channel conflict is one of the concerns for insurers when going direct. No agency would welcome the idea of insurers selling directly, thus impacting their fees and commissions. It would be really difficult for insurers to convince agents about direct selling and at the same time not lose them because of dissatisfaction. Insurers who wish to adopt the direct channel strategy to sell their commercial products can learn a thing or two from Hiscox. The company caters to its clients’ simpler needs through direct selling and deals with their complex business needs through its agents. Hiscox had fruitful discussions with its agents. The company made the clients understand that small businesses grow and so do the complexity of their insurance needs, which require agents or brokers to Small Business Insurance – Poised to take the Direct Sales Route
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service them. So a small, growing commercial client which buys directly today will eventually be serviced by agents and brokers in future. Insurers looking to sell directly to businesses will also have to invest in technology for online selling. Hiscox launched its online service in the US in 2010 and leveraged its successful group technology platform, which was used for online sales to its UK commercial market. Any new entrant in this space would need technology investment, which may increase the cost and put pressure on its bottom line.
What agents should do to avoid the threat of disintermediation? Firstly, no one can deny the fact that businesses which tend to buy directly have simpler needs and do not require consultative selling. They are going to be catered to through direct channels in near future. Agents with exposure to these kinds of clients have to shift focus to larger customers whom they can retain through value-added services like risk identification and customized policies. Agents can also diversify in terms of product offerings to businesses. In addition to the valueadded services like loss control and risk identification, they can cross-sell other products like life and health insurance to have a broad relationship with clients. And, last, but most, important step for agents is to spruce up their technology platforms in terms of better services through mobile apps and social networking sites.
Going ahead, direct selling to small businesses is set to play a bigger role Small-business insurance market has traditionally been underserved as compared to the overall commercial market. Today, the demographic landscape of small-business owners is changing, and new-age entrepreneurs, who are more tech savvy, are not hesitating in adopting new technology for their business solutions. This demographic shift is one of the key drivers of the business insurance going direct. Moreover, the more business insurance products become commoditized, the more the smallbusiness insurance market will become direct. In this value-chain-evolution, automation, and underwriting tools will play a crucial role.
Small Business Insurance – Poised to take the Direct Sales Route
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