trending Market Intelligence /marketintelligence/en/news-insights/trending/owcww8dbac-zpnxei-rylw2 content esgSubNav
In This List

2018 small business survey — agents still dominate amid direct insurance push

Blog

The Big Picture 2022 Insurance Industry Outlook

Podcast

Next in Tech | Episode 37: Insurance impacts on technology and vice versa

Case Study

A Prestigious Global Business School Gains a Competitive Edge

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


2018 small business survey — agents still dominate amid direct insurance push

The vast majority of the small business financial decision-makers participating in an S&P Global Market Intelligence survey continue to purchase commercial insurance coverage through agents even as new and existing companies make significant investments in direct-distribution capabilities.

SNL Image

The February survey involved 1,561 U.S. respondents who said their companies had a policy that provides property, liability, business interruption, and/or other forms of coverage. Nearly 90% of them indicated that they used an agent to obtain some or all of their insurance. More than half of respondents who said they purchase coverage through an agent said they used the same agent through which they obtain personal auto, homeowners and/or life insurance.

The extent to which the direct-to-small business channel gained inroads varied by the type of small business and the amount of its annual revenues, the survey found. Approximately 14% of respondents indicated that they purchased some or all of their business insurance coverage directly from an insurance carrier. The values exceed 100% as respondents could select more than one distribution channel.

The survey's findings suggest that carriers, brokers and agents that have built direct distribution capabilities have a sizable market to target, but they first must overcome established agent relationships and customer inertia before they can fully capture the associated opportunity.

Who is buying direct?

Survey respondents from small businesses with between $5 million and $10 million in annual revenue were most likely to purchase coverage on a direct basis. Approximately 19% of those surveyed with revenues of that magnitude said they bought at least some of their small business insurance on a direct basis. Among those respondents from small businesses with between $100,000 and $1 million, fewer than 14% said they purchase insurance directly.

By type of small business, companies engaged in some form of agriculture were least likely to purchase coverage in a direct manner. Approximately 6% of respondents classified as being in the agricultural space said they bought insurance directly. One survey respondent indicated that direct writers "know nothing about organic farming" in explaining the decision not to purchase coverage through that channel.

Those focused on the arts and recreation were most likely to purchase insurance directly, with nearly 18% of respondents saying that they did so.

SNL Image

SNL Image

SNL Image

For most other niches, the percentage of respondents who purchased insurance directly ranged from the low-to-mid teens. The highest number of respondents classified their businesses as being "professional" in nature, including in the healthcare, finance, accounting, legal or education fields, and approximately 15% of them said they had purchased commercial insurance coverage in a direct manner.

A growing area of focus

Go-to-market strategies among companies focused on direct distribution of small business insurance have varied.

Insureon offers coverage on a direct basis through an online agency and managing general agency, writing business on the paper of established carriers such as subsidiaries of Liberty Mutual Holding Co. Inc., Travelers Cos. Inc., The Hartford Financial Services Group Inc., CNA Financial Corp. and Chubb Ltd. The company has argued that local agents may lack expertise writing coverage for certain small business niches, and they may be limited to the extent that they operate on an exclusive basis on behalf of a single carrier.

Embroker Inc., with financial backing from a list of investors that includes the XL Innovate arm of XL Group Ltd., has a business plan that presents its technology-driven direct strategy as a more effective, modern alternative to agency distribution. Like Insureon, the San Francisco-based startup offers coverage from a range of carriers. It claims to offer customers improved coverage and lower premiums relative to traditional companies.

The U.S. arm of Hiscox Ltd. in 2010 introduced what it described as the first direct, online option for small business insurance coverage. Today, it claims to rank as the No. 1 U.S. online small business insurer.

Berkshire Hathaway Inc. offers business insurance coverage on a direct basis under the biBerk brand name. The company writes business on the paper of four Berkshire Hathaway insurance subsidiaries.

American International Group Inc.'s Blackboard subsidiary is seeking to "reimagine" commercial insurance solutions through the use of digital technology, data analytics and automation.

Others, however, continue to prominently feature roles for agents in their plans for interfacing with small business customers.

CNA, for instance, said it has introduced an online small business insurance presence, but it uses that functionality to provide quote indications to agents and brokers.

The Hartford, which has labeled the small commercial segment the "crown jewel of our enterprise," is investing in the development of an end-to-end digital business model in a way that improves the customer experience.

Chubb in April formally introduced its Small Commercial Marketplace, which seeks to empower independent agents to place and serve small business insurance through enhanced technology and functionality. The company indicated that it believes independent agents "will continue to be indispensable advisors to small business owners."

A helping hand

Arthur J. Gallagher & Co., which is best known for its middle-market brokerage business, has downplayed the potential for mid-sized commercial accounts to purchase insurance directly, given the complexity of their coverage needs and the likelihood that those types of entities are placing business with more than one carrier. Among what the company considers "very small" businesses, CEO J. Patrick Gallagher Jr. said in 2017, direct distribution may be more viable.

"But the truth is we are trusted advisers," Gallagher said, "and that's really where most of our business is."

That concept resonated in the survey responses, as well. Among those small business financial decision-makers who have not purchased commercial insurance coverage on a direct basis, the second-most frequently cited rationale was that they "need help determining insurance coverage needs." Startups in the space have emphasized that they, too, can provide specialized expertise. Embroker, to that end, touts the personalized service that its team of experienced, licensed brokers provides to their customers.

The rationale most often given for not buying direct was an existing relationship with an agent. The third-most frequently offered rationale was satisfaction with existing coverage. Only about 10% of those respondents who did not purchase directly said that they were unaware that they could buy small business coverage in that manner.

The emphasis around the industry on building or enhancing small business insurance platforms would suggest that percentage is likely to fall even further in the future.

Methodology

S&P Global Market Intelligence's 2018 U.S. small business survey was conducted Feb. 7-18. There were 1,749 respondents 18 years and older that worked at businesses with $100,000 to $10 million in annual revenue and were primary decision-makers for financing and/or purchasing. Out of that total, 1,561 respondents had a business insurance policy. Survey results have a margin of error of +/- 2.5% at the 95% confidence level based on the sample size of 1,561.