According to a recent study by consultant Deloitte, more than half of small businesses (52 percent) are now ready and willing to buy their insurance direct from a carrier over the Internet without an agent or broker.
They are not buying it online now in great numbers in the U.S. for a number of reasons including the lack of web options but they are interested, the study’s results suggest. Many of the most interested are people who have had good experiences buying their personal insurance coverages online and are ready to duplicate that for their businesses.
Those that have no interest in buying directly online say they do not trust insurance companies enough to buy without an agent.
Sam Friedman, research team leader at Deloitte’s Center for Financial Services who oversaw the study, says the study confirms that small commercial buyers are poised to behave a lot like personal lines customers, who increasingly are buying online.
He and his team surveyed 750 business owners, conducted focus groups, and searched about 14 websites with commercial insurance offerings. Among the key findings:
- Older business owners are almost as likely to be willing to shop for insurance online as their younger counterparts.
- The smaller the enterprise, the more interest in direct purchase.
- Obtaining a cheaper price is a major factor in buying online; however, expectations of a discount are quite modest – 15 percent or less
Friedman elaborates on the research and takeaways for carriers and agents in a two-part podcast with Wells Media Group.
Online transactions are not as common for small commercial lines in the U.S. as they are now for personal lines.
“That’s not to say it’s not coming. I mean, certainly, in the United Kingdom, it is much more widespread in the general lines of business. We believe that it’s inevitable that this will be coming down the line as an option for buyers in the United States,” says Friedman.
Also U.S. small businesses going online now don’t necessarily remove the agent. Most company websites appear to refer customers to an agent, whether an independent or exclusive agent, the Deloitte research shows.
But the survey suggests that more small business customers are open to closing insurance deals online without going through an agent.
Friedman divides the responders into three camps:
- Eager Beavers — Close to one in five, or 15 to 20 percent, are “very likely” to shop for coverage and buy it online if given the opportunity. This is very close to the numbers Friedman got when he asked people how they go about shopping for their insurance now. At this point, few of them are actually closing the deal on the web but this is the group that is ready to do so if given the opportunity.
- Fence Sitters — About a third of the survey group, these people say they’re “somewhat likely” to conclude a transaction over the Web for one or more of their small-business coverages.
- Naysayers — About half the population, these business buyers said they’re not very likely to buy online.
The Age of Online Buyers
About a year and a half ago, Deloitte did a consumer survey for personal auto and homeowners insurance, finding that younger respondents were not all that closely tied to their carriers and were much more willing to buy online and dismiss the need for an agent or broker.
As the population aged, that changed. The older the respondent group, the less likely they were to change carriers in any given year, and they were far less likely to say that they would buy without an agent.
Friedman thought that small business buyers might follow in the footsteps of these personal lines shoppers. But it wasn’t exactly the case. Those 26 to 34 years old still have the highest level of eager beavers, the very likely to buy- about 22 percent.
But the attitude is rather consistent in all other age groups: 14 percent for 35 to 44 years old; 17 percent for 45 to 54-year-olds; 18 percent for 55 to 64 year-olds and even 15 percent for those 65 and older.
“I really think this shows how working on the Internet, and especially conducting your business transactions that way, has really permeated the society. There’s a solid segment in there, at least close to half, that were at least somewhat likely to do business this way,” Friedman says.
While age may not be such a great differentiator among online buyers, size of business may be. For businesses with less than $100,000 in annual revenue, 28 percent said they would be likely to shop on their own online.
For businesses with more than $1 million in revenue, only 11 percent said they are very likely to do this.
“We think that this is probably a factor of the case that when you’re a really small business, you’re hands-on with everything. You’re the chief cook and bottle-washer. Buying the insurance is fine. They’re very price-sensitive, so you’re thinking, ‘Maybe if I cut out the middle-person, maybe I’ll save some money here,’” says Friedman.
It’s more complicated for larger businesses with more employees.
“They probably feel that they need an agent or broker to advise them because the risk is more complex, there’s a lot more money at stake here, and perhaps if it’s a more involved business at that level, they feel they don’t have the time to invest to do this all themselves,” Friedman adds.
Whether business insurance customers have had a good experience buying personal insurance online can color their view on buying commercial coverages.
At least 20 percent of the 750 surveyed had direct experience with their personal coverages and these customers uniformly rated the experience as satisfying or very satisfying.
In property insurance among those who had bought one of their personal lines policies online, 52 percent said they would be likely to buy commercial lines online as well, against only 12 percent of those who had not bought personal coverage online.
That held across the board. Whether for general liability, workers’ compensation or commercial auto, between 40 and 50 percent of those who had the direct experience with their personal coverage said they are ready to buy business insurance online.
Deloitte asked those who bought their personal coverage online how satisfied they were with price, service and other issues, and the satisfaction level was uniformly high. Relatively few people said they were dissatisfied with this experience, according to Friedman.
“It makes sense that if they’ve already done this and it’s been a positive experience for them, ‘If I’ve bought my auto insurance this way or my homeowners or my life insurance, why can’t I buy my property insurance or my workers’ comp this way?’ Again, it shows that, if you can deliver a good experience to individuals, you have a good chance of keeping them, and vice versa.”
Do these online buyers really care about the coverage they get or are they only interested in price?
Among the eager beavers, the ones most likely to buy online if given the chance, 84 percent said they expect to get a cheaper price.
That is a two-to-one margin over the next-biggest factor, which is expecting it to be easier to buy online themselves. That was 44 percent.
Only 41 percent, or less than half of those who said price, said that they expect to get a more suitable coverage by shopping themselves online.
According to Friedman, the focus on price is not shocking “because even with an agency sale, they’re always pressuring agents to deliver a lower price for their clients. For this size business, even a small premium discount can make a big impact on their bottom line, because most of these small businesses run on very tight margins.”
However, Friedman says the “good news” in this price-conscious market is that while they expect to save, they don’t expect to save a whole lot.
For instance, one out of four only expect a 10-percent or less savings by buying direct. Another third, 36 percent, only expect savings between 11 and 15 percent.
When members of focus groups were pressed on that figure, according to Friedman many of them said it related to what they assume an agent or broker would make in commission on their account.
“The expectation for the level of discount that they would get if they bypass the agent, we thought, was fairly modest,” according to the Deloitte study author.
The amount of time in business seems related to the expectation of a discount with those in business only a short time expecting a bigger one. Among those in business for two years or less, a third expect a discount of 30 percent or more.
For the firms in business for longer periods of time, between 11 and 20 years, only 11 percent expect a 30 percent discount and 25 percent of them expect less than 10 percent, while 56 percent expect less than 15 percent.
“I guess that these folks had been around the block a little more. They may understand how things work,” said Friedman.
Then there are those not interested in buying direct online, those who prefer to remain with an agent. Friedman calls these people the naysayers.
Why won’t they buy online?
Two-thirds said they will not buy via the web because they don’t trust an insurance company to deal with them fairly.
“That’s very interesting. Within that number there, 41 percent ranked that as their number-one hesitation in going forward with this. That dwarfs anything else,” says Friedman.
Fifty-five percent said that they believe they won’t receive enough individual service if they go ahead and buy on their own on the Internet, although only 12 percent cited that as their primary concern.
Thirty-seven percent said that they don’t think they could properly assess the financial stability of an insurance company on their own.
Only three percent cited as their top concern that they would not have an advocate in case of a claims dispute with their insurer.
“We thought that would really come out high because that’s where an agent can add value, right,” says Friedman.
Only six percent said their biggest concern was that they don’t have time to shop on their own.
Online shoppers are not particularly worried about coverage gaps. In the focus groups, 28 percent overall cited that as a concern but only 12 percent cited it as their number one reason for not doing online shopping.
“We see that a big issue is trust. Now what does that mean? Does it mean that the industry has this reputation for not paying claims or for giving people a hard time in paying claims? Is that it? We don’t know because the idea of getting someone to help you with a claims dispute didn’t really score that high, right?” Friedman says.
It’s possible the issue of trust comes up because online buying is new terrain and so many have not even shopped for personal auto or homeowners on the web, let alone workers’ comp or a BOP policy.
“There’s a bit of inertia and a little bit of fear of the unknown,” Friedman says.
But that may dissipate over time as buying online becomes more prevalent as an option, according to the Deloitte executive.
Editor’s Note: Listen to Deloitte’s Sam Friedman in a two-part podcast on online buying and selling by small commercial insurance customers: