Related: How might small-business agents rise to the challenge of direct online sellers?

When Deloitte first studied this segment in March 2013, there appeared to be a sizable direct marketing opportunity. Half of the 751 small businesses we surveyed online back then said they would be at least somewhat likely to consider buying one or more insurance coverages straight from a carrier — especially if cutting out the intermediary meant saving them money. Nearly one in five went so far as to say they were very likely to go this route.

Direct sale of small-business insurance has been slow to develop

However, while a few U.S. insurers have tried bypassing agents, the direct sale of small-business insurance has been slow to develop. As both our research studies found, that’s likely because of the greater complexity of some commercial policies, the insecurities expressed by prospects about dropping their agents, and the personal touch more common in the small-business relationship.

These hurdles — psychological and practical — may be particularly challenging for direct writers to clear, if only for fear of the unknown. Few small businesses have ever had an alternative purchase option to consider, given that the independent agency channel has long dominated this market.

On the other hand, the status quo will likely be difficult for agency insurers to maintain, considering the relatively high frictional costs of interacting with a live agent, the growing commoditization of small-business policies, and the increasing tendency among consumers to shop for and buy more of their products and services online.

(Photo: Thinkstock)

That said, carriers trying a direct approach will still need to overcome some considerable entry barriers uncovered by our research, not only by providing price discounts but likely additional self-service capabilities as well. The ultimate challenge will be to accomplish that while making a direct sales operation worth the risk to the consumer, as well as economically feasible for the insurer.

Related: Agents need strategy that responds to direct sales, changing consumer behaviors

Our research found that while there may be growth potential for insurers that choose to embrace the Internet for direct sales — particularly among younger buyers running smaller businesses — there will also be space for those more comfortable leaving the “pioneer” role to others and fortifying their agency force instead. This could perhaps be accomplished by adapting some of the technology solutions employed by emerging online players, such as establishing more information-rich, interactive websites, mobile applications, and even robo advisors to supplement but not necessarily replace the agent’s role.

4 strategies to adapt to the digital revolution

In our latest paper—“Small-business insurance in transition: Agents difficult to displace, but direct sellers challenge status quo”—we examine four potential strategies that small-business insurers could deploy to adapt to the digital revolution in distribution. The first would entail fully embracing a Web-direct option, the second rejects disintermediation outright, while the other two facilitate experimentation with direct outreach without necessarily undermining the agency system.

The options are:

• Move forward with direct distribution as a stand-alone launch.
• Eschew an online option altogether, but increase value in the traditional agent channel to head off a potential digital insurgency.
• Leverage the technology of direct-to-consumer marketing to develop warm leads for agents, but stop short of closing the transaction online.
• Offer a hybrid, parallel sales approach, providing buyers with both a direct online purchase channel as well as an agent option.

In our paper, we analyze each option based on findings from our surveys and the experience in direct sales initiatives provided by our consulting team. We urge you to read our full report and get back to us with any questions or observations you might have.

Listen to the voices of small-business consumers

While small-business insurers and their agents may not necessarily be facing an existential threat of disintermediation by direct sellers at the moment, the escalating ease and pervasiveness of Web technology for direct-to-consumer distribution is revolutionizing the way most U.S. industries interact with clients, and insurance is no exception.

Whether a pioneer, a traditionalist, or some model in between, insurers depending on agency sales will likely need to take action to avoid losing market share to digital-driven competitors. The key will be listening to the voice of the small-business consumer, resolving their conflicting needs, and addressing what is most important to them in their insurance relationship — regardless of whether they deal with an agent, directly with a carrier, or both.

Sam J. Friedman ([email protected]) 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.

John Lucker ([email protected]) is a principal and Global Advanced Analytics and Modeling Market Leader with Deloitte Consulting LLP. Follow John on Twitter (@johnlucker) as well as LinkedIn.