In the past decade, direct online sales of small commercial insurance have made a quick shift from fantasy to reality. While today’s market is relatively small, it is an area that commercial insurers must monitor and understand to stay competitive. As technology continues to drive changes in buyer behaviors, the direct online segment of small commercial insurance has potential for significant growth in the next few years.
Small business insurance accounts for about a third (or $100B) of the U.S. commercial lines market. Today, just 2-3% of small commercial sales occur online. Simplified and tailored, niche products characterize the direct online small commercial insurance market. Digital distributors and specialty carriers dominate the landscape. Early adopters tend to be new or very small business owners—those without existing coverage or agent relationships.
Online relationships and purchases have already normalized in adjacent areas. The majority of business owners across age/income groupings already manage business banking relationships online; the majority of those under 45 conduct most or all purchasing digitally.
While the market is primed for online sales growth, one key element has not yet come into yet: the influx of advertising spend that drove the digital transformation of the personal lines markets online in the minds of U.S. consumers. As regional and national commercial insurers enter the market through operations and M&A activity and devote more attention to it, its share of small commercial insurance could grow to as much as 12% by 2023.
Small commercial insurers have a number of options to prepare for the digital evolution of the marketplace—including everything from bringing viable products with strong digital experiences to market as soon as possible, to partnering with digital distributors, to doing nothing (strategically).
To sell direct, carriers need to offer products that are easy to buy, simple to understand, and that align product and process with buyer need. Ideal strategies will vary by carrier and circumstance, but every insurer will benefit from acknowledging how their market will evolve (and how it is already evolving).
For more on the space, including market participant profiles and key issues for direct small commercial insurers, see Novarica’s latest report: Direct Online Small Commercial Insurance: 2019 Update.
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