Direct Online Small Commercial Insurance Is Growing

Over the last decade, the idea of selling small business insurance directly to consumers through the internet has gone from pipe dream to reality. Over that same decade, conditions for growth in direct small commercial business have only become more favorable: Business owners are increasingly online-oriented, ad spending from large personal lines insurers has normalized the idea of buying insurance online, and agent channel conflict can be ameliorated through various means.

The Future of Direct Online Small Commercial

Last week, Novarica issued an update to our 2019 Direct Online Small Commercial report, which predicted InsureTech digital distributors would become a strong presence in the market, that regional insurers would leverage online sales to grow their books while avoiding channel conflict with agent footprints, and that large national insurers would begin significant advertising spend.

We’re still waiting for that major advertising push in 2020, but 2019 was an active year for direct small commercial insurance:

  • Large insurers, including Progressive, Nationwide, and Everest, rolled out direct-to-consumer portals.
  • Other insurers, such as Aon, announced strategic partnerships and acquisitions to gain access to the market.
  • Employers recently launched Cerity to sell workers’ compensation policies online to small businesses with annual payrolls up to $5M.
  • Many InsureTech digital distributors had excellent funding rounds—for example, Next Insurance, which received $250M from Munich Re at a $1B valuation in October 2019.

While sales have been modest, the underlying factors remain favorable, and Novarica estimates that the $3B direct small commercial market could grow to as large as $12B by 2025.

Matching Products with the Right Target

The best opportunity for carriers will be the middle 60% of business: Microbusinesses can’t generate enough premium, and the largest businesses can be served through traditional channels. In the middle is a sweet spot where business owners have interest in doing business online but can still generate profit.

That profit will be realized on thin margins—it’s key for insurers to streamline both their products and their buying experience so that policy offerings are easy to understand and transactions are processed straight through. Enabling straight-through processing at scale will require flexible core systems and powerful analytics backed by reliable data.

Insurers need not go all-in on small commercial, but they should consider their approach to the market with open eyes, acknowledging the way it’s evolving in response to technology-driven changes in buyer behaviors.

For a more in-depth look at the direction insurers are heading in this space, read Novarica’s report Direct Online Small Commercial Insurance: 2020 Update.

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