Gauging the Direct Commercial Lines Market Opportunity: Celent Study

The U.S. direct commercial insurance market is still in its infancy, but a 33 percent response of small business owners willing to buy online represents a $20 billion opportunity for insurers.

(Image credit: Shutterstock)

While commercial insurance products are generally far less amenable to direct sales, small commercial insurance typically involves relatively simple risks, and many buyers are individuals who behave like consumers. A new Celent (Boston) study Commercial Lines: Who Will Buy Direct and Why? explores how likely commercial insurance customers are to buy direct, what they want more broadly, and what insurance carriers should do about it.

The study’s author Karlyn Carnahan, head of Celent’s America’s Property/Casualty practice, says there has been, “an explosion in online offerings—from online agents, to MGAs to insurers. And we are aware of many more that are in the planning phase.” Firms selling commercial insurance have proliferated,  such as Cerity, Thimble, Insureon and Pie Insurance.“But is this just a finger in the wind testing the opportunity—or is it real?,” asks Carnahan. “Just because you build it doesn’t mean they will come. Our initial question was: How interested are small business owners in buying direct? And if they are interested, what matters to them? If they are not, why not? What do agents need to do to keep them as clients?”

Karlyn Carnahan, Head, The Americas, Property Casualty, Celent.

The Celent study was conducted in Aug. 2020 in collaboration with Barlow Research Associates Inc., a Minneapolis-based market research firm focused on financial services industries. The study surveyed 190 small business owner respondents. The study defined small businesses as companies between US$100,000 to $10 million in sales. These businesses employed an average of 16 employees and, in order to qualify, needed to be the sole decision-maker (68%) or involved in the decision (33%) of purchasing commercial insurance.

None of the 190 respondents currently purchase insurance online, which the study’s author Karlyn Carnahan, head of Celent’s America’s Property/Casualty practice, attributes to the nascent state of the direct-to-consumer market. Among the study’s findings were that:

  • Eighty-one percent of the respondents reported currently using an independent agency that represents multiple insurers.
  • More than half of small business owner respondents are delighted with the current process of insurance buying, but wish there were more comparison options available, that the coverage was less confusing, and that the process was simpler and faster.
  • Half of the respondents are not likely to buy commercial insurance online, with the biggest impediments being the lack familiarity with insurance and the desire for an agent;
  • However, 33 percent say they would be likely to make their next purchase of commercial insurance online.

If a third of the small business market is close to making purchases online, insurers face a significant opportunity, Carnahan stresses. “If the average premium per account is around US$2,000—across BOP, WC, Commercial Auto, and Umbrella—there is a US$20B market,” she writes.

The most important factor for purchasing small commercial remains low price, according to the study. Fast and fair claim payments ranked among the least important factors—simply because small business owners have few claims and don’t expect to. “Without other sources of value, price becomes the dominant factor,” Carnahan notes.

(Click to enlarge.)

However, there are other sources of value. The reason that two-thirds of respondents wouldn’t buy online is that they value the advice of agents, the study found.

Carnahan says that the split between the third who say they will buy online and the roughly two-thirds who say they won’t indicates that there are two opportunities for insurers. “Try to attract the 33 percent or try to maintain the 60 percent by enabling agents to serve them making it easy for them to deliver prices and services fast and easy. What they want is choice, a personal relationship and advice, so it’s a matter of how to lower the cost of doing that.”

Insurers with sufficient resource can address both opportunities simultaneously. For example, Employers Holdings launched a direct workers’ compensation operation under the brand name Cerity. They can also seek to enlarge the 33 percent through the intervention of technologies that give customers what they want. “Digital agents can be a stepping stone to test the market,” she notes.

To address small business owners’ desire for choice, carriers can use comparative raters or participate in commercial insurance exchanges. Another option is to offer multiple options of one’s own products, for example value tiers divided into silver, gold and platinum. “It gives the buyer a sense that they’ve have their choices and have done their research,” Carnahan says.

Advice is much more difficult to provide in the absence of an agent, Carnahan cautions. “It’s easier to automate guidance if your customer sits neatly within a box,” she says. “Some carriers are giving recommendations for additional coverage to eligible customers. “Recommendation can be automated, but it’s not easy. With the advent of AI and ability to gather third-party data, it’s quite plausible that we’ll see good solutions in the future.”

Are Direct Sales Right For You?

Celent identified several strategic questions that commercial carriers must ask themselves to prioritize their direct and other digital priorities. For example, they must first assess their current technology capabilities and make an economic calculation. They also need to consider how apt their products are for agent-less sales. “Not every carrier’s business is suitable for purchasing direct,” Carnahan says. “Specialty and even small but complex business like medical malpractice may make your target market not amenable to direct sales. You can sell personal auto direct every day. But commercial auto? Long haul trucking? Not all small business insurance will fit that 33 percent of the market.”

Perhaps the most fundamental question is whether disintermediated sales are compatible with a carriers overall strategy and brand identity. “Some carriers consider themselves independent agent companies and have to ask whether any direct sales undermine trust and contribute to disintermediation,” Carnahan reflects. “These are big questions, but the biggest question may be: Is there a tipping point that would cause you to act differently? And if so, what is that tipping point.”

Cerity’s Total Cloud, Zero Customization Launch Achievement

Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at or (503) 936-2803.

Leave a Comment