Even as the personal auto insurance product was being converted into a quick, online purchase for most Americans, independent agents shook their heads and said the day would never come in which a similar transformation took place in the commercial market.
There was just too much against it – the greater complexity of business insurance and the politics of dropping a trusted adviser were too tricky to send business owners looking online for coverage. In fact, the direct sale of small-business insurance in the United States makes up just 1% of the market.
Warren Buffett’s
Berkshire Hathaway is hoping to change this.
The company announced late last week that it had won a top financial-strength rating from A.M. Best Co. for a unit that plans to sell insurance directly to businesses over the Internet. Berkshire Hathaway Direct Insurance Co. will sell workers’ compensation and business owners’ package policies to begin, before expanding into other commercial lines.
The unit will get a backstop on its policies through an agreement with National Indemnity Co., and investment management and risk oversight will be supported by other parts of the parent company.
If the plan works, it could easily be incentive for other carriers to begin offering business insurance online. Berkshire is, after all, the owner of pioneer insurance company
GEICO, which revolutionized the auto space and is now the second largest car insurance company in the country.
And there is certainly interest among commercial clients, most particularly for small business owners, for an online solution.
About half of the 751 small business owners surveyed in March 2013 by the Deloitte Center for Financial Services said they would be at least somewhat likely to consider buying some of their insurance policies directly from a carrier.
Close to half of those same survey respondents said they would eliminate an intermediary like an agent or broker in exchange for a relatively small discount. Even more indicated they would be willing to purchase from direct sellers if they were offered risk management advice and other value-added services currently provided by agents.
“If online sellers provide value-added self-services in addition to discounts, there may be a growing risk of disruption and disintermediation unless agents and their carriers respond in kind,” the Deloitte report said. “It is unlikely that agents and brokers will be significantly disintermediated in the small-business market any time soon. However, additional direct initiatives will likely be launched, requiring a response by their legacy agency competitors.”
