Commercial Insurance Distribution Channels on the Internet

If you worked for a UK Insurance company just twenty years ago or anywhere else in the world for that matter, you would not have heard the term Internet distribution channel, except perhaps in the idle chat of the IT department boffins and analysts in the company cafeteria.

There were only two main distribution channels, or ways of moving insurance products to the market and the Internet as a serious sales and marketing contender would have to wait another ten years to appear.

At the time, the main channels were the direct channel, which meant producing insurance products that could be sold directly to the public from a call centre, thereby cutting out the costs and expense of managing a middleman, and the broker or intermediary channel.

The broker channel was further sub-divided into insurance brokers, agents, tied agents, consultants, sub-brokers, managing agents for Lloyds and the affinity corporate market.

Both channels offered different propositions for the same products dependent upon the way a policy was sold.

At the time only personal lines insurance products such as car and home insurance were available via the direct channel.

It was also considered that commercial insurance and business insurance were too complicated a product to sell direct over the phone, would take up too much time and would require a bank of approved underwriters with scripts to man the phone lines, as no commercial insurance autoquote systems existed. Consequently nearly all commercial insurance was sold via the intermediary channel.

This dual path situation for the sales, marketing and deliverance of insurance polices continued until Insurance finally became a product that could be bought and sold on the Internet. The earliest offerings around the turn of the Century were for personal lines insurance and there was barely a mention of Commercial insurance, save for the odd contact us button.

Ironically as personal lines insurance developed over the Noughties and became a much larger channel of distribution, the two previous direct and broker channels re-established themselves online, this time in much closer competition.

However both the insurance companies and the insurance intermediaries were caught napping as a new distribution channel emerged on the Internet; the aggregator or price comparison site, and in record time accounted for over 90% of online Internet insurance sales.

The public love to compare prices and the fact that most personal lines products could autoquote without the intervention of an underwriter, meant they could all be aggregated into an online insurance price comparison site, such as we see everywhere in the media today. This is a testament to the comparison sites success as a channel in its own right.

Commercial Insurance in the meantime was still in its infancy as a channel on the Internet, until very recently.

The inertia was mainly due to the reluctance of the large general insurance companies to standardise and autoquote for commercial products. They felt the risk was too high and underwriters resisted the change.

The change came about by market forces as the Broker channel started to sell commercial products using its own web-enabled back office systems.

This meant that online business insurance brokers could collect information about a businesses insurance requirements on a website form, and pass the data to its internal systems. These back office comparison systems are composed of a panel of insurers and providers that provided autoquotes.

Straight through processing to an insurance company could be carried out by the existing EDI or electronic data interchange mechanism.

The single broker business and commercial propositions soon became the target of the price aggregators and the large and now very rich comparison sites, who started to offer online insurance comparisons using broker panels in 2009, which rapidly became popular with small business.

The large composite commercial insurers were forced to respond and last year released a string of autoquote products into the Internet channel including packages for shops, offices, pubs, commercial let property, tradesman, professionals and commercial liability to name just a few.

The fact that it is nigh on impossible to watch television for more than an hour or two today, without seeing an advert for a builders public liability and tools policy from a dotcom is proof that the Internet has finally arrived as a commercial insurance distribution channel.