Although insurers are just now wading into the Web-based small business insurance market, research indicates this approach has great potential to improve carriers' revenue streams.There are an estimated 5.7 million small businesses in the U.S. with annual revenues between $50,000 and $500,000, says Matthew Josefowicz, an analyst with New York-based Celent Communications. He is the author of a recent report, titled "Web-Enabling Small Business Insurance Policy Origination."

Internet option

Carriers that implement effective Web offerings could capture 30% of the small business market by 2005, representing $3.8 billion in annual premiums, Josefowicz predicts.

However, unlike current efforts by carriers to sell policies on their own sites, experts believe the online small business insurance market will be controlled primarily by online agencies and marketplaces that use the Internet to connect banks, brokerages and agencies with carriers. Examples include InsureZone, InsuranceNoodle, ePolicy and Financial Kiosk.

The Internet will not become a major sales channel for small business insurance but rather will support the process, analysts say. Small-business owners will use the Web to research and compare policies and submit application data electronically to agents, who in turn will receive quotes from multiple carrier via EDI or through direct links to carriers' quoting engines.

"I think one reason why the insurance industry hasn't fully embraced the Web is because if you can't perform 100% of the process online, then it's a bust," Josefowicz explains.

Online marketplaces and online agencies are the best options for linking supply and demand for small business insurance, says Karen O'Brien, a research manager with IDC, a Framingham, Mass.-based research and consulting firm.

Carriers typically don't offer small business policies for all types of coverages in every state. But marketplaces offer products from several carriers, improving the chances that a small-business owner can research, quote and purchase a policy at one destination, she adds.

IDC estimates that 7% of small-business owners with Internet access and insurance have used the Web to shop for or receive insurance quotes. "The opportunity to grow this market is there, but it has to be done efficiently," O'Brien says.

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