Last October, made a bold strategic move when it expanded its Web platform to attract independent agents. The Chicago-based e-broker, which specializes in small-business insurance, made a gamble that it could change the rules for selling insurance to small businesses.

For years, insufficient revenues, combined with time and cost constraints, have driven many agents away from selling small-business policies in favor of more financially rewarding opportunities.

Small-business owners often need assistance selecting coverage for their operations, so crafted several agent-friendly components-one enabling agents to outsource their small-business book to and another permitting them to co-brand a Web site through the provider.

This initiative is just one example of how carriers and third-party online marketplace sites are now using the Internet to aggressively target small business (see "Using The Internet To Snare Small Business," August 2000).

By some estimates, the small-business market-companies with 50 or fewer employees-generates $70 billion annually in premiums and will grow dramatically during the next five years.

Underserved market

Research indicates that small businesses represent a severely underserved segment of commercial insurance. Many owners need more sophisticated tools, along with the advice of a licensed professional, to help them choose proper coverage for the business.

"The small-business market has traditionally been hurt by a lackluster agency force that wasn't motivated to sell or service it," says Donald Urbanciz, CEO of, which launched the first phase of its program last July. "Our goal was to engage the agent, and hopefully spur more small businesses to explore the site."

The market's potential growth is being fueled by another important trend. Small-business owners and professionals, such as attorneys and accountants, increasingly are using the Internet to research insurance.

"These professionals are more technologically savvy, and, at the same time, their businesses are becoming more exposed to liability. It's a powerful combination," says Todd Eyler, senior research analyst for Forrester Research Inc., Cambridge, Mass. He estimates that the online insurance market for businesses with 50 and fewer employees will expand about 10% to 15% annually for the next five years.

As more small-business owners log onto the Web to explore insurance needs, carriers and providers eager to apply their imprint on the market have an admonition: While many signs point to robust adoption, providers must craft programs that address pressing needs of small-business owners.

Some of the areas that could make a difference in a program's success or failure include:

* Diversification. One Internet provider has launched an insurance-oriented Web site that's an outgrowth of its flagship financial services Internet plan.

* Education. Providers have to make it easy for small-businesses owners to identify their business classifications and then enable them to use the proper online tools to research coverage specifications.

* Balance. Beyond offering policies to insure their businesses, some providers may offer personal lines insurance products for a small-business owner to cover a home or auto.

* Offline support. Building brick-and-mortar service centers enables small-business owners to begin the process online and complete it offline.

This last point factors is the presence of a trusted financial advisor to simplify the selection process. When was launched in July to sell property and casualty insurance, the program's credibility was enhanced by licensed insurance brokers who were part of the executive team. also forged partnerships with carriers experienced in writing small-business coverage-The Hartford, AIG, Zurich, The St. Paul, Kemper Financial and CNA-Surety.

However, Urbanciz realized that had to broaden its scope by bringing independent agents into the fold. "We knew carriers had regarded this business as profitable, but they couldn't get the agency distribution to make it worth their while," he says.

Carrier initiatives

While third-party providers such as target a large cross-section of small businesses, carriers that cater to a specialized niche are also finding success.

Last August, The St. Paul Cos. introduced a proprietary small-business program called Vision Pak, which is marketed to high-tech software companies and Internet firms.

Realizing the needs of these firms varied greatly from those of mom-and-pop operations, the St. Paul, Minn.-based carrier selectively offers Vision Pak through 140 U.S. agents who have experience serving this niche audience.

"Some standard business-owner policies may not be suitable for this niche market simply because their needs constantly change," says John Farber, underwriting director of technology for The St. Paul. "These high-growth companies are continually receiving venture capital funding to grow their businesses. Agents start by offering tailored coverage, and then continue to up-sell the account as their needs change. Our agents are trained to make sure these businesses comprehend the dynamics of media liability, computer fraud and intellectual-property risk exposure."

The St. Paul's agents-many of them based in geographic pockets noted as high-tech corridors such as northern California's Silicon Valley, northern Virginia and Boston-target companies with revenues of $15 million and under.

Agents who participate in the program may transmit e-mail to prospective small-business owners, who in turn can log onto and begin specifying the elements of coverage for their businesses.

The 140 agents who are actively involved in marketing Vision Pak online have upgraded their agency management systems so they are connected to The St. Paul's data management system. Using The St. Paul's comprehensive quoting engines, agents can obtain quotes in real-time for small-business owners based on their customized needs.

The agents can also use the data to make assumptions about a customer's near-future needs, factoring in coverage terms that a technology company may have to address in six months to a year that they don't have to address now.

Communication lines open

"Quick turnaround is key," Farber says. "These business owners trust our agents to provide the proper coverage. They recognize that these agents are selling a specialty product-not a commodity. Due to this trust, many businesses aren't inclined to shop around for five quotes."

Once a policy is in force, a policyholder can use the Web to modify coverage or check on a claim by connecting either directly to The St. Paul's technology portal or through the agent's Web site linked back to The St. Paul, Farber says.

Because the needs of small businesses can change so rapidly, online communication between owners and agents has become a necessity.

Realizing this, The Hartford Financial Services Group Inc. is expanding the functionality of an extranet site called the Electronic Business Center.

Presently, about 20% of the Hartford, Conn.-based carrier's agents-its 700 top producers-have access to the Electronic Business Center, which the company launched in 1998. The Hartford intends to make the extranet site available to its entire agency network early this year.

"After conducting focus-group research, we decided that we needed an agent-level program that would enable agents to better serve small-business customers on the Web," says Rob Schwartz, director of agency interface for The Hartford.

From their agency management systems, which are linked to The Hartford's proprietary site, agents can customize their own Web pages through the Electronic Business Center and disseminate key information to small-business customers.

Within the password-protected extranet, agents can tap into The Hartford's system and download forms and brochures via a Web browser and high-speed Internet connection. The Hartford agents can use the downloaded text and graphics to create specific products for their customers. Using Adobe Acrobat software, many agents opt to deliver electronic newsletters and product brochures, or furnish basic policy information to an existing customer.

"We have a library of 5,000 archived articles on various insurance-related issues. An agent may want to focus one month on the effects of carpal tunnel syndrome and the next on how to prevent workplace back injuries," says Schwartz.

The Electronic Business Center is also regarded as a more efficient method than past applications for electronically sending information. "Agents who needed to disseminate data to a customer in the past would have to scan the data in-house and download it into a file, which would cost them a fortune and take forever to complete," Schwartz says. "Our program enables them to use Adobe to download into a PDF file, which is a far more efficient method."

In the meantime, small-business owners can initiate contact with an agent 24 hours a day, seven days a week by logging onto an agent's Web site or going directly to Whichever option they choose, policyholders are able to pull the data they need within a password-protected site.

Speed and accuracy

Presently, agents who use the Electronic Business Center are unable to obtain real-time quotes, but Schwartz says that sometime in the near future The Hartford will equip the center with a real-time quoting engine supported by XML.

While rapid turnaround for a quote is proving to be increasingly valuable to a small-business owner, the consensus of many carriers and agents is that while speed is important to most business owners, it's a moot point if they are paying premiums that are too high.

This has prompted many carriers and small-business aggregators to build a Web-based infrastructure that features best-of-breed automated underwriting processes. One such company, Charlotte, N.C.-based Access CoverageCorp, an e-agency that specializes in property and casualty insurance to small businesses, launched its service in July in partnership with 15 carriers.

Through the company's "virtual underwriter" technology, Access CoverageCorp. says it can enable small businesses to secure precise coverage levels. For example, an itemized checklist of two businesses, each with 20 employees, might reveal that they share many similarities with regards to risk exposure.

However, the virtual underwriter process may extract one or two subtle differences that make one business less of a risk than the other. Based on this analytical data, two companies that were unfairly lumped together into a business classification are no longer categorized this way. The result is a far more accurate policy premium structure.

Online tools help

Providing small-business owners with online tools they can access to perform policy comparisons also is proving to be an imperative.

Like many online providers, makes electronic calculators available so an owner can log onto the site any time of the day or night to perform side-by-side coverage comparisons from multiple carriers.

Moreover, small-business owners often get entangled in uncertainty over insurance terminology. If they don't know the definition of a term, they're certain to log off.

"We have a Web glossary that gives small-business owners a layman's description of terms so they can proceed with their research," says InsuranceNoodle's Urbanciz.

It also behooves providers to realize that many customers aren't looking to bind policies online.

"We abide by a 50/50 rule-a customer will conduct half of the process online and the other half through a call to a customer service representative or agent," says Chris Hill, vice president of product management for One Core Financial Network, Bedford, Mass.

Financial services provider One Core branched off into insurance in October on its Web site,, offering life, health and property and casualty products.

"Small-business owners tend to be very self-directed people," Hill adds. "If a policy is already in force and they want to make a change, they can perform one piece over the phone in the morning and then go online to do the rest at night."

As many providers of online small-business insurance would probably concur, one pressing requirement in building a successful online program is common sense.

"Many small businesses are often unfairly lumped into a classification based on business size," says Urbanciz. "But a 10-employee plumbing outfit has entirely different needs than a 10-employee florist. They might be the same size, but they don't face the same exposure. The winners in this market are cognizant of that."

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