Internet Insurance Model Gains Market Share, Frustrates Brokers

Since the Internet seems to be more than a fleeting fad, Arkansas insurance brokers must continue to battle a monster that some experts say they themselves created.

In the last few years, the Internet insurance model - a virtual one-stop shop without storefronts or independent brokers - has gained momentum.

"I think the insurance industry has created that monster - that price is all that matters," said Russ Berryhill, president of the Berryhill Group of Little Rock, which sells home, life, health, auto, mortgage and business insurance.

And a little momentum in a multitrillion-dollar industry can inflict a big dent.

Madelyn Flannagan, vice president of education and research at Independent Insurance Agents & Brokers of America Inc., said independent brokers lose a quarter of a percentage point of market share per year to channels other than independent brokerage firms, chiefly the Internet insurance model and "direct writing" firms like State Farm.

In the automobile insurance market alone, Flannagan said, that added up to a departure of about $1.3 billion last year.

But the enemy of insurance brokers has become a friend to insurers.

In the last year, QualChoice of Arkansas Inc. started working with eHealthInsurance Services Inc., an online health insurance platform that aggregates policy information from many insurers.

Though online activity crept at first, QualChoice now boasts that 25 percent of business comes from the partnership with eHealthInsurance.

"It's a requirement almost in order to do business," said Michael Stock, CEO of QualChoice of Arkansas Inc. "You have to have as many different channels of distribution as possible to get your products out to the consumers. People are busy today. And so they're looking for the most efficient way to do things and get access to information."

The Young and the Small

Several experts in the industry say the Internet model mostly hurts small firms that sell personal and small business insurance.

"If you're an agency that's geared towards personal lines and small business, I would say that the Internet is taking market share from you," said Roberts Lee, principal at Meadors Adams & Lee Inc. of Little Rock.

Lee and many of his peers in the Arkansas insurance pool claim to have dodged the Internet bullet.

"We're catering generally to the upper end of the food chain," said Matt Jones, president of Legacy Capital Group. "And so we're typically dealing with very wealthy people who are putting tens of thousands of dollars a year, sometimes hundreds of thousands of dollars a year, as premiums into insurance. And they're not going to make those purchases online."

Instead, younger consumers seem to be generating the online insurance activity.

"It seems to be a generational thing," Berryhill said. "The younger the people are they seem to have no problem going online quoting and buying insurance. And usually when they're doing that, they're shopping for the cheapest price."

Man vs. Web

But cheaper online savings come with a bundled expense, brokers say.

"Typically, something's got to give," Berryhill said. "You can't have the best product, the best service and the cheapest price in anything you buy. And insurance is no different."

That element that consumers lose, brokers said, is an advocate.

"When something bad happens, you've given [your advocate] up," Lee said of purchasers of online insurance. "And if things don't go the way you want them to go, you're dealing with the company on your own."

Joe Carter, president of Cornerstone Insurance Group of Little Rock, added that a broker was an advocate with the ear of the king.

"That insurance agent in Carlisle that's gone to church with his customer for 20 years is going to go to the mat for his or her client," Carter said. "And when you drop it to just a commodity, you lose that advocate, which can be detrimental because insurance companies do have a tendency to listen to agents, particularly agents who drive volume to them."

Carter said the carriers with which his firm dealt had a financial incentive to listen to the broker while an individual client had no real bargaining power.

"If we write $2.5 million worth of premium with a particular carrier," Carter said, "and there's a gray area on a $100,000 claim and we pick up the phone and call and go, 'Hey, you really need to give them the benefit of the doubt.' And the carrier goes, '$100,000 worth of claim versus $2.5 million worth of premium - I think we pay the claim.'"

Though some online insurance firms have customer support centers, brokers said that wasn't enough.

"When my computer crashes or I have a computer problem, I can call an 800 number and talk to somebody who lives in a different country, who doesn't understand my unique situation or how my office is particularly networked," Berryhill said. "And if you've ever done that, that can be a very frustrating experience.

"Or I can call my local tech support guy that I know by his first name. And he knows where my office is and comes to my office and helps solve my problem. To me, it's worth that to have that personal understanding of my business."

One of the most important aspects of having a broker, Berryhill said, is engaging in conversations on the front end about what the coverage entails.

Berryhill said he leads clients through a checklist, discussing line by line what a policy does and does not cover.

"I think the big difference between having an agent and buying [insurance] online is you can have those conversations."

But some consumers have become jaded by the hard-sell, experts said, and prefer the comfortable anonymity of virtual shopping.

Jones of Legacy Capital said many consumers have encountered aggressive sales tactics, particularly from life insurance salesmen. "And people have experienced that and they don't like it," Carter said.

"They don't like to feel pressured," Stock, of QualChoice, said. "They like to make their own independent decisions and have the freedom to have the time to evaluate it on their own and compare and contrast."

'They're Relying on Us'

Though businesses with very few employees have gravitated toward cheaper insurance on the Internet, most businesses still use brokers.

"The people we deal with, they're relying on us and our expertise," Jones said. "They give us all their census data. We look at their employee database. We look at their ages. We look at the types of benefits they're trying to provide. And there are just so many variables that go into how we select the various products and insurance firms that we use. I just don't see how anybody could design a model online that would be able to do that for you. You just need a human being interacting."

Berryhill agreed: "There are too many other factors that they need a professional to talk to them about the coverages and what their risks are that they're dealing with. And they want to make sure they're adequately covered."

For the time being, many corporate insurance and group policies are too complex for checklist-style policy.

However, health care reform could cause a drop in employer group policies and growth in the individual market, Stock said. "If there are mandates for individual coverage, that will drive the individual market higher," Stock said.

And depending on who is eligible for government subsidies - if that's how reform shakes out - employers might think differently about providing group policies, he added. 

Stock wasn't sure how much of QualChoice's business would be done on the Internet in the future. But he did say that the Internet insurance model was "here to stay."

He added, "And I think it's going to continue to grow."