Catching Up: Online Direct Sales in U.S. Personal Lines Insurance (Strategic Focus)

The need to improve operations and meet customer needs is being met by two counterforces: a powerful agent force and a cumbersome regulatory system. In the long run, the driving forces will outweigh the counterforces and direct online insurance will prevail in the United States personal lines market.

Report Highlights
A direct online sales strategy, which can lead to lower operating costs and greater customer control, can enable insurers to excel in today’s market. But more importantly, a direct strategy is what the consumer is coming to expect. Insurers that fail to react to consumer demands will lose market share – which will be costly to regain.

Premiums booked through the direct channel are growing at a 7.5% annual rate, which far outpaces both the independent and captive agent channels. Auto lines are the most promising; in 2007, 2.15 million policies were sold online in the United States, up 37% from the year before.

Agent forces can be a powerful deterrent to a direct sales strategy. But all deterrents can be overcome with the right plan. Insurers with existing agent channels can achieve a successful direct strategy if they properly transition their agent force.
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Figure 1: North American non-life insurers' investment strategies in 2008 6
Figure 2: North American personal lines direct written premiums (2004 - 2006) 7
Figure 3: Real wages in the United States for private non-farm workers, 1964-2004 9
Figure 4: Ecommerce, Internet Auto Insurance Market Share, 2007 10
Figure 5: Areas of investment for North American non-life insurers 11
Figure 6: Planned investment into IT solutions for non-life insurers 16
Figure 7: Progressive Corporation, personal lines 20
Figure 8: Progressive Corporation, net premiums written, personal lines 21
Figure 9: Personal auto market share, by distribution, 2006 22
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