SMEs threaten to buy direct, but still want face-to-face contact

Brokers may have been startled by last week's Insurance Times front page (15 April) which read "SMEs: direct threat is real".

There is no question that small and medium enterprise business is the new black, with almost every insurer waking up to the profitability this sector has to offer and making it a priority over the past year.

Some new and previously unheard of

language has even been creeping into insurers' vocabularies, with companies such as Royal & SunAlliance and AXA talking about direct sales to SMEs, while at the same time reiterating their support for the broker channel.

So is the direct threat really real? The potential for this scenario to play out certainly exists: last week's front page was based on a recent Datamonitor survey that found more than half of the SMEs questioned would consider buying commercial property and liability insurance direct from an insurer.

Less than a third said they would buy their insurance online.

It will be the personal lines market leaders such as Direct Line, Churchill and Esure, who have the systems sophistication and infrastructure in place and who will no doubt swoop on these in time.

For the vast majority of SMEs, personal contact will still be required, a fact supported by new research from Norwich Union, which found that the overwhelming majority of SMEs still want to have face-to-face business relationships.

Herein lies the Catch-22 for traditional insurers: any additional profit they could make by selling direct to SMEs will surely be gobbled up by the costs of employing a sales force to do so.

The answer, of course, lies with brokers - a natural and existing salesforce, with whom they already have strong links.

The solution for insurers is simple: by getting closer to those brokers who can deliver profitable SME business, everyone wins.