Workers compensation is inarguably the most competitive line in the commercial lines insurance market this year. According to most broker and carrier market reports, it’s the only one that has escaped hard market pricing.

But competing in the workers comp market can take another path, a research analyst pointed out recently. More and more carriers are exploring digital distribution of workers compensation insurance, according to Rob Norris, a senior analyst within Celent’s North American property/casualty practice.

“As incumbent carriers fight over market share within the traditional agency distribution system, future growth may require expansion into digital channels,” he wrote in a report titled “Digital Workers Compensation Insurance: A Primer for Success in Digital Channels” published by Celent late last week.

The report is a playbook that guides workers comp insurers looking to expand through any of five possible digital distribution options—digital direct, digital agent appointments, or partnerships with digital MGA, payroll providers or insurance exchanges—defining and mapping out the pros and cons of each across factors such as value differentiation, underwriting optimization, market costs and difficulty of implementation.

Digital direct models, such as Berkshire Hathaway’s biBERK and Employers’ Cerity, for example, give the carriers direct interactions with customers and end-to-end control of the quoting process, allowing them to distinguish their value for customers and better understand and price risks. But implementation is costly and time-consuming, compared to two simpler-to-execute models: digital MGAs and distribution through payroll providers, such as ADP, Paychex and Gusto. And marketing costs for digital direct models are high in comparison to payroll providers and digital agents, who are responsible for their own marketing costs in return for commissions.

Successful digital distribution in workers comp involves more than making a good choice about which digital channel to use. Carriers have to get two more things right: delivering a great customer experience and controlling the cost of customer acquisition, the Celent report says. “Digital marketing is not a mature competency in many insurance companies,” said Norris, in a media statement. “As a result, carriers are surprised to see how customer acquisition costs can erode cash flows and profits.”

In the report, Norris puts forth useful insights about the digital marketing costs, giving advice about how to control customer acquisition costs (CAC) and how to turn website visits from potential customers into requests for quotes and ultimately policy sales. Included in this section of the report are these takeaways:

  • Workers comp insurers can spend as much as $2,000 to acquire a policy that produces $800 in premium if they aren’t generating web traffic efficiently, optimizing conversion rates and maximizing customer lifetime value.
  • The best way to lower the cost of generating web traffic is not to pay to have the company policies appear at the top of search results. That means digital carriers not only have to make sure their websites have fresh content that syncs with the keywords potential buyers will type into search engines but also that the website performance and usability is up to par, so that search engines like Google can scan them and make sense of the site structure and content.
  • To turn website visits into quotes requests, carriers may need to have hundreds of landing pages in use at one time, as marketing teams experiment with simple tweaks to wording and design and with different campaigns for different market segments.

Also highlighting the benefits of a quoting process that delivers the information needed for straight-through underwriting—and stating that “doubling the straight-through percentage will effectively cut CAC in half”—Norris cites the key role of IT departments in all these activities. Along the way, he gives specific tips and identifies tools to improve the performance of digital distribution channels at each juncture: attracting potential customers (SEO optimization), starting quotes (isolating landing page infrastructure from quoting applications), finishing quotes (data prefills and pop-ups for confused customers).

“IT departments should become aware of how the technical elements of a website, such as large images, certain HTML5 tags and JavaScript code, etc., can degrade SEO,” he writes in the section on generating traffic efficiently, pointing to Google’s PageSpeed Insights as a tool to help insurers understand how Google scores website performance.

In 2019, Norris wrote about Pinnacol’s journey to digitally reinvent the customer experience in workers compensation insurance through the launch of Cake in an article titled “Managing Innovation Using a Managing General Agent” for Carrier Management

Norris has hands-on experience with delivering the technology to get all the facets of the workers comp digital distribution success formula right. Before joining Celent, Norris founded InsurTech startup Cake Insure, a digital workers compensation insurance subsidiary of Colorado-based Pinnacol Assurance.

Norris served in an executive capacity at Pinnacol for 20 years. Prior to leading Cake, he was Pinnacol’s chief information officer and chief strategy officer, facilitating corporate strategic planning as well as the acceleration of business, technology and organizational development initiatives.

“Cake enables small business owners to use a mobile device to buy a workers compensation policy in less than three minutes,” Norris wrote in an article for Carrier Management in 2019. In the new report for Celent, he notes that Cake boasts today that the digital insurer can quote a policy in 90 seconds.

Early in the Celent report, Norris notes that digital distribution of workers compensation insurance is well suited to the needs of small businesses, since they are attracted to the convenience, simplicity and low costs that digital distributors offer. But that doesn’t mean that digital distribution workers compensation won’t one day pose a threat to middle-market carriers, he writes, referring to an idea expressed by Clayton Christensen in his book “Innovators Dilemma.” While noting that digital workers comp offerings today lack safety and loss prevention services demanded by midsize and large employers, Norris quotes Christensen’s view that disruptive technologies which “may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.”

Norris suggested in the report that “a more urgent” threat to those workers comp carriers not yet seeking a path to digital distribution is the fact that some digital workers comp distributors—Next Insurance and biBERK, among them—are expanding their distribution reach by partnering with independent agents. Next is soliciting agency appointments on its website, and biBERK is expanding into traditional agencies through a partnership with insurance exchange Bold Penguin, the report notes.

Concluding the report, Norris noted that IT departments may need to invest in new capabilities and accelerate their migration toward more modern architectures to be successful in digital distribution of insurance. The report includes specific recommendations for how carriers can strengthen their technology foundations.