The commercial insurance business in Germany faces competition from all sides. Traditional private insurers, keen to grab a slice of the commercial market, are upselling policies to their existing customers. On the other end of the spectrum, traditional industrial insurers follow a similar strategy. Incumbents also face competition from industry outsiders, such as large industrial brokers, and advances in automation and technology give rise to completely new entrants.
As a saturated market, macroeconomic factors and new players cause intense competition, incumbents are forced to differentiate. They need to focus on their target groups, sales channel mix as well as product innovation.
To achieve the desired differentiation and market share gains, a clearly defined strategic program is required. Our Focus and Push approach helps underwriters focus on market segments with the highest growth potential, while at the same time concentrating their investments and resources on enabling the necessary sales push. For incumbents to position themselves in the right segments and with the right offering, they need to 1) critically evaluate their existing setup, 2) analyze available industries as well as customers and 3) review their product portfolio.
Firstly, insurers need to assess their existing setup, including their sales approach, product type and target customer segments. The commercial market is not a closed, homogeneous market. Instead, it consists of clearly delineated “submarkets” that are subject to individual success criteria. Therefore, customer segments must also be clearly distinguished based on selected, company-specific characteristics.
Secondly, incumbents need to target specific industries and company sizes. Whereas micro-SMEs, for instance, represent 93% of companies, only 11% of revenue is generated from them in the German commercial insurance sector. Only a handful of large commercial businesses, on the other hand, generate 66% of revenue. Promising company sizes and industries then need to be mirrored against Covid-19 related impacts to find sweet spots for growth.
Based on the analysis, the most promising market segments for short and long-term growth opportunities become apparent. Due to the massive boom in IT, the increased awareness of health and the strong demand in construction and real estate, these industries are particularly attractive for long-term targeting and positioning.
Thirdly, insurers need to critically review their product portfolio, focus on profitable products and remove existing loss-makers – unless needed as part of a bundle of services. Commercial insurers in particular face a relatively high number of different risks that repeatedly cause underwriting losses in their portfolio. One of the main reasons for this is certainly the corresponding pressure on sales in a highly competitive market. However, there are clearly better solutions than continuing to offer unprofitable products.
The German commercial insurance market is highly attractive, and more and more competitors, both from within and outside the insurance industry, want their share. Especially new entrants, maximizing the power of technology and boasting a strong target group focus, pose a threat as they gain momentum. Incumbents must not be complacent and act now to stay ahead.