Dr. Gero Matouschek, Steven Gough, Emma Astley, Victoria Newton, Johanna Barth
December 4, 2017
Small and Medium-Sized Enterprises (SMEs) are the backbone of every economy. They account for 99% of all firms, 70% of employment, and between 50% and 60% of value added in the OECD. They are also one of the most dynamic sectors of the economy, with 97,000 new SMEs formed each year in the UK alone.
On the face of it, SMEs should be an attractive market for insurers, commanding higher policy premiums than personal insurance. But the market is challenging, as SMEs come in all shapes and sizes and have different, and sometimes complex, needs. They often need the personalised advice of an agent or broker, but are unwilling to pay for the premium services tailored to bigger corporate clients. Could digital channels hold the answer? And are business customers ready to buy insurance online?
To find out, we spoke to 2,100 small businesses (with up to 50 employees) in 14 countries. Their responses uncovered a demand for digital insurance services that is not being met by the industry. This presents an opportunity (or a threat) for insurers. They will have to develop a clear strategy on how to deliver products and services across multiple channels. They will need to understand the evolving needs of current and prospective clients better. Finally, insurers will need to consider what is required in terms of people, processes, and technology to deliver a personalised, multichannel experience.
Here is a summary of the main findings of our Global Digital Small Business Insurance Survey
There is widespread unmet demand for purchasing business insurance online. Only 24% of small businesses purchased their most recent business insurance online, perhaps due to limited offerings, but change is coming. Of the small businesses that expect to switch providers in the next five years, 48% say they’d prefer to buy online—and 65% say they are quite or very likely to do so in the future.
Business implication: Insurers must start to think about what their digital offering will be, in order to serve this unmet need. There is also an opportunity to reduce the cost of acquisition and service for this segment.
Small businesses are confident about their business needs, but are often unknowingly underinsured. Today’s small businesses are confident about their business goals and insurance needs, with 74% reporting they were ‘quite’ or ‘very’ confident in their business insurance needs. However, 18% did not have liability cover and only 16% had cyber insurance, despite an additional 46% saying it could be applicable to their business.
Business implication: Insurers have an opportunity to help businesses understand the implications of being underinsured.
Personal insurance purchasing behaviour is the single biggest predictor of current and future business insurance purchasing behaviour. Despite a strongly held view that business insurance purchasing behaviour is determined by factors such as the sector a company is in, our survey revealed that attitudes are strongly influenced by personal insurance purchasing habits. Of the respondents who bought their personal insurance online, 70% said they would prefer to buy their business insurance online too.
Business implication: Where personal insurance goes, business insurance is sure to follow. Insurers will need to reevaluate their customer segmentation models for digital. Small businesses behave very much like individuals, and segmenting by sector and size alone may not be the best way to go to market; insurers need to understand more about the individual buyer too.
New businesses are digital natives. Younger companies are more likely to be born digital. When predicting if a company will purchase insurance online, the age of the business is twice as important as the number of employees. Companies that have been operating for less than a year are 20% more likely to purchase their future insurance online than an otherwise identical well-established company. 1 Newer businesses are more accustomed to looking for recommendations and advice online, whereas established players tend to have a deep relationship with their agent/broker.
Business implication: Our survey implies that digital channels will be key to attracting new small businesses.
Small businesses want to do all their insurance work online. Findings highlight that merely providing a digital ‘shop window’ for products and services is not enough. Small businesses want a consistent and connected digital offering across the customer journey, from being able to buy a policy online (36%) to making claims (36%), tracking claims (55%), or amending a policy (38%).
Business implication: Insurers will need to create a fully digitised insurance service, which in turn will require end-to-end digital processes and a genuine digital operating model.
But customers still expect insurance advisors to be on hand. Even businesses that are ready to buy insurance products online expect the service to include the advice and support of agents and brokers. Next to price, ‘advice from an expert during the process’ is the most important factor in the decision to purchase insurance online.
Business implication: Insurers should review their overall channel strategy to look at how they can provide a digital offering across each stage of the customer journey, while retaining other channels such as help lines and face-to-face appointments. Rapid advances in artificial intelligence and machine learning mean that in the future, human advisors could be replaced by intelligent communication technology.
Small businesses are seeking connected digital services, not just insurance. 53% of respondents favoured a ‘one stop digital shop’ for outsourced services, including accounting, investing, legal, recruiting, and banking. Interestingly, they want more from their insurers: 45% would be willing to purchase legal cover, 26% would purchase risk advice, and 47% would be willing to use sensors to reduce their premium.
Business implication: In the short term there is an opportunity for insurers to look at how they extend their core product and service offering to include additional products such as legal cover and risk advice. In the medium term, insurers will need to look at how they partner with the broader ecosystem of online services—such as banking and accounting—to connect their offerings and present this in a simple and compelling way to small businesses.
Small and Medium-Sized Enterprises (SMEs) underpin the economy in almost every developed and developing nation. Companies with fewer than 250 employees account for 99% of all firms in the OECD nations, generating between 50% and 60% of value added 2 and accounting for 70% of jobs on average.
SMEs are an essential market for the insurance industry, worth about €10 billion in annual gross written premiums in Germany and the UK each, and growth in the UK of 12% a year3. Yet SMEs struggle to find the right product at the right price, when their needs can be as complex as those of larger companies. For insurers, this particular segment is equally challenging to serve: SMEs demand personalised attention, but at a premium that doesn’t support this level of service.
Digital services could be the answer. At present, selling insurance to SMEs through digital channels is not straightforward. Many of the products they need are complex; products need tailoring to specific businesses; and SMEs want personalised advice before buying.
Nevertheless, a number of specialised online services have emerged, including comparison platforms such as Simplybusiness (UK) or Gewerbeversicherung24 (Germany). Is this a sign that SMEs are ready to embrace digital insurance services? We wanted to find out.
To understand digital demand further, we carried out a comprehensive global survey of more than 2,100 micro and small businesses in 14 countries, each with up to 50 employees. We asked them how they buy insurance today, how they view digital services, and how they think they will interact with the insurance industry in future.
Our survey confirms that there is an unmet demand for digital insurance services, but it’s a complicated story. Insurers will need to take into account a complex array of needs and preferences. For those who are well-prepared, a lucrative new market awaits.
Our survey of more than 2,100 small businesses in 14 countries confirms that there is unmet demand for digital insurance services.
1Looking at the partial impact, controlling for other individual and personal demographic factors in our survey.
2https://www.oecd.org/mcm/documents/C-MIN-2017-8-EN.pdf June 2017.
3UK SME Insurance: Market Dynamics and Opportunities 2016.