I was at the Ricoh Arena in Coventry on 7 November as a guest panellist at the Broker Expo.
I gave my thoughts on how the insurance sector is responding to the needs of the micro businesses – the S of small and medium enterprises (SME’s). I thought it would be useful to share these on my blog for those of you that weren’t able to go along to the Expo.
Figures suggest that the small business market is significant:
- 96% of private sector businesses employ less than 10 people
- That equates to 5.4 million businesses in total, which account for 33% of employment and 21% of UK turnover*
These micro and small businesses represent a huge market for brokers and insurers. It is up to them to decide whether they want to focus on them or not.
I think we are seeing a number of emerging trends:
- Aggregators are targeting the micro SME market
They are many insurance aggregators in the market. The good news for brokers is that there are probably too many and it’s almost certain this number will eventually whittle down to a select few winners.
It’s easy to see how the Money Supermarkets, Go Compare… Confused.com et al will look to develop online technology from simple comparison engines to more sophisticated platforms. This is not just on the horizon; it is a reality today never mind tomorrow – traditional SME broking is on the wane.
Go Compare for example are marching towards business insurance off the back of their energy switching business WeFlip. The use of language such as “Fair” and “Rip off Suppliers” may be an indication as to how they will approach the micro SME insurance market.
- Direct providers are also focusing on small businesses
This is also an area where direct providers are looking to grow business. If we accept that commoditising is a significant issue in SME insurance, then we have to look at whether BRAND means anything. Customers are not showing too much loyalty so the direct players will need to work very hard to grab attention.
Yet we see many direct providers focusing on price not value. Headline offers of 10% off for new buyers and guarantees to beat any other quote are common in the marketplace.
But what good does this do for the small business?
For business owners a focus on price can be dangerous ground and the age-old phrase “caveat emptor” – let the buyer beware, screams out. The big concern is that businesses are not buying the right stuff!
Vaping is a great example. I work with Anthony Jones Insurance Brokers and we have found a number of customers with vaping businesses who have policies for tobacconists and have bought covers inappropriate for their needs. The best example of this is a vaping distributor and mixer who had a policy with a trade description of Electronic Goods Warehouse.
Who educates the SME community? As brokers we know the issues with underinsurance, inadequate risk understanding, breadth of cover and lack of terrorism protection to name just a few. Will direct insurers take this space, and will buyers take enough notice? Or will they continue to lead with price in the constant bid to acquire new customers?
- The need for on demand insurance
There is an increasing need for On Demand insurance. The freelancers, those in the gig economy, the self-employed and the contract economy are all looking at short term needs rather than annually renewable policies.
Yet many traditional insurers and brokers have been unable or unwilling to meet the needs for On Demand insurance.
So, we need to pay close attention to this area. Where will micro SMEs go to meet their needs for a more flexible insurance offering?
What is the role for brokers to play in the micro SME market?
If we are seeing a push from aggregators in the micro SME market, then what factors are driving smaller SMEs to use aggregators instead of brokers?
Here, I think the intermediated insurance market has to take a lot of responsibility for inertia and lack of innovation. At the heart of this is a lack of understanding about not just what a broker does BUT who we are – a generational issue of consumers not knowing about the role of a broker. There is now one, perhaps two, generations of small business owner who has grown up in a world where the direct insurer dominates the personal insurance space. These are people who have always bought their car insurance online or over the phone. They are not familiar with how a broker works or the value they can add to the insurance decision.
At Anthony Jones we recently wrote about why customers should use a broker after it became clear that we were talking with buyers who were unaware of something as basic as not needing to pay a fee for advice and quotation provision.
Ultimately, SMEs have much the same issues as bigger businesses but as a profession we need to improve our attention span away from on boarding on price. We are very focused on getting customers to join but how good are we at really helping customers to understand claims situations? How focused are brokers on helping customers to understand solutions that would be deployed in the event of a loss?
Whether brokers want to spend a lot of time in the S of SME is a question all brokers are looking to address. It can only be approached with digital transformation supported by interested, informed and socially skilled human beings.
In my mind this market needs different remuneration models and we will probably see a model emerging of serving a parochial community versus mass market. Specialism and niche focus are key. Those brokers looking to focus on risk management and claims management will take the higher ground in this competitive marketplace.
What are the customer expectations in the micro SME market?
I hear often that customer expectations are growing but are they really? I suspect that younger buyers might be willing to respond to value benefits – such as:
- Medical care
- Cyber/Identity covers
- Discounts on business equipment
- Emergency Repair services
- Legal Helplines
But ultimately, we need to do more to understand customer expectations. And adequately respond to these so that brokers can display the value that they can add to the insurance purchasing process.
What will the future look like for brokers in micro SME?
I believe brokers are a resilient bunch. There is evidence of buyers who value face to face contact and/or interested, informed, socially skilled human beings with time to explain benefits, product details and solutions. We must delight them. Our industry could do with taking note of how the betting industry has transformed itself in terms of attracting customers, giving them innovative buying options and rewarding them with loyalty.
We have to look more closely at what we can do to make transacting this business cost effective. If insurance is too expensive to access is it because of underwriting, compliance, distribution costs or another reason? If so, then the traditional market might have a problem.
So to play or not to play … that is the question.
- SMEs are attracted to dealing with simple business needs online with a focus on price, speed and convenience.
- Brokers need to focus a lot more on “Brand Broker” and ensuring there isn’t a generational gap in understanding the role of a broker.
- There are dangers in SMEs paddling their own canoe in terms of understanding duties of disclosure, appropriateness of what they buy and importantly what they don’t buy.
- The insurance market must adapt to on demand insurance and recognise that a huge part of the economy needs ad hoc short term covers.
- Technology in the form of digitisation is part of a solution but not the whole and those brokers focusing on risk understanding and claims solutions will have a competitive advantage.
*Source: BEIS, Business Population Estimates