Library: Deloitte – The future of small business insurance

May 2022 featured report

Small business insurance has been much discussed over the past five or six years. But while there has been a lot of talk, there has been little change from incumbents.

SMEs want more from insurers, but will meet them half way 

Yet there has been considerable transformation of many small businesses, who have completely changed their business models. In many cases, these moves were accelerated by the need to adapt to the environment after the COVID-19 pandemic hit.

This Deloitte survey covers more than 5,000 SMEs – defined as under 75 full time equivalent employees – from across 14 countries in North America, Europe, China, Japan and Australia, to gauge their views on insurance.

The devil is in the detail

There are many similarities across the different regions, but in China and the UK in particular, SMEs deviate quite considerably in certain areas from the global average.

Nevertheless, there were six key findings in the report:

1. a strong demand globally for more insurance
2. trust remains strong amongst SMEs about insurance and their insurers;
3. SMEs want more than cover, as there is a demand for non insurance services to help them protect against key risk their businesses face;
4. advice is more important than price – SMEs admit that price is important, but there are the factors that are as important;
5. SMEs are interested in engaging with non traditional insurance distributors, putting non traditional players like banks, tech companies and online retailers for more than 90% of SMEs, interested in better advice on their business risks, better customer service and more comprehensive products; and finally
6. engagement preferences are very different in different markets and will require a segmented approach to meet the expectations of the various different SME users.

Big in Japan, but bigger in China

Overall, more than a quarter (26%) of SMEs expect to spend more on business insurance in the near future. And while all countries surveyed say they will spend more, the major outliers were Japan and Australia (36%) Ireland (28%). But the enormous demand in China (61%) puts these levels of demand in the shade (see figure one).

Trust is also high in China, where before COVID, there was 68% full trust in their insurers compared with 42% elsewhere. Since COVID, this has improved to 82% ((67% in other countries).

This increasing trust is largely attributed to the acceleration of claims payments and the provision of additional services such as financial advice during the pandemic.

Insurers are missing tricks

The survey shows that while Japan and Australia will buy more insurance, the Nordic countries stand out for showing the lowest increases. And for good reason, as 40% of them say the insurance does not cover the main risks faced by their businesses, while 38% say their businesses have either changed or risks to their business have been reduced.

The primary drivers were fears over future losses were from a pandemic (50%), financial vulnerability (46%) and a better awareness than before the pandemic of the risks their businesses face (39%) – see figure two.

In an effort to get what more of what they want, some countries intend to be more proactive in how they source their insurance provider. In Australia, 18% indicated they’re likely to switch their insurance intermediary, while 17% said they’ll stop using an intermediary altogether and do their own research. The two figures in other countries were 10% and 14% respectively, while the global average for ditching intermediaries was double (20%) in Sweden and Switzerland.

There is considerable demand for covering risks not typically covered by SME insurance. They make interesting reading for insurers who want to grow their SME book.

Primary concerns remain pandemics (27%), business interruption (24%), systemic risks (23%). These are followed by a mix of performance and negligence cover, then series of climate-related risks (see figure three).

Interestingly, the second highest rated was cyber risk, and there is clearly a growing awareness from smaller businesses of their exposure and the effect an attack could have on their business.

SMEs want more than an insurer – cover plus

The pandemic has been good for building trust between SMEs and their insurers with more than 90%, saying they trusted their insurer or intermediary with only 1% not trusting those groups at all. But there’s still more that could be done, say the report’s authors.

Demand for additional non-insurance service appears in a number of different places in the research. That is increased advice and provision of additional services and products that will help businesses protect themselves from risk.

Cover Plus is a 1981 album by Hazel O’Connor, but is also the term coined by the authors for this appetite for an offer that goes beyond typical SME coverage into non-insurance services often provided by consultancy firms.

More than nine out of 10 (93%) of SMEs across the globe expressed an openness to new and different services being provided by their insurer say the author’s top five services were cybersecurity 21% advice on systemic risks 21% general risk management 18% legal advice 18% and financial advice 18%.

But it’s interesting to note some of the other services they are seeking advice on are the kinds of things they fail to get from many large consultants such as operational assistance, advice around tax, supply chain advice and even some softer skills around social media, staffing and networks.

This may offer an opportunity for insurers to forge partnerships with SME focused consulting firms or even diversify into these non insurance areas. After all, why stick to their knitting when consultants have consistently broadened their horizons over the past few decades?

Quality, not price is the driving force – in most places

This desire for greater input and assistance is reinforced with the claim that they are prepared to pay more to get advice around the areas that they’re purchasing cover for. The scope of coverage is considered the most important factor (51%) in decision making, with price the second at 46%.

But trust, good customer service, claim service and flexibility in general are the next most important drivers (see figure six).

Price sensitivity is greater in a couple of regions, with the UK being the most price sensitive at 64% against a global average of 44%.

In Norway and Australia, different premium structures are major drivers, with half of respondents ranking this in their top five reasons for choosing their insurer against the global average of 39%.

For China, good customer service is important where six out of 10 SMEs placed this in their top five which is 50% higher than the global average (40%). Brand and claim service are also important in China. This is also true in Switzerland where 54% select their insurance sure based on claim service.

Reputation and trust are the leading factors when choosing an intermediary (see figure seven).

Disruption will come if insurers delay

The interest shown in engaging with non traditional insurance distributors is a fascinating development and should be of concern to insurers everywhere.

Despite very high (92%) levels of trust in the industry, SMEs are happy to consider alternative sources.

Banks poll 34%, big tech companies like Google are the next highest at 25%, followed by price comparison websites (24%), trade associations (22%) credit unions 21%.

Just below those are online retailers like Amazon, social media platforms like Facebook or customer ratings websites, all at 20% (see figure nine).

What SMEs want from these non-traditional providers is exactly what they’ve complained they’re not getting from traditional insurers or intermediaries. They are

• 33% – risks in their business and how to best obtain protection;
• 32% – more proactive notification, improved protection against risks; and
• 31% – cover not currently available

Got to keep the customer satisfied

Clearly, opportunities exist in small business insurance for new entrants or small business service provider to drive considerable growth.

Digital disruption has proved that unmet demands will be satisfied if the incumbents don’t step up.

This should be acknowledged as a considerable threat to the status quo. Despite high levels of trust, small businesses are prepared to go elsewhere to get what they want, if it’s not provided to them.

This suggests that insurance companies need to work harder if they are to satisfy this large – and historically, under serviced – section of the market.

The fact that SMEs want more than just insurance and are prepared to pay for it should give heart to those seeking to build partnerships and invest on their own digital journey.

For more, see the full report.

Link to Full Article:: click here

Link to Source:: click here