Library: McKinsey – Small and medium-size commercial insurance: The big opportunity
Executive summary :
Major insurers and new, capital-rich insurtechs have already recognised the potential in serving small and medium-size enterprises (SMEs) and have begun to upgrade their offerings and invest in digital-sales capabilities. Likewise, commercial customers have learned from the private-customer segment that complex insurance can be made simple and are raising their expectations of speed and service accordingly.
The draws of insuring SMEs are clear: new dynamic forces in commercial insurance induced by the COVID-19 pandemic are giving providers a unique chance to expand their portfolios further into this segment. Many SMEs are underinsured, especially smaller and newer businesses. And commercial customers who have been loyal to one provider are more willing to switch than ever. In fact, in a 2020 McKinsey survey of SMEs in Germany, only about one-third of respondents said they were completely satisfied with their current insurance coverage.
Opportunities abound
Fortunately, there is a great deal of flexibility when it comes to providing the simplified products and processes that SMEs are calling for. Many existing products, for example, are far too complex to meet the needs of smaller firms. Automation, standardisation, and simple segment specific tailoring would not only boost customer satisfaction but also visibly improve efficiency. With the right strategy, the appropriate skills, and a suitable business model, insurers can offer SMEs an attractive portfolio that better meets their needs. In this article, we explore examples from Germany, including a 2020 survey of 1,400 German SMEs, that can prove instructive for global insurers looking to make SMEs a priority in their growth strategies.
The SME segment represents billions in untapped premiums SMEs are the bedrock of most global economies, but the consequences of the COVID-19 crisis are creating waves in the sector and, in many cases, closing doors. In some countries, SMEs remain afloat thanks to generous financial assistance. It is unclear, however, how many of those companies will file for insolvency in the coming months and years, or how many business concepts will never come to fruition because of the strain of COVID-19 on potential entrepreneurs. Whatever the outcome, this changing SME landscape provides impetus and gives insurers new opportunities to expand their portfolios and tailor them to SMEs.
Huge untapped market
Take the German market, where SMEs (up to €250 million in revenue) have long been a core segment for composite insurers; in 2020, they accounted for 60 to 65 percent of all commercial and industrial premiums. The future holds even more potential: German commercial insurance has enjoyed an average annual growth rate of 2.9 percent. And while just 7 percent of medium-size enterprises reported gaps in their insurance coverage, one third of the smallest firms identified outstanding insurance needs. According to McKinsey estimates, the untapped market potential (in terms of annual premiums) of underinsured small enterprises and micro enterprises in Germany alone could be up to €2 billion. That’s the equivalent of one-tenth of that market’s total premiums today.
Insurers’ SME options are broad and varied
So how can insurers capture these billions in potential? There are several key options that are effective in Germany and could prove instructive for insurers serving similar global markets across Europe, North America, and Asia.
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