Why SME insurance is such an underserved market?
SMEs (small and medium-sized enterprises) account for 99.9% of the business population (5.6 million businesses). It’s fair to say they’re the backbone of the economy. Yet when it comes to providing them with insurance, they are a hugely underserved market, a problem that has been exacerbated by the Covid19 pandemic.
According to a recent report by the Federation of Small Businesses (FSB) SMEs are facing an uphill battle to secure insurance coverage and handle rising premiums. Its survey uncovered that 16% of small businesses have experienced a premium increase of more than 25% since 2021, while around one quarter (24%) said that this has caused them to assess and/or reduce expenditures. Over half (52%) also reported increased premium costs said that the rise is 11% or greater.
The problem is that many insurers and brokers find it difficult to serve smaller companies. Indeed, what makes the SME market vibrant is also what makes it complicated: they come in all sizes, operate in thousands of different industries, and often have highly complex needs. The way SME insurance is currently delivered then becomes a race to the bottom in terms of price, partly because SMEs struggle to understand the intricacies of different policies and the benefits of more expensive, but also more comprehensive cover.
Combine this with the impact of Covid-19 and a hard market, and this often leads to SMEs being underinsured against the risks they face. In fact, according to Government research around 80% of SMEs are underinsured. Many small businesses lack the time and expertise to assess their insurance needs and underestimate the cover they require. Simply put, not every business owner has the time and knowledge to research all of the insurance policies that they will need.
Why is it so hard to serve SMEs?
The problem lies in the fact that the SME market is not homogenous. There are around 4.3 million SMEs in the UK, every one of them different to the other. As a result, underwriting these companies at scale is a difficult task because insurers aren’t always able to develop a clear picture of how each SME operates.
For example, most of the information that insurers need, such as valuations, revenue levels and profit margins, are filed only once or twice a year. This leaves insurance companies little information to go on when determining what level of coverage is required.
Lack of data can be the biggest hurdle for effective insurance coverage of SMEs.
“It’s about greater and more effective utilisation of data to inform pricing and improve customer experience – making it more effective and human at the same time,” she said. “We are looking at ways to use data enrichment so we don’t have to ask so many questions of customers which can mean fewer tripwires. It’s a fine balance though as SMEs still want that interaction and human touch.” Helen Bryant, Director SME and Corporate Partners, Allianz UK
Transformative Customer Lifecycle Intelligence
So how can the insurance sector improve the way it interacts with SMEs? It’s clear that the SME market offers significant growth potential for the insurance sector, but progress is being stifled by an inability to meet such a huge range of bespoke requirements at scale. Despite technological advances, inefficient and outdated processes are still being used.
The answer lies in adopting transformative customer lifecycle intelligence technologies that not only help insurers and brokers reach small business clients but also use automation and data science to develop a better understanding of the nature of each business and how it operates.
The more an insurer understands a business, the better it can underwrite an insurance policy for them. In the past, it may have been difficult for insurers to truly see all of the activities a business undertakes or the particular risks it faces. But by using data sources such as Companies House, insurers can quickly gain insight into how it operates, how it is structured and what its credit and financial profiles look like.
With better insights into a company’s financial position, as well as its growth trajectory and business activities, insurers are better able to tailor policies around their specific needs. Moreover, the use of CLI technologies allows this to happen in real-time and makes it scalable across vast numbers of SMEs with variable needs.
The challenge in serving SMEs up until now was that they needed a personal service but often could not afford it. Through the use of automation and data science, they can create efficiencies that streamline underwriting and provide small companies with the service they need at the right price.
When it comes to serving SME’s FullCircl has brokers covered
FullCircl is helping brokers sharpen their focus on the companies that fit their specialism or verticals. Part of that is helping them get the right data on small business customers.
We recently partnered with Codat the universal API for small business data, to provide seamless integrations to the accounting platforms used by 84% of UK SMEs. Combining this data with FullCircl’s Business Information Graph (B.I.G™), Engage monitoring and business development applications, and Connect rules-based automation engine means that brokers get an instant real-time 360° customer view.
Find out more by downloading our Insurance Broker Toolkit. Get commentary on the biggest issues impacting the broking industry, market research, and free guides on handling underinsurance and the hard market.
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