American entrepreneurship is alive, well and growing! There are countless rags to riches stories of how people with a good idea, boundless energy and infectious optimism have made it big, or simply made a rewarding livelihood and legacy for themselves and their families. Today’s FinTech and InsurTech movements are testament to this in spades! And while most national news stories focus on big business, and national cultural events like Black Friday tend to overshadow small businesses, there’s a growing movement and trend aimed at embracing and supporting these vital contributors to our communities and economy.
Insurance and other services are vital components for the vitality, risk protection and longevity of small businesses. The behind-the-scenes work in managing and running a small business can be complex and time consuming. Suppliers who are easy to do business with have an advantage to capture and retain a larger percentage of the small business market. Unfortunately, new research by Majesco, The Rise of the Small-Medium Business Insurance Customer: Shifting Views and Expectations…Is Your Business Ready for Them?, reveals that the insurance industry (as compared to other industries with which small businesses work) is “not easy to do business with”, creating an opening for new insurance start-ups within InsurTech.
The Rise of Small Businesses and the Shop Small Movement
On November 26, 2016, the 7th annual Small Business Saturday event sponsored by American Express and the National Federation of Independent Businesses (NFIB) was held to encourage shopping and patronage of local small business merchants – in the wake of the preceding day’s big box store Black Friday shopping hysteria. According to research done by these organizations after last year’s Small Business Saturday, more than 95 million consumers shopped at small retailer businesses, spending $16.2 billion, up 8% from 2014. Interestingly, the event garnered support from many corporate sponsors – many of which count small businesses as their customers.
Millennials show a strong trend of supporting local small businesses, indicating they want to be “connected” to the products and businesses they buy from. A study by Edelman Digital showed that 40% of Millennials preferred to buy goods and services from local small business retailers, even if doing so costs more.
While Small Business Saturday and Buy Local have a decidedly retail focus to them, the significant importance of all types of small businesses cannot be overlooked. The U.S. Census Bureau’s latest figures from 2014 showed that businesses with less than 10 employees make up nearly 80% of all firms in the U.S. This is a huge market with enormous needs for products and services, including insurance to keep them running, protected and competitive.
Where’s the Love?
The Rise of the Small-Medium Business Customer research sought to understand small-medium business decision makers’ perceptions and views of those who support and supply them, including insurance. Four hundred business owners were surveyed using the Census Bureau’s definitions of very small to medium-sized businesses (SMBs), which we grouped into three segments (1-9 employees, 10-99 employees and 100-499 employees). The survey findings provided insights to evaluate insurance industry-held perceptions on SMB customer views of insurance as compared to other businesses across the research, purchase, renewal and servicing aspects.
The results were enlightening. Interestingly, fair price was more important than lowest price across all of the business segments. However, the ability to create a custom product from a range of options is more important than both lowest price and the ability to pick from a set of “pre-packaged” options, reflecting the increasing demand for personalization rather than price-driven mass production of insurance products.
Even more revealing were the results among the smallest (1-9 employees) of businesses. The survey highlights that the traditional insurance business model has not been built with the capability to adequately meet the unique needs and expectations of SMBs, nor effectively scale well to this segment of the SMB market. It has, instead, pursued a “one size fits all” approach. The consequences of this approach are that this segment of smallest SMBs (though the largest of all business segments) is disengaged and disinterested in insurance, sees little value in insurance, and considers insurance a necessary commodity or “necessary evil” required for their businesses.
All three segments of SMBs, regardless of size, did not rate insurance as being particularly easy to do business with, in terms of researching, buying and servicing products compared to the different types of businesses we asked about in the survey. But among the 1-9 employee segment, P&C, life and employee benefits ranked in the bottom half on all three of these aspects.
Much more telling however, this segment gave the lowest Net Promoter Scores (NPS) to insurance, showing a gap of up to 60 points between insurance and the top business. (Net Promoter Scores measure likelihood of recommendation.)
Adding fuel to the fire, they were the least likely to say insurance was responsive, innovative, had easy to understand products, and provided good value for the money. This is not a pretty picture for traditional insurance — but a great opportunity and opening for new, innovative Greenfields and start-ups to challenge the status quo.
Going Small Requires Big Thinking
Increasingly, small business customers are demanding a personalized and digital experience, representing the shift from mass standardization of insurance to the micro-personalization of insurance, requiring broader data and sophisticated analytics to truly understand and respond to small businesses as well as a digital experience via a multi-channel approach. The rapid emergence of digital direct-to-SMB insurers and MGAs such as Assurestart (now part of Homesite / American Family), Cover Your Business.Com (a Berkshire Hathaway company), Hiscox, Insureon, Bolt, Slice and others are leveraging these ideas to reach the small business market. They are providing innovative products, streamlined and simple processes, and digitally engaging capabilities that are extending the direct business model to SMB customers. In addition, aggregators, comparison sites or new distribution channels like Ask Kodiak, help small businesses find the insurance products they need more easily.
Our research identified gaps between many industry-held perceptions and customer-defined realities, which expose an insurance industry steeped in tradition — its business models, business processes, channels and products that are difficult to find, buy and service — and opens the door to new competitors. We have seen this play out before with personal lines over the last 10-15 years. The difference is that the pace of change and adoption of a digital play is unfolding more rapidly this time in commercial insurance, demanding that insurers respond, because the window of opportunity is smaller.
Each company serving the SMB market must ask themselves strategic questions, such as: “How do we bridge between the past, today and the future? How do we keep current customers loyal and engaged as we redefine our business to meet the needs of the vastly underserved and growing small business market? How do we get on par with other digital businesses that are setting new expectations for the SMB market? ” If traditional insurers don’t ask these questions and proactively respond, others will – taking current and future market share.
Small businesses today are at the forefront of building new, technology enabled, digitally first, innovative businesses that operate in a multi-channel world … like what we are seeing in InsurTech. They are increasingly led by Millennials who have “grown up” digital and as a result, seek fresh alternatives to age-old formulas … especially for insurance needs and offerings, helping them effectively meet their unique needs and expectations. It’s time for the insurance industry to translate the good will from the Buy Local and Shop Small movements into big thinking and innovative solutions.
A new generation of small business insurance buyers with new needs and expectations create both a challenge and an opportunity. There is no clear path or destination. The time for plans, preparation, and execution is now — recognizing that the SMB customer is in control. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business that aligns to a rapidly growing, Millennial owned, innovative SMB marketplace. Insurance companies must stop talking about the opportunities and being digital, and start doing something about it by using the disruption and change as a catalyst for “real change.”