Insurance is on the minds of Small-Medium Business (SMB) stakeholders. According to a recent National Federation of Independent Businesses (NFIB) Survey and Report, the cost and availability of insurance is one of the top five single most important problems that small businesses face.[i] Ironically, it is tied with concern over competition from large businesses. Those of us who work in the insurance industry understand that the two are closely related. In fact, because insurance impacts both profits and risk, it could be argued that insurance is the one thread that ties together all aspects of profitable growth for small businesses. Can insurers use new technologies and business models to provide SMBs with the insurance products and services they need to meet their expectations, while keeping them competitive and in the growth zone?
Majesco recently conducted its third annual SMB research survey that answered some vital questions about SMB use and demand for new insurance products and services. To examine SMBs in detail, Majesco split SMBs along two lines. Businesses were segmented by size using the number of employees. (1-9 employees, 10-99 employees and 100-499 employees.), then segmented by decision-maker age, splitting employee sizes into two groups; Millennials/GenZ and GenX/Boomers. Using these six groups, we identified trends related to insurance demand and purchasing. You can access Majesco’s complete report by downloading, “Building the Business Model for the Next Generation of Small-Medium Business Leaders.”
In last week’s blog, we looked at some of the positive numbers behind SMB growth. With a growing market, insurers should be excited about the opportunities for their own growth. But to capture this growth opportunity, insurers need to understand and prepare for new SMB businesses that have different SMB needs, expectations and demands.
What does SMB change mean to product and service offerings?
Before we can explore SMB priorities, we have to understand some of the market shifts that are influencing those priorities. The SMB market is shifting and aligning to new growth opportunities based on changing demographics, emerging technologies, new economies like the Gig and sharing economy and much more.
For example, the top 5 small business industries in 2018, according to a Guidant Financial research report, included Business Services, Food/Restaurant, Health/Beauty/Fitness, General Retail and Home Services.[ii] The report further noted a 34% increase in health, beauty, and fitness businesses such as wellness spas, salons, and gyms. This is attributed to an uptick in consumer interest regarding wellness and it is enhanced by social media engagement (e.g. Instagrammers) that are sharing knowledge and information through their own channels. Food businesses and restaurants grew at 14% and business services at 11%.
With this growth comes challenges for SMBs due to an unemployment rate that is currently at a 50-year low. Understaffing pressures can dramatically impact the purchase cycle for overworked SMB owners and executives. Insurers need to keep simplicity in mind as they build new services that make it easy to do business with them --- and in the ways they want to do business with them.
These factors influence what SMB customers need in insurance products. They want a risk product (policy) that will meet their unique needs (for their business and employees), an easy experience in purchasing and using it, and innovative services to supplement their coverage. The insights from our 2019 SMB research underscore a continued acceleration in changing behaviors and interest in using new products and service offerings.
What are SMBs buying right now?
SMB insurance purchases reflect the size and type of business as well as individuals’ roles in their companies. The smallest businesses, in general, purchase liability insurance and business owner’s insurance (BOP), but use less workers compensation, life, health or voluntary benefits. In contrast, the two largest SMB segments are more broadly covered across all insurance categories. Interestingly, regardless of SMB size, only 33% are looking at Data Breach/Cyber insurance, representing a significantly underserved market.
The smaller the business, the more responsibilities the owners have for basic business services. In addition to creating, delivering and servicing their core product or service offerings, SMB owners are also responsible for ensuring that essential support processes are working smoothly to keep the business running. These tasks might include marketing, payroll, accounting, legal, purchasing, insurance, and more. Because SMB owners have so many hats to wear, convenience and reliability are probably the most important attributes that SMB insurers must offer to win a business’ trust and continued patronage.
Insurers focused on the SMB market need to pay careful attention to which companies are providing convenience and reliability to small businesses in other ways. For example, these very attributes are what Amazon has become famous for, in addition to competitive prices and an incredibly wide variety of products from which to choose. The smallest SMBs are leveraging these more than their larger counterparts, with nearly 60% of Gen Z and Millennials and nearly 50% of Gen X and Boomers having an Amazon account. It is not difficult to imagine Amazon deciding to put together an SMB services package and/or insurance offering that would tap into this loyal customer base – posing a threat to traditional insurers.
How are SMBs “digitally-connected” right now?
Connected devices and the Internet of Things (IoT) are exploding. Business Insider recently forecasted that there will be more than 64 billion IoT devices by 2025, up from about 10 billion in 2018, and 9 billion in 2017.[iii] Connected devices are creating a digital ecosystem that is an ideal environment for insurers to develop new products and services, open new distribution channels, improve processes and enhance customer engagement.
Our report notes that most SMBs are increasing their use of connected devices and apps to monitor their buildings, with items like security systems and cameras, as well as smart devices like connected thermostats and smoke detectors – reaching up to 48%. The willingness and interest by SMBs to add these devices on their own suggests there are opportunities for insurers to offer innovative, personalized products that price and underwrite using the data, as well as preventative services based on sensor technology.
Fitness Trackers are growing substantially in popularity among medium and larger Gen Z/Millennial segments as a basis for offering employees discounts on life or health insurance – something John Hancock has leveraged for individual insurance.
Connected Vehicles that monitor employee driving behavior more than doubled in use among Gen X and Boomers in the largest SMBs – likely well-established businesses. Yet at the same time, it declined by 50% among Gen Z and Millennials in the same size businesses, possibly reflecting a shift in the types of businesses and use of shared transportation alternatives for this generation. Telematics has 40% to 60% penetration among larger commercial fleets and has been used for some time primarily for logistics and route efficiency. As with personal auto insurance, data on driver behavior offers opportunities for more personalized, accurate pricing and underwriting. Sensors can automate the claims FNOL process and provide forensic data to speed up claims settlement.
What are SMBs looking for right now?
SMBs are increasingly comfortable with new types of products and purchase models that challenge the traditional contract-based insurance policy – like on-demand.
- Purchase of on-demand insurance to cover an event or item for a specific period of time ranges between 18% and 32%.
- For the two larger SMB segments, between 19% and 28% offer health insurance to employees via an online exchange.
- Up to 38% of Gen Z and Millennial SMBs purchased business insurance online, within the 10-99 employees segment — doubling from last year.
- Nearly 35% of larger Gen Z and Millennial SMBs offer employees discounts on life or health insurance if they use fitness trackers.
- SMBs have a strong interest in value-added services – nearly 75% across all segments. They are very interested in prevention services and reduced risk/increased reward models.
- SMBs have strong interest levels of nearly 60% in social and peer-to-peer features and business models.
SMB purchase behaviors indicate that on-demand, single item/event, pay-as-you-use products, personalized pricing with their data, and digital platforms for distribution are growing needs that offer substantial growth opportunities for companies that can bring innovative products and services to this market — which Majesco is seeing with the many incumbents, greenfields and startups we are working with to bring these to market on our core and digital platforms.
All SMB segments are very interested in doing things that will reduce costs and risks, with interest levels reaching as high as 75%. However, Majesco also recorded levels of interest in services that go beyond traditional loss control services, such as offering connected devices, sensors and services that monitor buildings in order to prevent or mitigate loss from leaks and equipment failures. Even a very simple service, like providing information on insured assets (such as vehicle resale value) is valued by SMBs, and provides a powerful way for insurers to position themselves as a trusted partner with their customers.
Pricing based on new data sources
With the explosion of mobile phones and connected devices, there are many new data sources that insurers are exploring for pricing, underwriting, marketing and other applications. We asked SMB owners about buying insurance that uses some of these new, non-traditional data sources for pricing. There is a clear and consistent pattern in their levels of interest: it is lowest in the smallest SMB segment and increases for the two larger segments. Gen Z and Millennials from the two largest segments had interest levels that equaled or exceeded 60% on all of the data sources for pricing considered by our research, the highest of all the SMB segments.
Opportunities in the Midst of the Priorities
The challenge for insurers is to extrapolate the opportunities that may happen at the junctures between SMB needs, changing behaviors and trending demands. Can insurers create products that fit, while also educating a new generation of business owners and execs on why they should be concerned about improving risk transparency and lowering overall risk?
For example, if we know that SMBs are concerned about employee health premiums because they want to provide competitive benefits, can we help them incorporate fitness tracker data into their life and health benefit programs? If we know that SMB owners are also interested in possible resource sharing arrangements, can insurers use telematics and sensors to assist with setting up joint warehouse space, or protective cover that flexes to meet new needs? We know that restaurants and beauty/fitness businesses are on the rise. Can we develop business models that are specifically geared to helping them with their unique risk and business issues? How can digital models improve the insurance purchase and monitoring experiences for thousands of retail SMBs? How can insurers cast themselves as true partners in the SMB experience?
If insurers are to continue to be customer-focused, they must continually ask the questions that will help them to understand SMB priorities and use them to serve SMBs with real innovation. With no innovation strategy, an insurer risks failing to capture these new markets and growth opportunities. Without next-generation platform solutions – like Majesco P&C Core Suite, Majesco L&A and Group Core Suite and Majesco Digital1st Insurance platforms, which can rapidly and cost-effectively standup a new, innovative products in less than 12 weeks – insurers will not capture the window of opportunity.
SMB expectations and behaviors are rapidly evolving, demanding a continuous flow of new products, services and business models that adapt to these changes. Likewise, insurers must rapidly evolve to meet these demanding and shifting market trends, needs and expectations. Only a strategy of continuous innovation will meet SMB demands – by the insurer and their partners who enable them to deliver on the possible.
For a complete picture of current SMB insights as insurers look toward the future, be sure to download Building the Business Model for the Next Generation of Small-Medium Business Leaders today. Majesco is actively working with many incumbent and startup insurers to deliver on the possible – leveraging our insights to shape our forward-thinking view and solutions for a new digital marketplace unfolding in insurance.
[ii] 2019 Small Business Trends, Guidant Financial and LendingClub, https://www.guidantfinancial.com/small-business-trends/
[iii] Newman, Peter, “IoT Report: How Internet of Things technology growth is reaching mainstream companies and consumers,” Business Insider, January 28, 2019, https://www.businessinsider.com/internet-of-things-report