Business insurance is getting interesting

We're a bit of a cheerleader for growth and innovation in insurance, helping a wide mix of insurtechs, MGAs and brokers to digitise and thrive. Taking stock, here are our five reasons why things might be getting interesting in micro-business insurance.

1. Boom trades and innovation

96% of businesses are small. Very small. Less than 10 staff.

At last count micro-businesses numbered 5.6 million in the UK, most of them buying their insurance from well-known providers and via aggregators.

But changes are afoot.

Chatting last week to Louis Willison, Head of Brand & Customer Proposition at Towergate Insurance SME, he talks about a new wave of 'boom trades'.

"A few years back it was micro-breweries, eBay shops and fitness instructors, now it's Amazon shops and the Deliveroo generation taking centre stage. Also more home-based work initiatives and going self-employed”.

Louis' observation is that search volumes for business insurance terms are broadly static - so no evidence of market growth as such - but the complexion of online searches has changed with a clear emergence of searches for gig economy related covers.

It's here that there are opportunities for niche insurance propositions; flexible, tech-powered insurance services from small, agile players and enterprising scheme providers.

Zega and Collective Benefits are good examples. Also insurtechs like Coverly and Digital Risks are carving out fresh alternatives to the big providers.

We suspect there's more enterprise to follow - watch this space.

2. Fortune favours the brave

The pandemic will have a nasty economic sting in its tail.

And when it comes to insurance, I fear customer trust will be damaged by disputes around business continuity claims. Many small business owners will emerge from COVID feeling cynical about providers which will impact renewals and create more caution at purchase.

But with problems come opportunities.

Brokers rejoice. The advised sale might seem more appealing again; the reassurance of someone on your side who understands your exposure, who can anticipate issues you can't.

And broader than this, the history of recession suggests fortune favours the brave.

The 2008 recession led to the creation of 300,000 new home-based businesses, with redundancies and unemployment leading people to step out on their own.

Tech was an enabling factor back then. 10+ years on it will be an even bigger factor again.

A spike of new home-based start-ups is on the cards and could be a commercial opportunity for enterprising insurance providers - perhaps an opportunity for service innovation.

And venture capital should still be available for the bigger play start-ups.

The number of deals, angels and investors in the years immediately after the 2008 crisis actually increased. Admittedly, the deals were smaller, but this forced greater emphasis on minimum viable products - no bad thing in innovation. Just look back at the start-ups that set up in 2008/9. Airbnb, Uber, Slack.

Recession doesn't hold back innovation and enterprise.

Insurance can get involved and flourish.

3. Money left on the table - What to do

Year on year, the insurance industry leaves money on the table.

Estimates suggest around half of UK businesses are underinsured, roughly £1bn in premiums are going uncollected every year, just for SMEs.

Not too long ago, an RSA broker survey identified that while most SMEs do identify new risks to their business, less than 20% alter their insurance cover to match.

Why the inertia? Easier to renew than review? Cost? Ignorance? Probably all. Research we've done at Pancentric suggests ignorance definitely plays a part. Many business owners are unclear what insurance they need...which suggests there's ROI in education.

Insurers that offer helpful guidance to business owners could do well. We might see interesting developments in this space.

AXA does a decent job with their business insurance wizard. We need more of these.

Or maybe a blended proposition is the answer? "We're exploring a new digital broker concept as an alternative to insurtech", says Louis Willison of Towergate; "A slick mix of wizards, self-serve and 'Zoom' an adviser if you need more guidance."

Whatever the form, more education is a win-win for everyone.

Better coverage for the customer, less money left on the table.

4. Digitise those schemes

This one's short and sweet.

By 2018, over 72% of brokers were trading in schemes, but only 33% of schemes were trading online. I suspect there are many business insurance schemes out there that could realise far more scale by going digital, growing revenues and vastly improving margins.

And if there was ever a time to digitise - its now. Next point.

5. Better tech is unlocking potential

Insurance digitisation has been a long and winding road.

The journey to where we are now is littered with painful, expensive implementations and much stress. But clouds are parting, blue skies emerging.

If there was ever a time to go digital with your insurance ambitions it is now, with more software vendor choice than ever and more standards emerging.

Oxbow Partners says software vendor choice has increased significantly over the last 3 or 4 years.
Take a look at Oxbow's new vendor directory launching soon. Altus also has a directory on the way. And there's Celent with their Vendormatch service. Comparison services like these are helping buyers make more structured and informed decisions - a good thing.

Says Greg Brown, Partner at Oxbow,

"While there has been a growth in vendor choice, its also worth noting that it can take many years for a software vendor to build up functionality. Some of the new players are probably quite light on capability."

Definitely take on board Greg's point; you need a vendor that has sufficient operational depth and a credible roadmap - but beware of paying through the nose for over-spec'd platforms. If you only need 20% of the functionality, only pay for 20%. Go with a flexible, open architecture and hook up with a partner that can help you grow the tech in response to market demands and the needs of your proposition - not the other way round.

There are swathes of under-serviced, under-insured prospects out there and we're about to enter a post-pandemic world of new dynamics and opportunities.

Embrace and be ambitious.