Small business doesn’t mean small-in-size when it comes to the commercial insurance market.
Direct written premiums ranged between $99 billion and $103 billion in 2013, up from $91 billion in 2011, according to McKinsey & Co. “Small business insurance accounts for more than one-third of the U.S. commercial lines insurance market and is the fastest growing commercial segment when the economy is expanding,” according to McKinsey’s “Small Commercial Insurance” report.
Small commercial is also a very fragmented segment of the property/casualty insurance market, ripe for expansion by carriers and agent partners dedicated to the space. “The small commercial insurance market is divided among many carriers, with the largest accounting for only 6% of total premiums,” according to the McKinsey report. “Market share is particularly fragmented at the smaller end of the market (businesses with one to 29 employees). However, the largest carriers are moving quickly to secure their positions.”
Jeff Kroeger, executive vice president of strategy and development at Insureon, an online independent marketplace for small businesses, says carriers and independent agents have an “incredible” opportunity to gain market share in the small commercial space.
Kroeger, who joined Insureon in December 2018 from The Hartford, said the carrier, which is the largest writer of small commercial in the industry that’s not a direct writer. “So, if the market is roughly $100 billion in size, then just look at the opportunity from a market share perspective.” That’s why this space is so attractive, Kroeger says.
As the small commercial market shows increasing promise for growth, it also continues to reinvent how it operates, experts say. To find success in this space, agents and their carrier partners need to keep up with what small business owners want most.
Small businesses today are shopping in different ways and will pursue carriers that adapt to their needs, Brian Smith, The Hartford’s vice president, small commercial product management, told Insurance Journal. He believes the small business market will continue to grow throughout 2020 and beyond and the needs of small business customers will continue to evolve along with that growth.
“In the end, as a carrier or an agent you have to know the small business owner better than anybody and you have to offer them the products that fit them and the service that suits them,” Smith said.
One area of the small business market gaining attention is the micro small business world — small commercial accounts generally $2,500 or less in premium, says Amir Farid, chief operating officer of small business, at Westfield Insurance.
Westfield sees the micro small business market delivering bigger opportunity going forward, he says. The micro market, which Farid says has been underserved, has consistently accounted for 55% or above of the small business market firms.
While the small business insurance market share has remained fairly consistent among insurers serving the space, Farid says that’s changing. Farid says small business premium growth outpaces the overall commercial market and he believes that trend will continue to expand.
“Now you are starting to see a lot of movement where large insurers are being drawn to the small business market in response to the competitive pressures that they are feeling in the more traditional segments,” he said.
Along with increased competition, Farid sees a small commercial insurance market that’s evolving.
“There is a lot of chaos in the fragmented small business market,” he said. “We believe [it] presents an opportunity for Westfield to provide a very simplified, educational, intuitive and digital customer experience.”
To gain market share, especially from direct and captive carrier channels, independent agency carriers need to take the friction out of the transaction, he says.
Insureon’s Kroeger says the small business market has experienced incredible shifts and transformation when it comes to risk classification.
“The gig economy is changing the traditional way of thinking about, what is a retailer these days? How many people actually have a physical location to insure versus [selling products or services] online, and how do you actually account for that to insure?” he said. “For the insurers, and it’s also the obligation of the distributor, but for the insurer to get the classification right is to prove the actuary’s right and the model’s right as far as profitability goes.”
Jim Williamson, division president, Chubb Small Business, agrees.
“The small business insurance market has evolved quickly over the last several years,” Williamson told Insurance Journal. Improved access to data, technology, and an expanding small business economy are key drivers of the evolution, attracting many carriers to the small commercial segment while also creating opportunities for agencies to grow their firms, Williamson added.
In his opinion, “high touch models,” or those markets that cannot satisfy all the growing product needs of small businesses, such as cyber, D&O, and professional liability, “are struggling to gain adoption.”
And refreshed versions of older products are not the answer that small businesses need, he said.
“To manage this, independent agents need to partner with a carrier who can provide solutions for their local markets, provide cost-efficient service options through a carrier service center, and leverage data to reduce the number of questions needed to obtain a quote,” Williamson says.
But it’s more than just efficiency in quoting, Kroeger said. Small business owners, like everyday consumers, want to do more themselves.
“This is this sneaky thing that’s happening in the small business space, and where the nationals and some of the forward-thinking super regionals will advance themselves,” according to Kroeger.
“The product set in small commercial is great, a BOP,” he said. Carriers can spend a lot of money and time creating suites of endorsements, but it’s really about what’s wrapped around the product, adding value for the customer and small business, he said.
Small businesses want what everyone else wants — service. And, Kroeger says, small businesses want to be able to self-service 24/7.
For example, consider the small business owner who plows snow. “Let’s say it snowed in the middle of the night and I need to plow driveways at a mall. I need a certificate (of insurance). Well, my insurance agency’s closed, my carrier’s service center’s closed. What am I to do in that situation? Well, if I have an app, or even if I can use a desktop, to get online and generate that certificate, I’m pretty sure I will want to stay with that carrier, even if there’s a small premium increase.” That digital capability gives that insurance market a competitive edge, according to Kroeger. “The more that you can service the policy online, the better.”
That’s why the small business insurance segment will continue to see investments to the customer experience, according to Williamson. He predicts heightened investments in:
- Digital capabilities including third-party data and more sophisticated pricing models;
- Continued improvements in customer experience, including apps and self-service tools; and
- Customizable coverage options allowing the agent or customer to choose certain coverages and limits based on a small business’ unique needs.
Enhanced digital capabilities around service is not the only tech-driven area receiving a boost for small business insurance. How agents and carriers reach potential customers is also changing.
“Digital marketing is the future. It’s very different than it has been in the past,” says Cathy Allocco, Nationwide’s vice president of small commercial sales and distribution.
Allocco says Nationwide partners with agents through a co-op program that allows agents to really lead with the agency’s brand and then just highlight their partnership with Nationwide. “But I think the bigger issue is that consumers and agencies really want value added services,” she said.
“Most small businesses want to do easy, simple transactions on their time, when they have the time to do it. But when it comes to the more complex things that might impact either their rate or their coverages, that’s when they really want the agency,” she said.
Technology is driving the small commercial space, but it’s not just about technology. “It’s about expertise,” Allocco says. “What are the needs of small business customers? What are their demands, where are their gaps?”
Small business consumers want to know that their agents and carriers understand their business. “The agency needs to be able to show the customer that they understand exactly what they do and exactly what their needs are,” Allocco added.
Like Allocco, Chubb’s Williamson also believes marketing to small businesses is all about demonstrating that the agency and carrier understand their unique business needs and how to protect them in the event of a loss. “A small business owner’s primary focus is their business, not their insurance. They expect their agent and carrier to provide them with an insurance solution that will protect them, their employees and, effectively, their livelihood,” he said.
To help agencies target businesses in their communities, Chubb uses data and analytics and works with agencies to develop campaigns, partners with local associations, and identifies growth opportunities.
The Hartford’s Smith says delivering on promises to agents and customers is critical, too. “Trust is crucial and it’s the best brand association you can have,” he said. “The Hartford is a trusted brand and the independent agents are trusted in their communities. After that, nothing beats word of mouth for our agents.”
Small business owners trust other small business owners, and they often ask each other where to go for insurance, Smith said.
Providing useful content helps, too. “It can help quite a bit to have access to content that helps small business owners actually run their small businesses.” The Hartford makes available information helpful to small business owners through its Small Biz Ahead blog. “We make that content available for our agents to share on their social properties,” he said. “When you can demonstrate that you want to help small business owners be successful, it helps them see you as a trusted advisor, as a consultant.”
Williamson says there is always room for improvement when it comes to carrier-agency coordination on marketing to small businesses. “Especially in analytics to identify the best small business targets and developing effective marketing campaigns, whether that is traditional direct mail, digital, or a combination,” he said.
From a macroeconomic standpoint, no one can predict the future stability of the small business market, but going forward, those looking to find success will need to adapt to change, Insureon’s Kroeger said.
“The emerging workforce does not look like my folks who just retired,” he said. “The BOP was created in the ’80s and it’s probably due for an update. … There’s just going to be sweeping changes within the space because again you have this $100 billion addressable market.”
Middle market never makes any company money, he added. “I don’t care what anyone says. It just sounds really good because it’s got a big premium. But if you want a real annuity and profit center, it is in small [commercial] and I think you’re going to have more and more entrance into the space.”
That alone will be a challenge.
“It’s a significant challenge for brokers because you’re going to have so many companies with so many great offerings, but you still only get paid on your direct effective rate and your contingent commission. How do you actually deliver all of these great products, but still maximize your own profit center? It will be a challenge for brokers. At least brokers who care.”
“These days you have to meet your customers where they are,” said The Hartford’s Smith. “As a carrier, there are multiple ways that customers want to have access to your product.” Even so, Smith pointed out that a recent survey by The Hartford found that 73% of small business owners stated that they shop with an agent or broker. “That local expertise is a requirement for most small businesses,” he said. “You have to do it all to position your agents to be successful.”
Agents will continue to play a “major” role in Westfield’s small business strategy, Farid said.
“Our strategy is to unify the experience and remove the friction from the transaction,” he said. “But … we are [also] enabling this capability that allows us as a carrier to partner with our agents so we can collectively unlock the potential in the marketplace,” he said.
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