Insurers: Update value propositions for today's small businesses
Small business owners now want customized, adjustable policies and enhanced risk-management services.
Many small-business insurance buyers gained an enhanced awareness of coverage gaps during the pandemic while also citing greater trust in the industry, a recent Deloitte Global survey revealed.
However, respondents also expressed a desire for more customized, adjustable policies and enhanced risk management services, and most are open to getting coverage through alternative providers.
Deloitte’s survey of 500 U.S. buyers indicated numerous opportunities to improve retention, expand market share and grow the overall small-business insurance pie. But to capitalize on these opportunities, legacy insurers may have to reassess their value proposition and traditional business model to align with evolving buyer preferences — especially with emerging competition from insurtechs and new players outside the industry entering the market.
Most buyers surveyed, after examining their policies for pandemic-related coverage, became aware they might have insufficient limits even if claims had nothing to do with COVID-19. Carriers and their intermediaries could therefore increase sales by simply upselling existing customers. This step alone could satisfy one-third of respondents indicating a willingness to raise coverage limits so they won’t have to worry about being underinsured in the future.
However, while selling more of the same insurance could provide a temporary bump in premium volume, that by itself isn’t likely to sustain retention rates or fuel growth over the long run. Instead, insurers should also be looking to offer small businesses additional coverages, since the survey found many respondents worried about being exposed to new types of losses as the general threat landscape expands.
For example, respondents showed the most concern about rising cyber risks in an increasingly digital economy, and as a result many are open to buying stand-alone cyber insurance coverage. Pandemic-related lockdowns also spurred greater interest in new forms of business interruption coverage, along with “work from home” policies covering business-related liabilities, equipment, worker injuries, and data security for remote employees.
At the same time, respondents cited a desire for greater flexibility and more options in coverage and pricing. Given the uncertain nature of business conditions during and perhaps long after the pandemic, nearly two-thirds said they should be able to alter coverage levels and premium charges throughout the year, rather than only during an annual renewal period. The top reasons for seeking such flexibility were not cost-focused, as only about one in five said they were simply looking “to pay less.”
Instead, most respondents were more interested in optimizing their coverage. (See figure 1 below.)
One example of increased flexibility is being able to turn off coverage during down periods —such as pay-as-you-go workers’ compensation policies, which could be adjusted when small businesses lay off staff (as was done frequently due to COVID-19-related slowdowns or shutdowns) or even while downsizing during a normal seasonal lull. Adding parametric triggers is another option, streamlining the claims process by automatically paying out when a specific severity level is reached during a flood, windstorm, or some other insured event.
Trust levels rise, but customer loyalty may be fleeting.
Trust levels in insurers actually rose during the pandemic despite media reports of disputes over COVID-related property and business interruption claims, denied under exclusions for infectious diseases or lack of physical damage. Respondents cited premium reductions provided while businesses had to close, advice offered on coping with COVID-19’s implications (such as how to reopen safely), as well as accelerated payments for covered claims (which were likely much appreciated by owners seeing revenues plummet or stop altogether during pandemic-prompted shutdowns).
However, the survey also exposed several possible vulnerabilities for legacy carriers. For example, 85% of respondents said they would be willing to buy insurance from someone other than their usual agent or broker if given the opportunity — including from banks, trade associations and insurtechs as well as manufacturers, online retailers, social media firms and tech companies. This would seem to indicate a general dissatisfaction with the status quo in distribution, which should prompt a reexamination of the value being offered by insurers, as well as by their agents and brokers.
In addition, Deloitte’s survey indicated that many respondents are interested in having insurers supplement policies by helping them prevent losses from happening in the first place or at least minimizing their impact. That should create opportunities for insurers and distributors alike to differentiate by offering customized, holistic risk management support rather than merely selling commoditized risk-transfer policies that only come into play after a loss has occurred.
Yet that may be easier said than done, given the bottom-line realities for a segment generating large aggregate amounts of revenue but relatively low individual policyholder premiums for carriers and commissions for intermediaries.
What options might insurers have to provide value-added services to small-business customers in an economically viable way? I’ll offer some possibilities in my June article.
(For more details about the survey’s findings and analysis of U.S. results, please download Deloitte’s full research report on “How to Reinvent the Small-Business Insurance Market for a Digital Economy.”)
Former NU Property & Casualty Editor in Chief Sam J. Friedman (samfriedman@deloitte.com) is insurance research leader at the Deloitte Center for Financial Services. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These views are his own.
This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte’s global network of member firms.
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