How many times have you looked at the insurance of a small or medium company and felt that something was not quite right? That the business was being insured for what the owner wanted, rather than what it really needed?
If that happens often, almost certainly you are not alone.
Estimates show that about 70% of SMEs in the UK are under-insured. For business owners this represents a huge risk, for themselves and for their workforce. Another 32% of SMEs do not have any insurance at all.
Figures quoted by BIBA suggest nearly one in five businesses suffer a major disruption every year. Further research suggests 80% of businesses affected by a major incident close down within 18 months, and 90% of those who lose data or suffer a data breach are forced to close down within two years.
Small enterprises in particular suffer severe financial loss if closures prevent or restrict trading over a period of weeks or even months.
Considering that 96% of UK companies are micro-businesses (with zero to nine employees) and these represent 5.4 million businesses out of the UK’s total 5.7 million private sector businesses, those numbers merit attention. Why is that happening?
A big part of the job for any SME and small commercial insurance provider is educating the customer so they know what they want. First and foremost, the business owner may not know enough about insurance and what they need, in order to avoid going bankrupt in case they face a disaster or unforeseen incident.
This aspect of creating a better relationship for selling SME insurance cover was a key topic discussed at our recent LexisNexis Risk Solutions roundtable meeting ‘SMEs–Insuring a Small to Medium Sized Enterprise’, organised in association with Modern Insurance magazine.
There was general agreement in the meeting that SME owners are often not buying the right product, for several reasons.
One example is public liability insurance for tradespeople, which covers them in case of accidental damage or injury to a customer or a member of the public in connection with their work. Typically they purchase an off-the-shelf policy online which provides them with ‘a piece of paper’ to gain access to the place of work. The tradesman may suddenly find they are required to do more dangerous heat work, not scoped out in the policy, they’re walking into an environment they didn’t expect, or the person working next to them may not have the same limit of cover.
Insurers and brokers working better together with data
Poor collaboration between brokers and insurers does not help customers either. Each insurance company collects and analyzes their data, which is sometimes inconsistent with that of competitors, with potential for confusion, rather than assurance about risks. The challenge for managing data is compounded by the fact that SMEs come in so many shapes and sizes, facing many types of risks: property-related, perils-related, people-related or even cyber-related.
For instance, it is not unusual for brokers to consult insurance companies about a specific place and find out that, for one insurer flood is a risk, while for another, it is not. That may leave the customer under-insured or not insured at all, depending on the final cost. Undoubtedly there is room for a better exchange of data and better collaboration.
As one of our roundtable speakers commented: “There is room for collaboration, especially in order to avoid big predictable damages….A good customer outcome can also be around using more sophisticated technology. We have to warn them, for instance, when a big storm is coming in, and it will hit their area. Our models can tell us if the nearby river will flood, or if rioting and property damage may spread to a given area. Let’s use social media, get in touch with those clients and get them to take preventative action. We can even warn if a property is going to flood to a given depth, the customer can remove expensive equipment or their stock to an upper floor, whatever it is. And then get your claims people there on the ground.”
Our LexisNexis Map View is one of the visualisation or mapping services that can help insurers in their goals of improving disaster response and alerts that can be triggered by any business rules or parameters, moving towards near real-time and dynamic pricing of policies.
Having said that, for the insurance broker community, responsible for around 40% of commercial insurance policies sold in the UK, direct contact between the insurer and the broker’s customer can be a slightly emotive subject. Nevertheless the service model is changing. There is growing standardisation and ‘commoditization’ at the bottom end,with smaller landlord or tradesman policies being sold online.
There is an opportunity for insurers to advise their brokers about the risks on our books, and to make more information available. The talks at our roundtable show they feel very positive about that. It all comes down to clear roles and relationships for the data, and what works in the interests of the customer.
As one leading broker commented: “Insurers have got more capabilities than we have as brokers, especially the independent and provincial brokers. If there is a major event, and we have to get the information out straight away, I have no problem with that…..The insurer has helped my customer.”
In fact, beyond not sharing the data with brokers and consumers, insurers are not extracting full value from the information available. Our LexisNexis Risk Solutions survey* showed that nearly 30% of commercial insurers are not using any type of data related to the businesses they serve or their areas of activity. The sector could certainly be served with better data. In addition, because they are not using it, they are much less likely to understand the predictive value of the data.
Bigger insurers have been using data effectively, and we observe this is now trickling down into the smaller SME end of the market. Soon not only will an insurance provider get access to a property flood rate, for instance, but they will also get the claims clustering data from neighbouring claims on the neighbouring buildings.
The wealth of information will just keep growing and that will just lead to more digitization and pricing rules getting cleverer and cleverer.
The benefits of better data for SME insurance, and of the digitization that enables its use, are widely understood and widely welcomed. The only possible regulatory consideration occurs when too many red flags for a business, too many risks, could in some isolated cases yield unaffordable premiums or lack of access to cover.
One of speakers commented on this: “I get the sophistication side and greater granularity of pricing….But we’ve got to have that end-view in mind as well. Whilst it is good to have that granular sophistication and to go into detail, if we cannot insure the people in the first place, then why are we doing it?”
Certainly with availability of data, there’s going to be greater visibility of pockets of risk and a greater range of choices on risk selection.
How far will the self-service model go?
There are certainly some champions of the self-service, online model amongst the larger brokers, creating a slick experience by asking the most relevant questions,and not too many questions. No doubt pre-fill of the application form for commercial insurance in the UK is something we can expect to see in future, as it is already being applied in the US.
For underwriting purposes, it’s about making best use of available data and maintaining a balance of not asking too many questions at point-of-quote, but getting enough information. As it happens with traditional brokers, there’s a need to give that extra little help to SMEs, in order to ensure they are buying the right product.
Imagery technology and image recognition is one way of making the customer onboarding process easier. One well-known broker, for example, put an end to asking customers technical questions about the type of locks they have, instead replacing the questions with images of standard lock types.
But the DIY aspect of businesses going online and buying insurance still leaves some areas of concern, about how to advise and prompt business owners about risks they may not have thought about. It’s fair to say large parts of this advice process can be recreated with technology, although today it’s still the job of a good insurance broker.
In our roundtable meeting there was consensus that, at the moment, with the available technology and the level of customer knowledge, an entire digital journey cannot completely serve the whole small commercial insurance market.
As one speaker commented: “Moving into the larger end of the SME scale [with digital processes] is something that we are exploring at the moment. But there are many barriers that we are coming up against from a data perspective…..We are trying to understand how we can do that, because there is still that advised part of the market in large commercial that you do not really need in the micro space.”
Certainly it’s not possible to generalise across the SME market and say that certain types of business need a broker, or certain types of business won’t go online. This is because the numbers of SMEs are so massive, and they are massively under-served as well.
It’s important to remember that for micro-businesses and the smaller end of the commercial market, it is all about convenience and speed. And this is a sector that can be better served by making more business data available at point-of-quote.
Digitization has come to stay across the insurance industry. Developments in technology are already improving processes, making claims or underwriting routines faster and cheaper to deploy. But the use and implementation are not as straightforward as many would like. At LexisNexis Risk Solutions, when it comes to some of the building blocks for improving commercial insurance processes, we have first-hand experience with that.
We need a balance, because data enrichment, like building databases and having property data, business data, motor and vehicle data, does help the automation and digitization of the industry. With access to data you can make more decisions and you can verify what a prospective business owner is telling you.
But it’s really down to the lowest common denominator in the insurance workflow. How to get the data to the right point in the process where it’s needed? How clever is the website or the app, in terms of getting people through that journey?
From the point of view of the customer, simplicity is key. But there’s also the assurance element, knowing that the process has all the data required to know their risks, based on their type of business.
When we have the personal service from a broker, the higher premium level, you get that level of assurance, from the conversation. How can data be used to power that conversation at the lower level, giving confidence for the simpler, smaller businesses?
Most likely there will be a kind of arms race with data, with brokers looking to move into that assisted self-service space, but with insurers also improving their own customer journey in the online space.
*LexisNexis Risk Solutions commissioned a survey of UK insurance professionals with responsibilities related to commercial motor insurance underwriting or pricing, in the case of a first group, and commercial property insurance underwriting or pricing in a second group. 77 interviews were conducted for each of these surveys, via telephone and online. LexisNexis Risk Solutions was not identified as the sponsor of this research, which was completed during November and December 2017.
For more insights from these research results download the LexisNexis Risk Solutions commercial insurance white paper ‘Digging Deeper: Using Business Data and Company Director Data to Inform Insurance Risk Management’.
Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurers.
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