What do Amazon, Spanx, Apple and Microsoft all have in common? Yes, they are all billion dollar global brands, but they all started out as a home business.[i] While not all businesses that start out in a home – or garage – will become global brands, new opportunities are offering entrepreneurs more ways to turn a side business into a thriving home-based business.

Consider recent data about the small business market:

  • It is estimated that 69% percent of U.S. entrepreneurs start their business at home and more than 50% of the U.S. entrepreneurs continue to operate their businesses from their homes long after these businesses are up and running.[ii]
  • Today, there are about 30 million small businesses in the U.S., which means that approximately 15 million of these could be home-based.[iii]

As the lines between home and work continue to blur, consumers are increasingly using their homes as  income generators. According to a report released by Freelancing in America and Upwork, 57 million Americans, or 35% of the U.S. workforce, did some work outside of the traditional work day in 2019. This trend is here to stay, as younger generations are more likely to freelance.[iv] The events of early 2020 may be further blurring these lines as more employees are working from home, and many, unfortunately, face job losses.

Another way people earn money outside of the routine job market is through multi-level marketing, or MLM, opportunities. In the MLM business model, independent contractors sell a company’s products or services through person-to-person sales. While not considered a traditional small business, MLM sellers may store inventory in their homes.

Why it Matters to Home Insurers

Blurring lines between personal and commercial usage of homes make it harder to assess the risk. Policyholders who operate a home-based business may not realize that their home insurance policy typically does not provide any liability insurance coverage for their business, leaving a gap in their overall coverage. They also may not understand that if they incur damage — say, from a house fire — while operating a business inside it may be in violation of their policy’s terms, and their insurer may not cover it.

Because you as the insurer may not always know when homes are being used for both personal and commercial use, it can result in coverage gaps for the consumer and missed premium for your organization.

Asking the Right Questions

Because carriers don’t always know when homes are being used in different ways, this results in coverage gaps for the consumer and missed premium for the carrier. This can ultimately lead to a poor customer experience, especially if the homeowner is unaware he or she is not covered. Let’s consider a few questions that you should consider when it comes to how the home you are insuring is utilized.

Does the customer have the right type of insurance coverage?

According to a research by Cake&Arrow, many of the “gig” economy workers tend to be underinsured, underestimate their own risk and may be uneducated about how insurance applies to the work that they do.[v]

How carriers can address this challenge:

  • Pre-populate the application with home business information.
  • Personalize the workflow with additional questions for addresses associated with businesses. 
  • Eliminate unnecessary questions for customers who are not likely to use their home in these ways by prefilling “no” to business use on the application.

When you are paying out claims, do you always know the reasons that caused the claim in the first place?

Homes that have a business on premise are more likely to have claims.  According to a 2019 study conducted by LexisNexis Risk Solutions, properties with a home-based business were 25% more likely to have >1 claim in the past 6 years compared to properties without a home-based business.  On average, the claims from properties with a home-based business were also $1,700 more expensive.[vi]

How carriers can address this challenge:

  • Capturing that information both at quote and at renewal can help your organization make informed decisions about claims that fall outside of the homeowner policy.
  • Educate customers engaging in business activity on what is and isn’t covered under their policy to ensure transparency and avoid surprises at claim.

Do you always promote the right kind of product to the customer based on that person’s needs?

An example of how you can match a product to a need is including additional liability coverage for businesses that create foot traffic to the insured home.

How carriers can address this challenge:

  • Businesses leave many data footprints outside of traditional data sources. LexisNexis utilizes our linking technology to match that information to an address.
  • Reach out proactively to customers who may have a home business, home rental or second home at or before renewal to ensure they are adequately covered and understand their policy.

Addressing the questions above can ultimately point to a more streamlined customer experience. According to Forrester Research, 49% of insurance purchase influencers surveyed identified customer experience as a top business priority for the next 12 months.[vii] While the difference between a great and poor experience has always been somewhat defined, there is grey space when it comes to taking the customer experience to the next level in the insurance market place.

With data-driven home intelligence, carriers can be more consultative, advise their policyholders on the right coverage and provide a better customer experience in an increasingly commoditized insurance service world. Contact us today to see how LexisNexis Risk Solutions can help you achieve success.

Upcoming webinar: Current events impact on home insurance

On April 23, 2020, I will be participating in “A Nation ‘At Home’ – Implications for Home Insurers in 2020 and Beyond,” a webcast with other industry experts to discuss:

  • The Impact of economic changes on home insurance
  • How the industry is responding
  • Data you can use in home insurance both now and in the future

This complimentary webcast is hosted by Digital Insurance. Click here to register today.

[i] https://startupmindset.com/10-billion-dollar-companies-that-started-as-home-businesses/

[ii] https://smallbiztrends.com/2013/07/home-based-businesses-startup.html

[iii] https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf

[iv] https://adquiro-content-prod.s3-us-west-1.amazonaws.com/documents/19-0919_r3_Freelancing+in+America+2019+Infographic.pdf

[v] https://cakeandarrow.com/work/gig-economy-insurance/

[vi] LN 2019 study

[vii] https://www.forrester.com/Global+Business+Technographics+Priorities+And+Journey+Survey+2018/-/E-sus4251#

This complimentary webcast is hosted by Digital Insurance. Click here to register today.