February 18, 2013

One size does not fit all

Insurance is big business in the UK and commercial insurance amongst Small and Medium sized Enterprises (SMEs) is a large opportunity. There are 4.7 million SMEs in the UK with 1.2 million of these organisations employing more than one person. The size of the market is estimated to be worth £5.4 billion. However, many insurance providers and brokers have struggled to engage with their SME customers and as a result have not fully benefitted from this potentially lucrative market.

There are at least two key factors behind this:

  • First, SME owners are busy trying to grow their businesses and spend little time thinking about insurance.  Given other priorities (paying the bills, finding new customers, dealing with staffing, etc.), insurance is not seen as a business critical issue (at least until a claim needs to be made!).  This is even though that many of these SMES believe they actually have gaps in their insurance coverage that may be useful to fill.
  • Second, SMEs generally lack in-house insurance expertise that larger corporates possess, as well as the resources to track legislative changes that may require attention.  On this particular issue we have found, through research we conducted 2011, 18% of SMEs believe that they did not have the statutorily required Employers’ Liability cover. Of this number, 73% represented SMEs with fewer than 10 employees.

Add to the above factors the differences in context, structures and strategies of these 4+ million SMES and you have a very large market, with very varied operating models and strategies, with extremely time crunched business owners, often aware but often unwilling/ unable to invest the time required to understand and then choose appropriate insurance cover for their business.  No wonder this is a tough market!

So, how does the insurance industry capitalise on this high volume, likely individually small value policy value, and highly varied SME market?  Two thoughts to get the discussion going…

  1. Bridge the ‘knowledge gaps’ that many SMEs have concerning legal requirements for insurance in their businesses.
  2. Reduce the (often) leading messaging about low policy prices.
  • Our research showed that getting the lowest price is not the driving factor for all SMEs – although much of today’s communication leads with that.  Close to three-quarters of SMEs with at least one employee, indicated that other factors were more important in their choice of policies than price.  Interestingly, while those who are ‘broker driven’ for their insurance rely first and foremost on the advice given to them, they are the group second most likely to prioritise price as a key factor in their purchase process.

Given the low priority that most SMEs place on insurance, those who find a way to connect with SMEs and make the purchase process as smooth and relevant as possible, will ultimately succeed.  And this applies equally to brokers and insurers.  Start by focusing on the needs of the SMEs rather than the product – what is going to drive and influence purchase decisions.  What can you offer that will appeal to this market, and in a way that works for your own business.

There are ways to make this market win-win, but it will take some effort.  What are your thoughts? Have you seen any really good examples of success?  If not, what are you waiting for?? Seize the opportunity before someone else does.

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