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While the differences between large commercial insurance lines and personal lines are stark in terms of how policies are bought, sold and underwritten, the similarities between personal lines and small business insurance are driving trends that may be reaching a “tipping point” according to a new study from research and advisory firm Celent (Boston). The report, “The Tipping Point? The race to online buying for small commercial insurance” discusses how small commercial insurance has become commoditized and is moving into a world of digital distribution.
There has been an explosion of online offerings of small business and workers’ compensation insurance from both distributors and carriers, and many more are in the planning phase, according to Karlyn Carnahan, Head of Insurance, North America, Celent, and author of the report. Carnahan asks: “Is this just a finger in the wind testing the opportunity? Or is it real? Just because you build it doesn’t mean they will come.”
Working with an outside survey firm, Celent conducted a survey of small business owners on their attitudes and practices towards purchasing insurance. Celent looked at how they choose their insurer and their preferences for working with an agent or buying online. The analyst firm conducted a similar study in 2020 and reports that the current results show a significant shift in buying preferences as consumers increase their desire to purchase small commercial insurance online.
Among the study’s findings is that the number of small business owners preferring to purchase online has nearly doubled from the figure of 38 percent just two years ago. “Insurers who are watching these trends have to decide if this is approaching a tipping point that would cause them to shift their own stance—especially those that are committed to the independent agency channel,” Carnahan writes.
In addressing this rapid shift in customer behavior insurers have a variety of strategic questions to answer with regard to distribution including investing in process changes and evaluating potential changes in the role of the agent, according to the report.
The urgency of asking and answering these questions resides in the magnitude of the small commercial market—and what share of it insurers can conserve or gain, according to Carnahan’s colleague Rob Norris, Principal Analyst, P&C, Celent. “What’s at stake is, according to some estimates, a profitable market worth over $100 billion in annual premiums,” Norris notes. “It is a highly fragmented market that represents a rich opportunity for carriers willing to place a stake in the ground.”
Carriers can be forgiven for being skeptical that the market was changing as rapidly as some had forecast, Norris observes. By many criteria, customers’ migration to digital options has been measured, and digital distributors are still struggling to keep customer acquisition costs under control. “As a result, carriers that were fast followers, or even no-so-fast followers, have been able to adjust without losing much market share,” Norris says. “But we are in early days and digital innovation continues. Late-comers to the digital party will eventually realize they are too late.”
Celent found that small business insurance customers in general are more interested in technological options for buying, with younger customers being especially eager, and only a small number of respondents concentrated in the Baby Boomer demographic are resistant to technological change. “Overall, almost 80 percent of the respondents were likely to choose to use technology, either from personal desire or out of pragmatism, Carnahan wrote.
Price was important to the survey’s respondents, but it wasn’t their most important criterion, according to the report. Respondents wanted to work with a “good” insurance company that has coverage at a good price and pays claims fairly and quickly. More than 60 percent said agent recommendations were important or very important, highly valuing advice on coverage and limits. Over 70 percent were looking for comparison shopping—which can be expense for agents to do. Respondents rated self-service capabilities highly but also said it was important to have access to a human being when they felt they couldn’t complete a task on their own.
The high-level message of the report, according to Norris, is that the expectations of people who buy and manage business insurance have changed and they are continuing to evolve. “Businesses are not only willing to buy online, they increasingly expect digital options—at purchase and throughout the life cycle of the policy, He says. “And their expectations about the quality of digital interactions are going up.”
The implication for insurers, Norris adds, is that they have to reevaluate how their distribution strategy meets these changing expectations. “Digital needs to permeate the entire product strategy, not just be considered a new channel,” he stresses.
Not All Digital, But ‘Digital First’
Norris counsels insurers to also consider some subtleties in the report’s findings. One is that the digital distribution of small business insurance does not mean all-digital, but rather digital-first. “Buying journeys will often start digital but then the customer needs to quickly reach a human being for advice and support,” he elaborates. “The best carriers will blend a great digital experience with human touch and seamlessly transition between the two.”
Another counter-intuitive insight Norris shares is that digital is not just about customer experience, as critical as that may be. “There are underwriting advantages to be explored,” he notes. “Interacting with customers digitally opens the door for new types of data, and more dynamic sources of data, to help insurers understand and price risk.”