What’s the Best Approach to the Small Commercial Market?

SMA has identified five prevalent distribution strategies that are currently deployed by small business insurers.

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The small commercial insurance market is hot—there’s no doubt it. In fact, the entire small business environment is quite active, with around 11 million businesses that employ less than 20 people, according to the US census bureau, and another 6 million with between 20 and 500 employees. Around 600,000 new business are started every year in the US, and almost as many fail each year.

As in every other segment, small business owners’ expectations have risen over the past decade, due in part to their daily experiences with digital and mobile capabilities.

In the insurance sector, the competition for retaining existing small business customers and acquiring new ones is intense. During this time of active industry transformation, a variety of approaches are being employed by commercial lines insurers, especially when it comes to distribution options. Which of these options are the best? SMA has identified five prevalent distribution strategies that are currently deployed by insurers. A synopsis of these strategies follows, along with recommendations for insurers.

  1. Existing agent channels…enhanced with tech: Many insurers are doubling down on their independent agent distribution channel. Agents, after all, still sell the lion’s share of the small commercial business. However, in this digital age, insurers must be aggressive in the tech capabilities they provide to agents—with modern portals, mobile capabilities, enhanced agent-carrier connectivity solutions, and more.
  2. Direct digital: The direct model, successfully deployed for years in the personal lines space, is moving to small commercial. Small business owners are more tech-savvy, and some want self-service capabilities to identify the coverages they need, get quotes, and finalize their policy – all online.
  3. New digital brand: Some insurers are establishing new digital brands for small commercial distribution. In most cases, the underwriting and back-office support remain with the insurer, but the front-end marketing and sales are done via a newly established, visible brand in the market. This allows insurers to distinguish the channel from their agent channel and go after different segments in new ways.
  4. Partnering with InsurTech: An appealing option to many insurers is to partner with InsurTechs that are capturing attention with their focus on the customer experience. These InsurTechs may be digital agents/MGAs or comparative raters. Many InsurTechs offer agent-focused solutions or enhance the agent/carrier relationship and support the approach in #1 (above).
  5. Establishing a marketplace: Several very large insurers are establishing their own marketplaces that support either agent or direct submissions. These marketplaces typically provide automated appetite matching, triage, and recommendations on coverage. In addition to traditional small commercial players such as Chubb and Hartford, large personal lines companies such as Progressive and Nationwide are also going after small commercial business with this approach.

Which of these approaches will turn out to be the most successful in growing a small commercial book? Of course, there isn’t one definitive answer. The likelihood is that a combination of approaches will yield the best results for each specific carrier. The omni-channel world has come to small commercial, which means that most insurers will utilize at least two of these methods of reaching customers.

Perhaps the most important advice is to understand customer segments at increasingly discrete levels and adopt an outside-in approach. The commercial lines business has continued to move in the direction of more specialization, and small commercial is no exception. The deeper the understanding of the characteristics and risks of each type of business, the better equipped insurers will be for creating products and programs to serve that segment. The distribution channel then becomes part of the customer expectations discussion. What methods will be most successful for each given segment? Will the business owners in a particular segment react most positively to experienced agents that they know and trust? Or are they more likely to prefer acquiring their insurance via a direct self-service approach (or one of the other options outlined here)?

One thing is certain. The distribution channel environment for small commercial will evolve over the next few years. And all of the five options in this blog (and probably others) will be in the mix.

For more information on the small commercial market, please read the research report, Ten Guidelines for Success in the Small Commercial Market.

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Mark Breading // Mark Breading, a Partner at Strategy Meets Action, is known for his insights on the future of the insurance industry and innovative uses of technology. Mark consults with insurers and technology companies on forward thinking strategies for success in the digital age. Mark also leads SMA’s research program, has overseen the publication of over one hundred research reports, and directed custom research projects for insurer and tech clients. His thought leadership in the areas of InsurTech, emerging technologies, customer experience, and digital strategies has earned him rankings as one of the “Top Global Influencers in InsurTech” by InsurTech News and Onalytica and a place in the 10 finalists for the “Top Global IoT in Insurance Influencer Award.”

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