It’s no coincidence that investors placed record-high levels of funding in InsurTech startups last year. Policyholders want to be able to shop for insurance products the same way they shop for goods: online. The drive for the digital-first experience isn’t unique to consumers, either, as increasingly, small business owners seek out an online insurance shopping experience that mirrors that of their personal lives.
But the migration of the insurance origination, underwriting and sales processes online isn’t the whole picture of the digitization of insurance.
For small businesses, the threats they face are not the same as they once were, and it’s forcing the small business insurance market to take a deeper look at not just the way it offers products to small and medium-sized businesses (SMBs), but the very nature of those products themselves.
“Insurance needs to adapt to the small business today, because small businesses have really seen a change in the risks they face," said Digital Risks Chief Underwriting Officer Ben Rose in a recent conversation with PYMNTS. “A decade ago, the largest risks a business faced were physical risks, but in many cases, that's changed.”
Small businesses, in many cases, still face the traditional threats of fires and floods, of course. But enterprise digitization has opened a whole new playing field for risks to derail a business, with data breaches and ransomware attacks at the top of that list.
Indeed, the Federal Bureau of Investigation (FBI) presented findings at a recent security conference, highlighting analysis that found businesses and consumers have lost more than $140 million to ransomware in the last six years.
Social engineering scams like the business email compromise, which infiltrates businesses' invoice payment and accounts payable processes, have become of particularly large concern in today's small business climate.
“We are seeing so many scenarios in relation to social engineering,” said Rose, noting that even Digital Risks is frequently targeted by these fraudulent emails posing as legitimate executives at the company or legitimate suppliers requesting payment.
He added that the insurance industry has a role to play in not only educating small businesses about these types of threats, but in expanding awareness of the insurance products available that can help to mitigate them.
For insurance platforms, that means introducing products that can also support a company's ability to handle the aftermath of a data breach or ransomware scenario. That can come in the form of a mix of products that include insurance to protect against the losses of a potential lawsuit in the case of a data breach, for instance, as well as services like legal advice, IT forensic services, and public relations tools to help businesses preserve their reputations and customer trust.
“It’s about more than just providing insurance,” said Rose. “It’s about putting small businesses on the same playing field as big companies who have access to all these services, and a big budget to set aside to respond to these types of scenarios.”
A Shifting SMB Identity
Another way the small business insurance market has historically fallen short of addressing modern needs of the industry is in being able to address some of the less familiar risks of small businesses operating under new business models.
A rise in the number of small businesses using co-working spaces, for instance, has changed the nature of risk for many of these firms. Even a business whose employees use on-demand scooter sharing services to move from one office location to another presents a new risk that cannot always be addressed by traditional insurance products, said Rose.
Further, a growing gig economy, and rising use of on-demand and freelancer workers has steered the small business insurance market into unchartered territory, and not only for the businesses that hire these professionals. According to Rose, it’s just as important for insurance companies to be able to work with the freelancers and micro-businesses themselves, who are often procuring business insurance for the first time.
Rose noted that offering a personalized experience is essential, as is speaking in a conversational manner to help these professionals understand exactly what they need and how to buy it. Presenting benchmarking data that enables a small business or freelancer to view how other SMBs in their industry procure insurance products can be an effective way of guiding them through the process, while flexibility in how and when insurance products are purchased is also key to this customer demographic.
While traditionally, insurance products require a 12-month commitment, smaller businesses can often lack the foresight, or operate in such variable conditions, that a yearlong service isn't the right fit. Being able to allow policyholders to add or divest products as they go is crucial, particularly for freelancers.
“They might be doing a series of jobs, or it might be a longer or shorter job, or the work they’re doing might be changing,” said Rose. “They’ll need to update their coverage along the way to find the appropriate coverage.”
Increasingly, too, large corporates are becoming the ones that initiate the conversation about how to make sure the freelancers and contractors they work with have the appropriate insurance in order to protect company data across all players in the supply chain, he added.
Addressing these concerns takes more than simply offering a small business the ability to purchase insurance online. Personalization, flexibility and products that suit a modern business model are key to helping these professionals navigate modern insurance needs, and to guiding the InsurTech field into the modern business age.