As is often the case with technology adoption, small business (SMB) owners are seeking services and solutions that offer the same convenience and optimized user experiences provided in their personal lives. The current InsurTech boom, driven by tech innovation and growing investor interest in the space, has created higher expectations than ever before among consumers shopping for and managing their insurance policies.
Naturally, small business owners are wont to follow suit, opening up a major opportunity for InsurTech to expand its focus on the commercial arena. Steve Hauck, managing director of AP Intego, recently told PYMNTS that one of the biggest ways for the InsurTech market to capture the small business customer segment is in embracing the self-service business model.
"There is a disruption [and] disintermediation opportunity to be seized," he said, adding that "the small business no longer needs [or] wants to buy commercial insurance through an agent, and prefers the direct model."
Yet, while there are plenty of reasons why a small business would prefer the self-service method of insurance purchasing and management, as Hauck explained, there are also plenty of reasons why the business model has struggled to get off the ground in the commercial insurance arena.
Self-Service Opportunities (And Barriers)
The current small business insurance arena is highly fragmented, Hauck noted, with the traditional business model of insurance carriers relying on agents to facilitate policy sales largely devoid of technology, and with few incentives to invest in the small commercial segment.
"Agents can't afford to write $1,000 premium policies that generate only $200 in commission," he explained.
However, the challenges that agents face in affordably servicing small businesses via traditional tools are the same barriers that the InsurTech arena faces, too. Unlike consumers, small businesses' insurance needs are unique and complex.
As Hauck said, "Historically, this complexity just hasn't lined up with the growing demand to have the same fast, slick, online experience small business people have come to know in their personal lives."
SMBs will often require a mix of insurance products, seek multiple quotes from multiple carriers, and need the ability to search for and manage those policies both online and on their mobile devices.
While insurance agents have failed to automate, streamline and digitize these processes for small businesses, SMBs continue to rely on agents to procure and manage insurance policies. Currently, noted Hauck, only about 2 percent of small business owners buy insurance directly sans agent, a fact reflected by the trend of self-service InsurTech companies introducing agent services into their business models to support small business buyers.
"The reality is that demand, volume and scale in the direct-to-small-business model aren't there yet," he said, adding that direct-to-buyer platforms face "astronomically high" policy acquisition costs.
Driving Down Costs
Despite the challenges, the opportunities for InsurTech to solve the friction of complex insurance policy procurement and management needs among small business owners is a major incentive to remove the agent from the small business InsurTech equation.
Offering self-service platforms can be a critical component for insurance companies to drive down the costs of customer acquisition that currently plague the traditional agent model, with InsurTech platforms able to push out policy management work to the policyholders themselves.
"Service transactions like billing requests, policy questions, proof of insurance and simple endorsements can all be pushed out to the policyholder on a service platform," said Hauck. "This will be imperative to compete in the small commercial segment."
When it comes to passing along those cost-savings to the small business customer, self-service platforms can consolidate SMBs' need to manage multiple providers and products in a unified portal, as well as digitize historically paper-heavy processes like billing, one of the more significant opportunities for self-service disruption in this space. Hauck noted that small businesses managing multiple policies and providers are seeking to consolidate their insurance spend — and they want one bill, as well as flexibility in how they pay for those policies, to better manage cash flow.
There are also significant savings opportunities — for both insurance providers and small businesses — in data integration.
Small businesses want to access self-service insurance products directly from their existing payroll and payment systems, benefits solutions and other providers, said Hauck. Such integrations enable small businesses to automatically provide data from these portals to insurance companies for a reduced burden of manual paperwork and data entry. These integrations also lessen the friction of managing too many software platforms and systems.
At the same time, insurance companies have their own efficiency gains to be had by such integrations, enabling these firms to augment their underwriting processes by accessing a wider array of second-party platform data from payroll, bank, sales and other systems in use by small business policyholders.
With emerging insurance products finding a growing opportunity in small businesses, particularly cyber and employee practices liability insurance, Hauck noted that SMBs' insurance needs will continue to grow more complex, with the traditional agent model unable to offer the digital, consolidated, self-service experience that small businesses crave. While adoption of an agent-less experience remains minimal among SMBs, the continued demand for spend visibility and unified policy management could be the catalyst for self-service adoption.