COVID-19 Has Devastated SMBs, But It Might Make Their Insurance Policies Better

For decades, the insurance industry is quite literally a lifeline for those affected by unfortunate events. As service providers in the business of disasters and disruptions, insurance companies have had a front-row seat to the ways the pandemic has affected their small business policyholders.

For Next Insurance, the impact was “devastating” for many, according to the firm’s Chief Operating Officer Sofya Pogreb.

“It became immediately apparent to us how hard-hit our customer base was by the pandemic,” she told PYMNTS in a recent interview.

Yet insurance firms have been hit with their own changes and challenges, too, impacting everything from coverage options to the claims payout process. According to Pogreb, the industry now has an opportunity to embrace market disruption in ways that can strengthen customer ties and get capital into the hands of business owners who desperately need it as quickly and painlessly as possible. But, she noted, it’s also an opportunity for small businesses themselves to change the way they approach insurance coverage as they seek a digital, more user-friendly buying experience.

What’s Changed — And What Hasn’t

From furloughed staff to shuttered doors, small businesses across the country (and globe) have been among the worst-hit by the coronavirus crisis. From Next Insurance’s standpoint, however, Pogreb said not much has changed as a result of the pandemic in terms of the types of claims small business customers are filing — an observation she attributed to the fact that Next does not yet operate in the property insurance space.

“Property is where business interruption coverage would sit,” she said, noting that one of the biggest shifts she has witnessed in recent weeks and months is an increase in demand for this type of insurance product, as well as specific coverage related to pandemics.

It’s still too early to tell exactly how the current crisis will affect the small- to medium-sized business (SMB) insurance space long-term, particularly as the market expects several iterations of shutdowns and reopenings ahead. What has changed, however, is how they want to buy products and receive claims payouts.

While the demand for faster access to payouts has historically driven the growing preference among SMBs to receive funds via direct deposit rather than check, the pandemic has elevated that need as business owners look to avoid a visit to a physical bank branch.

Business owners still need an accelerated payouts process; however, now more than ever as cash flow remains tight. According to Pogreb, though electronic remittances and faster payment rails can provide speed, what’s more effective at accelerating this process is streamlining everything that happens before the payout itself — namely, the underwriting and decision-making workflows.

“When you look at the timeline, traditionally, it takes weeks to months to make a decision on a claim,” she said. “If you look at the claims lifecycle, the opportunity for convenience and speed of getting money into the claimant’s pocket is more in the claims adjudication than the payment method.”

A Shifting InsurTech Landscape

Embracing digital payments, automating the adjudication process, and providing an overall accelerated and more seamless experience for small businesses is particularly vital today to ensure business owners have the funds they need to survive. But these trends began emerging well before the pandemic hit, opening an opportunity for the insurance landscape to embrace a new breed of company: the InsurTech.

The successful initial public offering (IPO) of InsurTech Lemonade in July was a significant moment overall for the sector, said Pogreb.

“The performance of their IPO really added visibility and — frankly — credibility to the InsurTech space, which is good for all players in the space,” she said, adding that it also elevated interest among investors that may have previously been unfamiliar with InsurTech’s market opportunity.

With more investment comes more innovation, which will be imperative for the sector to adjust its market strategies to fit the new normal of today. That could mean an expansion of insurance product offerings, more choice in how claimants receive payouts or automating the underwriting and adjudication through intelligent technologies.

But as Pogreb highlighted, small businesses also have an opportunity to change the way they interact with their insurance providers, too.

First, she said SMBs should closely examine their existing policies and coverage to determine what lines of support are out there already. This is a particularly large opportunity for insurance companies to strengthen the customer relationship, with Pogreb noting that Next was the first in the U.S. to offer a reduction on premiums, and then went further with initiatives like payment flexibility and its “Built By Business” campaign, which commissioned SMB policyholders to participate in Next’s media campaign development.

Second, small businesses should reevaluate how insurance costs fit into overall budgets and expenses.

“Insurance is a major expense for most small businesses,” she said, noting business owners should reconsider whether the products and services they’re currently paying for are competitively priced.

And finally, small businesses should reexamine their current products and explore whether there is an opportunity to enhance coverage, not only to protect themselves but to potentially introduce a valuable competitive differentiator. Because as InsurTech innovation brings a new competitive edge to insurance companies, the industry’s evolution is also opening up opportunities for SMB policyholders to benefit, too.

“This is a good time to think about your needs as a business, and where insurance can make you more competitive in bidding for jobs or obtaining a project,” said Pogreb.