SME: On board the enterprise


The SME space is a key battleground for the future of the industry. But if SMEs can do business direct online, where does that leave brokers? By Mark Sands

With the first half of 2013 drawing firmly to a close, many insurers found themselves in better shape than six months prior – especially in the commercial space. At the end of 2012, UK insurers had been struggling with their commercial books, with Allianz UK the only business to report a sub‑100% combined ratio.
While the recent financials saw a rebound for commercial underwriting, the fragile nature of the market underlines the importance of SME business.

SME has long been mooted as a key battleground for the insurance industry, with brokers, insurers and aggregators slugging it out for supremacy. Central to the debate is potential online migration, providing potential policyholders with internet purchasing options and reducing overheads.

Axa’s commercial lines managing director of intermediary Matthew Reed says the insurer has always had cost savings in mind – as opposed to providing different purchasing options – when considering how it sells its SME products.

“The way we have driven our products is to make it efficient for us and the broker,” Reed says. “Do I walk down the road and meet people who say I wish buying commercial insurance was easier? No. It is being driven by insurers and brokers in order to try and make it more effective and more efficient.”

The need for improved figures has seen SME business, with its increased competitiveness, being compared with the personal lines spaces. Vivek Banga, director of e-trading at Arthur J Gallagher International, says: “That competition is certainly there, and has been there for the last few years in markets such as car and home insurance, for example, in which direct players sell a lot online and on the phone.

“What the success of those two categories has shown is that insurance can be sold online, and if presented well online customers don’t mind buying through that channel. Insurers, aggregators and brokers will all make investments over the coming years in terms of trying to sell online.”

Big volume through brokers
Towergate’s sales and service division chief executive Simon Trott believes the SME space has become far more competitive between direct writers and brokers, in particular.

“However, I’m reasonably convinced brokers are actually holding their own,” he says. “On a monthly basis, we are generating about 40 000 new business enquiries through online trading. If you put that into context of the four million SMEs out there, there’s some reasonable volume coming through brokers.”

LV commercial director Mike Crane says that 100% of his firm’s SME business goes through brokers, and adds that while there is potential for more “simple” classes to be sold direct online, most should remain in the hands of intermediaries.

“I have a real concern about more complex commercial business moving into the direct non-advised sale route,” Crane says. “I have a great deal of caution around being sure it can be done in a way that would give everyone the confidence that people have the cover they need and that the business is truly what it says it is.”

He adds: “For example, some people look at things like tradesmen and say, ‘It’s a small premium, surely that can be done online direct’. It could, but you are relying on people picking the right trades and also understanding what cover they need. Small businesses are not necessarily equipped to know exactly the covers they need, and that’s the role the brokers fulfil.”

Towergate has unveiled SME deals with Confused and Compare the Market in the past few years, with the broker providing business insurance to the price comparison sites.

“The aggregators are active in this space,” Trott says. “But we are definitely finding more of that volume in the micro-SMEs and landlords business. That’s where the majority is coming from.”

Reed is also dismissive of the potential for aggregators to make further inroads. He says: “Although customers might think nothing about going online and insuring their car with a singing fat man or a fluffy toy, there are more concerns when it comes to insuring the livelihood that provides for that car.”

Not convinced by online
According to Reed, potential policyholders may want to research online, but completing an entire insurance transaction online for a small enterprise may hinge on the scales – and sums – involved.

“We all benchmark things,” he says. “We all want confidence that something has got five stars. That has taken the expert off the high street but when it comes to handing over money, there will still be some reticence when you’re starting to pay more than a certain amount.”

The stance is reflective of an industry that remains unconvinced SME customers want to buy online. Giles’ chief operating officer Simon Pearce explains: “In motor insurance, a customer would comfortably pay £800 to insure their van without any advice or any broker interception. They’ll pay for everything monthly, they’re time poor and it’s about buying the product.

“However, if exactly the same customer wants liability cover, even for a quarter of the premium they will want advice, and want to speak to somebody. They don’t know what the limits should be, what an acceptable excess is or what is covered; they want some advice. Others can offer that product, but the value add from the broker is the advice.”

Banga says the future may see part of the transaction taking place online with phone‑based support if required. “If someone needs to buy their professional indemnity insurance quickly because they can’t apply for a project without the relevant cover in place, they might want to do it quickly from home at 8pm in the evening,” he says.

“On the other hand, someone who has got a few hours and has run a few quotes might want to call one or two insurers to clarify a few things. Online does not have to be online exclusively. It should seamlessly blend with the rest of our infrastructure, so if the customer wants to do part of the transaction online and then wants to finish over the phone, then so be it.”

Trott says Towergate has had success in facilitating such moves from customers.
“Part of the service we provide is for somebody to start the journey online, but if they want to talk to somebody to get clarification, we can take them offline and to the telephone,” he says. “To give a crude example, it could be a typical SME trying to understand what business interruption really is. Sometimes on issues like that they like to talk to somebody, get some advice and know they’re buying on the correct basis.”

A complex beast
Indeed, insurers and brokers believe the complexity of SME cover has thwarted the development of online purchasing options. “Commercial insurance, by its very nature, is more complex and, in some cases, significantly more complex, so it has taken longer to design the products,” says Allison Hughes, Groupama business development manager for commercial e-trading.

“There’s a very good reason why private car was the first thing to be put on electronic data interchanges. It is more straightforward and it comes through in volume.”

Reed says that, when customers buy online, intermediaries, direct players and aggregators must all wrestle with the prospect of only getting answers to questions directly asked. “If you ask seven questions, you only get so much information,” he says. “The [Financial Conduct Authority] is focused on making sure we deliver the right product to the customer. It is very difficult to say hand on heart that I’ve asked seven questions and, therefore, the customer is going to get the right product.”

Despite the concerns, Jason Potter, commercial lines e-trading and strategy manager at Allianz, says he has already noted brokers seeking to develop e-trading within their own spheres. “That may range from brokers creating their own websites, that may offer their customers a quote and buy facility, or indeed, just looking at how, as a broker, they can use platforms to attract new customers in,” he says.

“It might be simply through offering advice about risks, and telling them what various products are. There are many ways brokers are now starting to use electronic platforms right across the piece to inject their value and show what benefit they’re bringing to their end customers.”

According to market commentators, the movement of the SME market to the online space is not something that will abate. Trott believes brokers will need to invest in technology and advertising to make sure they remain ahead in sourcing business while also maintaining pace with buying habits.

Most importantly, he says, is tailoring services to the right areas of the SME market.

“If the target market for the broker is the smaller SME then you need to have presence in the online sector,” he says. “But if you are going for large corporate business, then probably all you need is a brochure website rather than being transactional.”

Pearce, however, suggests change will not sweep through the entire SME space as a matter of course, with the growth of price comparison sites too insubstantial to effect real change in the online sale of commoditised SME products. “I remember 10 years ago being told that soon, all the SMEs will buy all their insurance online. Ten years later, they’re not, and I look at it very clearly around the product verticals. Commoditised stuff, yes. Complicated advice stuff, no. And that hasn’t really changed. And I don’t think that will change,” he says.

Reed adds while many brokers may have been nervous of being squeezed on both sides by insurers and aggregators, such fears have not come to fruition. “All the brokers I have talked to have realised there are ways of using the internet and e-products as efficiently as possible in order to survive,” he says. “Everybody predicted the death of the high street brokers, but it’s not actually happening. These guys are pretty resilient and they have changed and adapted pretty well.”

Tales from the archive: 2009

While a debate rages on about whether the SME space could move online, in 2009, Premierline Direct dismissed the theory that aggregators could become the natural home of online SME business.

The managing director of Premierline Direct has questioned whether online SME sales is a natural market for aggregators to diversify into, after admitting they have shown limited interest.

Chris Little suggested prohibitive costs, market standards and fragmented market dynamics have restricted the pace of SME sales on comparison sites, after admitting that Premierline Direct’s online SME traffic through aggregator referrals has been limited. “We keep the flow of traffic low in order to manage and control costs; it is a balancing act in terms of profitability,” he said. “It is interesting that none of the top-five aggregators have built an integrated SME capacity on their platform, but they are all developing or have developed click-through models. In addition, X-bridge is already in this space and leveraging distribution routes through established aggregators like Money Supermarket.”

Little said he did not anticipate the same level of penetration in online SME sales as in other markets, but admitted the marketplace was in its embryonic stages.

Internal research from Premierline Direct in February comparing the number of exact matches for ‘car insurance’ in Google’s search engine to the term ‘business insurance’, found 1.5 million matches and 22 200 respectively. “There is already huge competition for that 22 200,” commented Little.

Currently not one business model has dominated and it is unclear who will be successful – although brokers will naturally fight to retain market share and have made progress to reduce costs and margins within the sector.”

Little suggested that although the aggregator market is less compelling from a supply side due to its fragmentation, increased costs of entry and data standards, it retained appeal from a demand perspective. “If the aggregator market develops it will be in direct competition with brokers and may offer less attractive returns for underwriters,” he concluded.

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