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Spotlight: Smarter decision making – Intelligent lead pricing: helping counter SME underinsurance

Lead pricing

Insurance costs are rising by 30% or more, in some cases, and some small businesses are finding their choice of providers shrinking. “With margins pressed on all sides, the temptation for some smaller firms will be to reduce cover, or cut policies entirely,” warns Federation of Small Businesses national vice chair Martin McTague.

Direct Line Business Insurance recently found that 29% of new entrepreneurs don’t see insurance as a priority, up from 23% in 2020. And with the pandemic having produced a new wave of start-ups – nearly a quarter of Brits are planning to set up or have started a business – this is a worrying development.

Robert Dakin, head of business resilience management delivery at Axa UK, says many SME businesses do not have the correct or right level of cover. “There seems to be a knowledge gap in the market, with many small business owners thinking they are not big enough to need insurance cover, but this is simply not true.”

Digital shift

SMEs are usually too small to have dedicated staff managing their insurance. A busy business owner will want to know they are getting the right coverage and want it fast. Particularly since the pandemic there has been a marked shift toward using digital channels.

Rebecca Gambrell, head of retail SME pricing and portfolio management for Zurich UK, tells us: “Our e-trade products enable SMEs with less than £5m turnover to self-serve their policies via their broker from quote to bind and any changes throughout their policy year.”

Many of the large insurers have been redesigning systems to be more user-centric, agile and direct, with varying degrees of automation. The point at which full automation, or straight-through-processing, can be achieved depends on whether the insurer sells insurance direct and how simple the claim is.

For simpler policies many insurers now use data analytics and advanced pricing algorithms to provide a quote to prospective customers in minutes. Once the process of e-trade is started, much of the time, the broker does not even need to speak to the insurer as they can take the customer’s information, find the right policy, bind the cover and issue the documentation straightaway.

Direct to consumer insurer Direct Line Business Insurance claims it can offer immediate cover to the majority of its customers. “Occasionally, we may need to refer the customer to the contact centre to gather additional information. When this happens, we are in a position where we can make decisions quickly as we are the underwriters providing the quote,” Rebecca Clapham, managing director, Direct Line Business Insurance, tells us.

Simon Parrish, head of SME underwriting at Allianz, explains that as they sell business through brokers and receive the quote request from them,  they focus on responding with premium terms and making the pricing and underwriting as slick as possible.

“It’s about faster speed of response, lower cost to serve, reduced risk of underinsurance and misrepresentation, and a more accurate premium calculation. So, in terms of the customer perspective, the outcome is a slicker quote-and-buy journey, more competitive premiums, and a lower risk of the policy not performing in the event of a claim.”

This straight-through-processing hinges on the ability to be able to access the right information at point of quote.

By incorporating data and analytics into their distribution, which helps them identify and better understand the risks involved, insurers can accelerate the sales process. In this way they don’t have to rely solely on a business owner’s input but can non-intrusively collect data from elsewhere.

“We continuously evaluate new data sources that will allow us to complement existing question sets and the information provided by the customer. We validate that information simultaneously so we can have more confidence in the acceptance decisions, but also at point of claim, be more confident the policy will perform,” explains Parrish. “Where we find a data source that adds to our understanding of a risk, then we have the ability to deploy that at point of quote in order to inform the automated underwriting and pricing decision.”

Zurich, too, is increasingly looking to enrich and supplement the data provided by customers with external sources. “It’s important we truly understand our customers, their business and insurance needs. And external data enriches this knowledge at point of quote,” according to Gambrell. “Whether it’s additional information about the location of their premises, the type of vehicles they drive, or the features of their buildings, it means we can reduce the number of questions we ask our customers, particularly where the information isn’t readily available or obvious to them.”

Direct Line Business Insurance says it uses external data to ensure premiums are accurate. “For property owners, we have been working with our external data partners to be able to use the geographical data we hold to price at an address level – ensuring we are using the most accurate information we can for rating,” confirms Clapham. 


The industry has tended to prepare broad propositions that fit a ‘typical’ customer. But this is changing as insurers collect more granular details of their customers.

Some large insurers have been investing heavily in their data and analytics capabilities and embedding the use of data in their business. For some, like Axa and Covéa, information is collected from both across the business and externally and aggregated into data repositories or ‘lakes’. By moving to a modern, cloud-based system these insurers can get more consistent and meaningful data to their analysts faster and provide more personalised offerings.

Technology, including artificial intelligence and machine learning, is helping the industry leapfrog in capabilities. AI has the power to provide clearer insights, anticipate trends, help predict risks and make quicker and more reactive decisions.

For instance, Aviva actively uses data and AI to address underinsurance using their Commercial Intelligence Tool. “By linking our own data and open source databases with underwriters and data science experts, we are automatically identifying potential underinsurance or gaps in cover. CIT then delivers personalised data that brokers can access for mid-year reviews, during the renewal period or any time via our underwriters.”

Examples of enrichment analysis that Allianz undertakes include power modelling – understanding how likely different risks are in terms of floods, storms and arson, for example. They look at accumulations to ensure they have a balance of exposure across the UK and are not overly susceptible to a single loss. They also check for fraud and on financial history, all of which are deployed at point of quote.

Parrish points to the benefit of being part of Allianz Group in being able to leverage advanced global data science capabilities to get more insights from the data. This helps with prioritising quotes, deciding where to target for risk surveys as well as reducing the referral rate.

Specialist attention

While speed of response is important, it isn’t everything. There’s a lot of variety and complexity within the SME pool.

“The danger to small firms is that even a 10% or 20% level of underinsurance in any area can leave them dangerously exposed if margins are tight. This is why it is so important for small firms to work with specialist insurance brokers to find out what they actually require in terms of cover,” says FSB’s McTague.

Parrish agrees: “Suitability of our products and adequacy of the cover would be determined through a quality conversation between a broker and a customer. That is something that cannot be rushed for many policies. We refer some of our cases to underwriters, which we still see as a really valuable part of our proposition – the chance for an underwriter to review cases to clarify and to set appropriate premium terms with the broker.” Parrish adds, “One of the areas of focus is around ensuring that those contacts are value-add contacts and stripping out all the stuff that we can automate to be faster and more cost-effective.”

Meanwhile, commercial brokers are still relying on more basic levels of data enrichment, such as credit and identification checks, although they have been building their digital capabilities for some time.

“It’s been fairly low level from a broker point of view. One reason I guess is a lot of the insurers we work with, particularly through their extranets, have built in some level of data enrichment themselves. Not a vast amount in truth. Perhaps they do a bit more of the data enrichment in the direct-to-consumer space,” observes Simon Townsend, trading director, SME, Markerstudy Broking.

Graham Whyatt, group head of SME at James Hallam says: “Insurers were talking about ‘big data’ at events a few years ago. However, I don’t think they are sharing it with brokers, possibly because of data protection.”

One of the things James Hallam is doing itself is trialling a building valuation service that uses freely available big data to value a customer’s building and compare it to what it is currently insured for. Data provided to them suggest that 60% of buildings could be underinsured by as much as a third.

At the moment, Markerstudy is working with a third party provider to support its personal lines business and then look to apply this to the micro SME space. “A lot of the data enrichment is around personal information. Therefore, where it is a sole trader, trading in their own name, clearly that data enrichment has some potential value. But, where its somebody trading as something else or where it’s a limited company or partnership, that data is currently more limited,” argues Townsend.

Pandemic effects

Underinsurance worsened during the pandemic as businesses adapted to survive. They didn’t always tell their broker or update their policies to reflect these changes.   

According to Gambrell, Zurich’s customers are able to self-serve via their broker any changes or amendments to their policy, which gives them the flexibility to add or remove covers and risks or make changes as and when they are required.  “We have a dedicated SME underwriting team available on live chat meaning a shorter response time for our customers. At any stage when customers make a change to their policy, we will update their risk information to reflect their business today, rather than what it looked like six months ago.”

However, it is up to the SME to tell their broker of any changes. During the pandemic, Markerstudy did email campaigns to ensure customers shared with them any changes to their business. “It’s been a real challenge keeping up with what’s been going on. In fairness to insurers, it’s been a challenge for them too in terms of understanding at what point this ceases to be a flexible approach to a short-term challenge and starts to become business as usual,” questions Townsend.

Furthermore, many businesses haven’t realised they are not fully covered until an event occurs. For instance, both Brexit and Covid-19 have caused supply difficulties for some businesses which can impact the adequacy of the business interruption indemnity period.

This has led to trust issues toward insurers. “Customers tell us of putting in a business interruption claim and not getting paid. And even though the insurer was being perfectly reasonable as contractually there was no cover, in the customer’s perception it’s left that discomfort,” says Townsend.

According to Mike Hallam, The British Insurance Brokers’ Association head of technical services, the effects of Covid-19 have highlighted the need for businesses to understand what they can expect from their insurance policies. It has prompted the sector to commit to more clarity in wordings through the work the Chartered Insurance Institute is doing on trust via its Ethical Companion along with the Lloyd’s report on ‘Building simpler insurance products to better protect customers’. Biba, itself, is currently updating its guide on avoiding underinsurance with Allianz Group’s help.

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