Expertise in Action: E-Trading: Fierce competition

The insurance market has so far struggled to deliver the right blend of expertise and efficiency to profitably service the needs of SMEs. But when it gets the balance right, there is a growing market for insurers and brokers alike to go after.

Figures from the Department for Business, Innovation and Skills show just how sizeable that market is. In 2000 there were less than 3.5 million SMEs in the UK. Today, that number has grown by 40% and stands at almost 4.9 million.

Competition in the SME sector is fierce. Personal lines insurers are seeking to expand into the micro end of the market, while direct writers are also looking to grow their influence in this space. Aggregators and online sales channels might find it easy to offer policies to the millions of SMEs out there, but winning market share and delivering profits on the business is not so simple.

Given the wafer thin margins available on micro SME business, insurers and brokers cannot afford to spend a lot of time administering these policies. But they also need to find ways of catering for the more varied needs that SMEs have developed.

These varied needs have developed for a number of reasons. The SME sector is getting increasingly complex, and the risk profile smaller businesses represent has changed dramatically. In the last five or six years the tough trading climate has forced firms to diversify. Some have launched new products and others have gone after different customers. Whatever they have done, this diversification has changed the risk they represent.

Many have moved online to both source and sell their products, while others use the internet to offer their services to a wider audience. In doing so they have changed the supply chain risks and liability exposures they face — which in turn impacts insurers.

Think, for example, of a small high street shop selling its wares to local customers. If that shop starts selling goods online to customers in the US, it creates a whole new set of risks. If it does not realise this and change its cover accordingly, the shop’s standard insurance may well not respond should a US product liability claim be made against it.

New risks
New working practices have further changed the traditional look of SME liabilities. And with more people working and employing staff from home, they need to think about how these risks are assessed and managed.

These new risks are not problematic to overcome, but unless they are recognised SMEs will not address them properly. SMEs are passionate about their businesses and recognise that buying the right insurance for their business is more complex than buying cover for their home or car. They really value expert advice in this area.

This means the challenge for brokers and insurers in the SME market is to provide a flexible insurance solution in a low margin environment.

To do this, there are a number of things insurers need to do. The first is to ensure straightforward SME covers can be completed electronically. The market has largely managed this, but it has struggled with providing quick and convenient upselling opportunities to these clients and with creating a fast and effective referral process for more complicated cases.

When margins are so tight it is really important to improve the average income from each customer. Information gleaned in the application process should allow other relevant covers such as personal accident or business travel to be offered automatically. These covers should all be pre-priced based on the information the applicant has already supplied, meaning they can be bought with one click.

This broadens the proposition on offer and increases the revenue generated from each policyholder. But the real challenge lies in handling the referrals for more complex cases efficiently.

Trading platforms, such as Zurich’s ZTrade, can improve the way brokers and underwriters confer on referrals. Where a case does not complete automatically, brokers can ask an underwriter to intervene. The broker and the underwriter work from the same system and because they both access the case, they can simply pass it from one to the other.

Systems like this allow underwriters to log in and then assess and price a case as required, then allow the broker to take up the reins again and complete the application. This can prevent the introduction of errors from rekeying that can happen when passing cases between different systems.

In other models, when applications are passed from the online to the offline environment it creates delay and generates extra work for all involved. Matching the SME underwriting footprint with the capability of the online system means you can effectively remove the boundary between what can be traded electronically and what needs to be traded traditionally.

Brokers always want to secure the best product and premium for their clients, so the ability to generate indicative pricing for a risk within 60 seconds lets them get an accurate idea of what is available for any particular risk.

Dynamic question sets respond to the information already provided and ensure brokers are only asked for relevant data. This reduces the time it takes to make a full application, as well as generating all the specific data needed to price the risk accurately.

Diversified businesses
Although many products in the SME sector have become commoditised at the micro end of the market, there is still a need for policies to cater for the increasingly diversified businesses that operate in this sector.

These policies have to be delivered efficiently to make them profitable. This means having a system that can provide the flexibility required. In part, this flexibility is delivered by dynamic questioning, but it also comes from product design.

Both factors allow for pre-priced add-on covers and extensions to be offered on quotes, improving the ability to increase the income generated from each customer.

While speed, convenience and competitive premiums are fundamental in the SME market, business owners also want insurance that will respond when needed. There is a diverse range of liabilities to understand and SME insurance buyers realise this is not where their expertise lies. They want to protect their livelihoods and they want the guidance a broker will bring.

Brokers need to deliver policies within ultra thin margins at the micro end of the market in a way that is quick and easy. They also need to be confident that the insurer they are working with can deal with referrals on more complex cases quickly and effectively.

The SME market and its need for insurance advice are growing quickly. There is a real opportunity to harness technology to protect the vital role brokers play in delivering advice to this crucial segment of the economy. In turn, brokers can grow their own businesses on the back of this rapidly developing sector.

Jason Eatock, head of SME transformation, Zurich

This article was published in the 18 September edition of Post magazine.