January 31, 2023

By: Subrata Das, Associate Director, Insurance, LTIMindtree

The small commercial business is a very active market, with new startups entering the US market every year and more so from the millennial generation. However, as per the Insurance Information Institute, about 40% of small business owners don’t have the right type or amount of insurance.

Insurers are coming up with next level of sales, distribution, and servicing models, which not only help them acquire new customers, but also retain them. Small business owners, on the other hand, are seeking out insurers, who can not only provide savings but do it quickly, while keeping the process simpler.

The value of small commercial insurance online market is about USD 558 Bn, of which, P&C Insurance amounts to USD 33 Bn*. In 2020, about 38% of small commercial owners preferred to purchase insurance online, whereas by mid-2022, the count had almost doubled*. Many insurers have started directing significant attention towards this segment. They have either invested, or earmarked investments for various initiatives to capture the market share, in what would be an aggressive area, a few years ahead.

This blog explores the key business drivers that are completing this shift from the insurers’ point-of-view, the different industry disruptors that will bring in more innovation, first mover advantage in the delivery model, and finally, what the future holds.

The Key Business Drivers

Evolving customer behavior and demographics:

With the emerging millennial generation of small business owners, insurers are seeing a shift in customer behavior, from purchasing to servicing of insurance products. These small business owners are driven by innovation, social networking, risk taking, and creativity. They are geared towards generating value for their customers, with focus on agility and cost savings. Therefore, the time of commitment for an insurance purchase is very limited. The millennial customers are looking for a one-stop-shop, with less to no-human intervention coupled with the ability to self-manage, i.e.

• online availability and end-to-end transactions (quote to issue) in minutes
• complete self-servicing capabilities
• omni-channel capabilities
• get information pre-filled
• ability to get specific (non-generic) coverages and pricing for their business
• simplified yet comprehensive literature and terminologies

Commoditization:
The small commercial US market is extremely fragmented, with no single insurer having a bigger portion of the pie. There is very little differentiation among insurers with respect to the core coverage they provide for any type of small commercial line of business, making the product highly commoditized. Therefore, insurers are working on not only acquiring customers but also retaining them, given that the barrier to switching insurers has lowered. The focus has shifted to automation and digitization, with customers expecting post-sales services and support via multiple channels.

Next-Gen Technologies:
With the emergence of big data and next-generation technologies such as AI, Machine Learning, RPA/IPA, IoT and Sensors, Blockchain, AI, analytics, etc., insurers are investing heavily in these areas to transform their business into an automated and digital landscape. Insurers are working on error reduction, data-based risk assessment and pricing, minimizing risk exposure, claims reduction, and eventually lowering the cost of operations. The focus, going with the trend of customer behavior, is also to provide an end-to-end seamless digital customer experience from ‘new business’ to ‘claims’ and beyond.

Industry Disruptors

Rise of Aggregators and Insurtechs:

The last few years have seen the rise of aggregators, which are websites where one can compare and purchase insurance from various available options. Think of it as an Expedia or Travelocity, but for insurance. A potential customer can compare the coverage, features, benefits, and price points from various insurers for the amount for which the risk is being insured.

Aggregators provide an effective and efficient way to get more business for insurers, as they provide a consolidated platform to shop for various types of coverage.

TThe aggregator model caters to the needs of insurers, customers, and agents through variations such as:

1) Lead generator: here, websites concentrate on getting customer leads via the option of comparing and shopping for quotes from various insurers. These leads are then eventually sold to the insurance agents to be taken further. E.g., Trusted Choice, NetQuote.
2) Digital agencies: the agencies help the customer compare and shop online, starting from quote-to-purchase. These websites ensure that enough information and guidance is provided to any potential customer, to make an informed purchase decision without any human intervention. e.g., PolicyGenius, Coverwallet.

Insurtech, as the name suggests, is about applying technology improvements to the insurance industry, to optimize and improve insurance operations, thereby focusing on cost reduction, effectiveness, and efficiency.

Some of the key insurtech disruptors have been:

• Providing on-demand property risk evaluation using data science and geospatial imagery for better underwriting decisions by the insurers, e.g., Cape analytics
• Providing accurate and efficient underwriting for commercial insurance, using advanced AI for their risk engine, e.g., Cytora
• Providing on-demand insurance cloud platform for building digital insurance products and offers on specialized products, such as pay-per-user cyber and homeshare insurance, e.g., Slice Insurance

Emerging Technology Investments:

Some of the key trends observed in this space have been:

• Investment in small commercial platform modernization via COTS implementation (Guidewire, Duck Creek), replacing or upgrading the existing legacy systems
• Setting up of product innovation labs for coming up with innovative small commercial products
• Data analytics and fleet telematics for product pricing, underwriting, market analysis, etc.
• IoTs and sensors for managing risk, claims reduction, etc.
• Artificial Intelligence (AI) to support straight through processing, lead generation, etc.
• Enhancing ancillary applications: document management, rules engine, FNOL applications, etc.

Evolving Delivery Model:

Customer centricity:

The evolving buying pattern of millennial small commercial owners are forcing insurers to invest heavily in direct-to-customer platforms for purchasing insurance products. Some of the key trends observed in this space have been:

• Simplification of product and coverage definitions
• Expanding class codes and coverage types
• Simplified user interface, data pre-fill, and automated underwriting (via straight through processing)
• Easy and faster quote to issue capabilities online, and self-service capabilities for policy administration
• Partnership with businesses such as banks, legal firms, home improvement retailers to provide any non-insurance advice and support to small business owners
• On-demand support via Chatbots and live calls

Transforming Agency Management:

Not all insurers have jumped onto the bandwagon to come up with direct-to-customer platforms and focus on improving their existing agent’s small commercial platform. Some of the key trends observed in this space have been:

• Expanding class codes and coverage types
• Simplified user interface, data pre-fill, and automated underwriting (via STP: straight through processing)
• Automated renewal process through STP (Straight through processing)
• Easy and faster quote to issue capabilities online, and self-service capabilities for policy administration
• Real-time and seamless integration of agency management system, with other insurer core applications, such as policy admin systems or CRM systems

The Path Forward:

• Insurers will continue to invest heavily in customer enablement in terms of simplified and faster user experience, quicker quote to issue, self-service capabilities, tutorial capabilities, and other supplementary services (e.g., tie-ups with banks, lenders, law firms, etc.)
• Though direct-to-customer approach is gaining momentum, agency management is here to stay with investments being made to make them more customer centric, quicker quote-to-issue, improve conversion (quote to bind), and automated underwriting (STP)
• Acquisition of or partnership with aggregators to gain more access to small commercial customer base
• Usage of emerging technologies, data science, and analytics across the value chain for competitive pricing, faster policy issue, robust underwriting, and claims reduction
• Introduction of more class codes and usage-based products to capture more market share in terms of product variation and competitive pricing
• Investment in digitization and omni-channel presence across the insurance value chain

Source: Celent report, 31st July 2022