SME Insurance: executive summary

As a sector that is valued at over £5bn, the SME market is an important part of the UK insurance market. This stream had a healthy debate focused on the impact of technology as insurers and brokers attempt to gain competitive advantage, and on the change that technology is having, or indeed driving, on the business models of these players.

The session started with a presentation on the question “Where will technology have the most impact for SME business?”. One of the important themes that emerged from this presentation was data. Without data a company could not be player in this market.  It allows companies to understand the costs of their channels and their relative profitability - not all channels are created equal. Technology has a key role to play allowing companies to cut and slice data by trade, region and many rating factors. It enables the companies to use external information sources more easily, enabling insurers to use factors such as behaviour scoring and credit ratings. This stimulated the debate on whether insurers would move to just two or three questions to rate SME risks. There was an insurer present who is trialling this approach. This is a concept often demanded by brokers and often rejected by underwriters, but in fact it seems that it is customer expectation that is the chief inhibiter. Customers believe that insurers need to ask for more information in order to price their risk and question whether the insurer really understands their business based on seemingly little information.

It is this understanding of their business that brokers see today’s customers demanding. They see that customers require a greater level of understanding about their trade and business sector. Brokers cannot simply introduce products to customers, they need to provide advice and help their clients with products that are specific and appropriate for their business. The dynamics are also changing and insurers are expecting brokers to have more ‘skin in the game’. It is no longer just about commission on policies.

No session on technology and SME insurance would be complete without a discussion on e-models. The consensus was that e-business, whilst it has increased, still hasn’t made an impact in the overall SME sector. Although there are a number of reasons for this, one sentiment expressed by members of this session was that entrepreneurs find the personal relationships very important. It is often precisely this that has made them successful in their own businesses. They trade with people they know and trust and most e-models have not found a way of fulfilling this need.

Continuing on the e-business theme, the session asked its participants about the role they thought aggregators will have in SME insurance. Despite the increased number of products that are now being traded online, the overwhelming verdict was that aggregators would only have a limited impact. Participants believed that only for the simple risks, such as for a single tradesman, would customers purchase in this way.

The participants agreed that technology can genuinely take cost out of the chain in the form of automation of processes and this was best done in incremental steps. The appetite for a ‘big bang’ technology investment is rare. Businesses prefer incremental business case led change in line with a combined business and IT strategy.  Nonetheless creating that vision and managing the balance of IT and business input is a difficult. Opinions varied from those who thought IT was too involved with strategy, with technology leading the vision, to those who thought IT came too late to the discussion and that opportunities where technology could have played an important role had been missed. A balance that will no doubt be debated for many years to come.

 

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