Reinventing SME insurance

SME insurance customers are increasingly looking to purchase cover online. Is the insurance industry ready to meet this new demand?

The changing nature of SME insurance

Small and medium-sized enterprises (SMEs) represent 99% of UK private sector companies, and one-third to one-half of all commercial insurance premiums, worth an estimated £7bn annually. The SME sector is a growing opportunity for commercial insurers, yet the industry has traditionally been slow to respond to the changing needs and purchasing behaviours of this market.

In the UK, 43% of small businesses purchased their most recent insurance online (direct and via online brokers).1 This contrasts with the 10% of businesses who purchased online back in 2012.

Within a decade we expect more than 90% of micro-SME and 40–50% of other SME insurance will be bought online.2 In reality, following the trend of the past 5 years, we anticipate the sector will reach this point sooner rather than later.

Importantly for insurers, based on the rate of change to online purchasing, around £380m in SME premium is moving from traditional to online transactions annually. This indicates a substantial disruption to how SME insurance buyers purchase insurance.

SME insurance customer preferences are evolving

At the root of the change in SME market dynamics is an evolution of the SME insurance customer, in demographics, digital skills and purchasing habits.

Our experience of working with business owners, particularly those with nascent businesses, suggests that an increasing proportion of SME insurance buyers expect to make online transactions for every purchase. Sole traders and zero employee businesses (who often complete administrative tasks outside standard working hours) are most likely to buy direct and online because they find it fast and convenient.

This change is driven by expectations from personal consumer habits. Global surveys of SME businesses show that the majority of those who bought their personal insurance online also purchased their most recent business insurance online. Indeed, personal insurance purchasing behaviour is the single biggest predictor of how a business wants to purchase its business insurance.

Where personal lines go, SME will follow.

New technology helps insurers meet evolving customer expectations

We’ve written before about how artificial intelligence (AI) and digital technology is transforming multiple dimensions of the traditional insurance business.

In the SME market, insurers have an opportunity to match their product offering to customer expectations. By engaging with SME customers an insurer can drive premium growth via superior distribution, customer experience and retention. There is also an opportunity here to deliver excellent broker-partner distribution channels.

Conversely, technology also helps insurers control costs. AI underwriting helps insurers to automate risk assessment and pricing for commercial risks (especially in low-premium SME lines) and enables questionless underwriting – the ability to assess and price a risk with no information required from the insured. This can enable insurers to grow premium without experiencing a corresponding uptick in operating costs.

We discuss further how questionless underwriting can be applied to SME insurance to meet evolving customer expectations in our next post.

If you are a commercial insurer looking to grow or start an SME book, we can help. Contact us to speak to one of our team.

1 Global Digital Small Business Survey. 2017 PwC Strategy&

2 The Underwriter of the Future: Six Years On. 2018 Chartered Insurance Institute & Oliver Wyman