The time for mincing words and for half-measures is past. The evidence is in—if we’re honest, it’s been in for years—and it could not be clearer: small commercial insurance is failing its customers.
A new wave of evidence is making an extremely convincing case that the industry’s failings persist—and may even be getting worse.
Let’s review the tape.
First, the Federal Emergency Management Agency (FEMA) continues to report that 40 to 60 percent of small businesses never reopen their doors after a FEMA-declared natural disaster. Of those that do reopen, another 25 percent go out of business within a year. This statistic has been widely reported for years, and its longevity speaks to the duration of the struggle to adequately insure small businesses.
The survival rate for small businesses that fall victim to a digital disaster is not any better. According to the National Cyber Security Alliance, 60 percent of small- and medium-sized businesses that suffer a cyber attack go out of business within six months. The latest Data Breach Investigations Report from Verizon, meanwhile, reports that small businesses were the victims of 43 percent of data breaches in the last year.
We know from industry research that 75 percent of small businesses are under-insured. Some of these know they don’t have insurance, but others are customers who have an insurance policy, such as a business owner’s policy (BOP) or a small business package policy, and don’t realize where they are and aren’t covered. This currently is the biggest failing of the small business insurance market: not that we aren’t providing coverage solutions for small business, but that our channels, approaches and education fall short of enabling most small business owners to understand all of the different coverages they need and the risks and exposures of not having them.
There is almost no other product or service that creates so much confusion among customers about what they need to buy, so much uncertainty about what they are in fact buying, and so much doubt (which is all too often justified) as to whether or not their insurance will protect them when they need it.
Look, this isn’t to say this happens in all cases. There are some diligent, talented agents providing superior service to their customers and there are some niches of insurance where superior collections of products are fully meeting the needs of an insured. But a look at the overall data across the board makes it undeniable that insurance is not adequately serving the needs of the small business customer.
This analysis is based on more than a year of research from the insurance team at Accenture that includes a survey of 500 small businesses, in-depth workshops with small business owners, more than 20 video and on-site interviews with small business owners, and heavy involvement with multiple carriers in re-thinking their small commercial business. Together it presents one of the clearest pictures of the industry produced in recent years.
The headline takeaway? Customers are confused, uncertain, and unsure about whether or not the insurance they are buying is right for their business. This frustration was evident in the interviews and workshops with small business owners. They described the process of finding insurance as time-consuming, exhausting, and inconvenient. Many pointed to the process of figuring out what coverage they need as the most demoralizing part of the experience, as they floundered in a sea of unfamiliar and unexplained jargon, products, and systems.
We can see this in their actions, as measured by the research:
- 38% have insurance from more than one carrier.
- 28% have more than one agent.
- 24% are likely to shop around for their coverage in the next year.
We can also see it in their stories. In our interviews, we spoke with:
- A salon owner who had five salons, two agents, and three carriers, and was still highly doubtful that she had the right insurance.
- A small hotel owner who had only liability coverage and didn’t realize she might also need property and other coverages.
- An insurance agent who had a solid BOP,, but the critical professional liability coverage for the activity was missing.
This problem is prevalent because carriers have traditionally acted like manufacturers in commercial insurance. They create products and then rely on agents and brokers to pull everything together into a cohesive experience.
That would be fine if the needs of small businesses were simple and uniform. This, of course, is the opposite of what we find: each small business customer is unique and comes with complex needs. These can include:
- Property coverage including extensions for CAT, inland marine, and other needs
- Liability including specialized coverage for design, employment practices liability insurance (EPLI), and other needs
- Cyber coverage for customers and operations
- Auto insurance
- Workers compensation
- Much more
The complexity of customer needs here has been compounded by the same trends that have recently reshaped so much of how insurance in general operates. There are growing premium, expense and time pressures in the market, and a move toward direct online models.
As the data makes clear, there just hasn’t been enough dollars or time invested with small business owners to provide the service required. Small commercial also has not been the major focus of the industry. Carriers are more interested in making their sales experiences faster, simpler, and available across new channels. Those are important goals, but achieving them means little if the customer isn’t fully educated and offered the protection that their unique business needs.
All that said, there are some strategies that are finding success in the small commercial market right now. We see three plays in particular that are working out.
The first is the affinity play. There are multiple and growing approaches to affinity plays that aim to provide coverage to a select segment of small businesses. MyFoodTruck.com is a simple example. In concept, these have the potential to allow customers to quickly find the right coverage map. The challenge is that not all of these plays offer the full range of coverages that the segment might need, or that fully account for individual company variability.
The second is coverage selectors. A few carriers have tried to develop coverage selectors to help customers find the right coverage for their needs. This is a good educational concept as long as it’s executed fully in explaining the customer’s full coverage needs, and isn’t limited to the carrier’s or agent’s available coverages. What we don’t want to do is have an automated way to give incomplete advice.
The third play is product changes. These are simply new products that aim to address these issues. The most interesting of these is Three, launched by Berkshire Hathaway this year. It is making a play to make small commercial insurance simple again for small business by offering a comprehensive policy that will cover the complete insurance needs of most customers. By doing this, it offers a way for small business owners to be certain they have full and complete coverage for their business.
We have also seen other carriers start to switch from traditional BOPs to more multi-line package policies with the idea that they can add additional coverages for a given business. This is a good foundation, but unlike Three, it doesn’t yet provide the full end-to-end solution, advice, and education small business customers need and deserve.
We often say that small business is the key driver of the economy. Insurance is also one of the three financial pillars that ensure an efficient economy. Today, our insurance industry isn’t fully serving the needs of these small businesses.
I know that we can do better. There is no reason that small business insurance can’t address its shortcomings and becoming a growing industry that delights instead of dismays its customers. I would love to continue the conversation. I can be reached here.