Turning High SMB Volume into Insurance Product and Service Growth

In an industry filled with InsurTech startups, new MGAs and a host of ancillary organizations, insurance industry execs should be interested in the success of small-to-medium businesses (SMB). We know their power to produce great ideas, launch new businesses and operate with agility. We know their creative strength. We also know their hurdles, such as funding, talent gathering, operational constraints and the need for simple solutions to complex business headaches.

But there is one trend we should see within InsurTech that will lend itself to insurance interest more than any other — SMB proliferation and growth. The rapid multiplication of SMB companies, that all need insurance products and services, is a trend that is going on within nearly every industry. Tech companies are on the rise. Services companies are on the rise. Despite historically low unemployment, new companies are managing to find enough talent to launch and grow. According to the U.S. Small Business Administration, the SMB market size is massive and continuing to grow — 30.2 million businesses representing 99.9% of the market.

Of course, SMB growth doesn’t, by itself, translate into greater insurance sales. But because these businesses are significant drivers of the overall economy and they are where market trends and innovation emerge, insurers are finding great synergy between these kinds of new businesses and their own paths toward innovation and business model change. SMB  growth is increasingly powered by digital technologies that provide efficiencies and improve competitiveness, such as the ability to innovate with new products and services, scale quickly and cost-effectively, and broaden reach into existing or new markets.

Segments highlight the opportunities.

Majesco recently conducted its third annual SMB research survey that split SMBs along two lines. First, businesses were segmented by size using the number of employees. (1-9 employees, 10-99 employees and 100-499 employees.) Then, and most significantly, it was segmented by decision-maker age, splitting employee sizes into two groups; Millennials/GenZ and GenX/Boomers. Using these six groups, we identified trends related to demand and purchasing. Beginning next week, you can access Majesco findings by downloading our thought-leadership report, “Building the Business Model for the Next Generation of Small-Medium Business Leaders.”

Trends point to shifting behaviors.

In our recent consumer research aimed at understanding today’s customers and their impact on insurance business models (see the customer report here), we identified channel and purchase trends that are significantly correlated to customer age. It stands to reason that SMBs would also be subject to similar age-related insurance behavior and expectation trends — though these trends must be looked at through the lens of corporation size.

Using both of our surveys for guidance, we found that embracement of digital technologies by SMBs will accelerate as Millennials and Gen Z become the dominant population among both consumers and SMB owners and leaders – and that is within the next 7 years! Their impact will be felt as they launch new startups and take over the helm of existing businesses. This new generation of SMB leaders use technologies to engage in new behaviors and businesses that require new risk products and services.

However, we were surprised to find out that heightened expectations among SMBs are causing them to embrace some marketplace trends and digital technologies at a faster pace than consumers, intensifying the demand for a new digital era of insurance.

Here is some of what we found:

• Up to 38% of Gen Z and Millennial SMBs purchased business insurance online, within the 10-99 employees segment. This is double the volume found in last year’s survey.
• Up to 32% of SMBs purchased on-demand insurance to cover an event or product for a specific period of time.
• Gen Z and Millennial SMBs lead in the use of digital and mobile channels for engaging with their insurance companies.
• From 37% to 48% of Gen Z and Millennial SMBs use connected devices like security systems and cameras, thermostats and smoke detectors. Smart speaker use is also growing among Gen Z and Millennial businesses.
• Nearly 35% of larger Gen Z and Millennial SMBs offer employees discounts on life or health insurance if they use fitness trackers.
• Connected Vehicles that monitor employee driving behavior increased in use by over 50% from last year among larger Gen X and Boomer SMBs.
• SMBs are hiring freelancers and independent contractors for projects and limited term work, fueling the Gig Economy – where voluntary benefits may be needed. Nearly 50% from the smallest companies have also worked as an independent contractor.
• Use of drones and 3D printing reaches nearly 20% in several SMB segments, led by Gen Z and Millennials and larger businesses.

Matching behaviors to business models.

The rapid growth of these market trends and digital technologies is accelerating SMB interest in new insurance products, services and business models – putting those insurers with innovative offerings in a first-mover position to win market share and drive growth strategies. SMBs have strong interest in value-added services – nearly 75% across all segments. They have strong interest levels (nearly 60%) in social and peer-to-peer features and business models.

Among medium and larger Gen Z and Millennial SMBs, there is exceptionally strong interest in products using new data sources for pricing and underwriting risk. If we look at the interest in value-added services and the increased comfort level with new data sources, we see that insurers have a significant opportunity to shift their business models to match. A plug-and-play microservices approach to data ingestion and analysis will help insurers on the front end, while engaging with partners to offer unique services will add value to the relationship, creating a relevant, personalized, and future-ready business model value chain. Expansion of distribution and engagement strategies offers another opportunity which we will discuss more in our SMB Engagement blog, coming in two weeks.

There is an underlying threat, however. Gen Z and Millennials would strongly consider purchasing insurance from the “Tech Giants” including Amazon, Google, Apple, Netflix and others. They are familiar with these brands and their service levels – creating a unique level of loyalty that will sway them should the tech giants make a move.  A key reason they would switch is the digital experience from the tech giants they expect from others they do business with – like insurers.  To keep SMB customers loyal and to capitalize on higher SMB growth opportunities, insurers should prioritize digital quote, purchase and service capabilities and technologies at the top of their digital transformation.

The increasing demand for and use of digital technologies, the continued emergence of innovative business models and products, and the rapid shift of the Gen Z and Millennials as the owners of SMBs will require innovative new approaches by existing insurers to retain customers and capture the market shift and corresponding growth opportunities.  The crucial and strategic question for existing insurers is: Are you ready to capture the tremendous growth opportunities in this vast market — but in a new, innovative and digital way?

Shifting business models today will position insurers for optimal SMB market growth.

Within the next 7 years, Gen Z and Millennials become the dominant segment in the 30-60-year-old “sweet spot” of SMB owners. This is the window of opportunity for insurers to align to a new era of digital insurance for SMBs.

But what does this business model shift really entail? Should insurers set innovation goals for their products and services or prioritize distribution and engagement strategies? In our next blog, we will discuss our SMB findings in depth in order to help insurers position themselves for greater product and service innovation. We’ll look closely at how new business practices are providing new business opportunities and we will examine why insurers may wish to “push the boundaries” now in order to achieve sustainable growth in the future.