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Targeting SMEs in UK General Insurance 2009

Datamonitor
October 15, 2009
SKU: DFMN2483388

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

Introduction

This report provides a unique evaluation of the purchasing behavior of SMEs based on Datamonitor's exclusive SME survey, giving the reader an edge in this dynamic area. The report also explores how SME's attitudes differ depending on size, allowing for more precise targeting of market segments.

Scope

A detailed look into SMEs' insurance purchasing patterns by company size
An evaluation of the potential for growth for direct insurers and bancassurers in the SME sector
Action points detailing potential strategies for different providers wishing to target SME business

Highlights

Of the SMEs in Datamonitor's survey, 46.0% indicated that they purchased just package products in 2008. The popularity of package products reflects the success of simple packages like shops and offices policies that can accommodate a broad range of risks, but also the more niche products designed for specific trades, such as the motor trade.

Overall, 34% of the SMEs surveyed were willing to consider arranging their insurance over the telephone. Of those that were willing to consider a telephone arrangement, 51.0% cited speed as a reason why they would.

A majority of SMEs that would buy online were inclined to purchase less complex products such as public or employers' liability, or commercial motor.

Reasons to Purchase

Improve customer retention by understanding SMEs' reasons for staying with a provider, as well as their reasons to switch providers
Boost customer acquisition by understanding what insurance products SMEs are willing to buy online and via the telephone
Understand the current competitive environment of the SME sector in relation to competitor strategies and current distribution trends

Overview: Catalyst; Summary; Executive Summary; The SME market is attractive for its sheer size, though the recession will have an impact; The SME market was estimated to be worth £5.4 billion in 2008; The recession has put pressure on SMEs and is resulting in more insolvencies; Package products are the principle means through which SMEs purchase their cover; SME insurance needs are varied and encompass a range of products; Face-to-face arrangement through established brokers is the main means by which SMEs arrange their cover; Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs; Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs; Most SMEs learn of their insurance provider through previous experience or proximity; SMEs are generally loyal to their existing insurance provider but there is significant churn to exploit; More SMEs considered a change of provider in 2009 than in 2008; Approximately one third of the SME insurance market would be willing to arrange their cover over the telephone; Most of the SME market is unwilling to use the internet to arrange their insurance cover; SMEs are most open to purchasing motor and less complex liability products online; Insurance providers need to make the necessary investments so they can offer quality low cost products; The recession will make SMEs more price sensitive, requiring brokers to invest in the ability to deliver at a lower cost; Direct players need to play up the potential cost savings which an SME can obtain from going direct; Banks can market themselves as low cost alternatives, appealing to SMEs' price sensitivity; Table of Contents; Table of figures; Table of tables; Market Context; Introduction; The SME market was worth over £5 billion in 2008, with rates hardening in motor; The SME market was estimated to be worth £5.4 billion in 2008; A large proportion of brokers reported no change in premium rates over the last year; The SME market is attractive for its sheer policy volume, though the recession will have an impact; The number of UK enterprises grew by 4.7% to 4.8 million; More than 99% of UK companies are small businesses; The recession has put pressure on SMEs and is resulting in more insolvencies; SMEs often require a range of cover, generating a wide range of premiums for insurers; Package products are the principle means through which SMEs purchase their cover; SME insurance needs are varied and encompass a range of products; SME insurance policies can vary considerably in value, depending on the size of the risk; Affinity propositions are increasingly targeting the SME market; Traditional affinity partnerships in the SME market have been based on trade associations; There has been significant interest from some personal lines affinity players in distributing SME insurance; Two high profile affinity partnerships have announced their expansion into the SME insurance market; Kwik Fit has teamed up with Moorhouse to target SMEs; Heath Lambert and Fortis announced a deal to distribute SME insurance through the Post Office; Several insurers have adapted their SME broker offering, reflecting the competitive nature of the market; QBE has rolled out a range of online SME products; MMA reworked and relaunched its SME product range; Chaucer made changes to gear up for an SME push; RSA is aiming to increase its SME market share with better and faster service; SME insurance giant Aviva closed its direct commercial operations, concentrating on broker distribution; Brit Insurance expanded its SME product range with a new PI product; Allianz Commercial is targeting growth in SME business in Scotland; The motor trade has attracted a great deal of attention for those insurers looking at growth in the SME market; AXA redesigned its motor trade product; NIG is focused on the medium-sized motor trade business; MMA launched a new motor trade internal risks product at the start of 2009; Many brokers have organic or acquisition driven growth ambitions for the SME market; AXA rebranded Venture Preference and continued to add to it with acquisitions; Swinton has identified growth in the SME market as a priority, supported by its consolidation activities; Swinton has approached nearly half of the respondents of a Datamonitor broker survey with an offer for their business; Aon launched a credit insurance service to SMEs and acquired the specialist broker Supercover; Marsh is reaching out to regional brokers in an SME push; A new consolidator is looking to create a leading SME insurance presence; Broker Direct has also announced a number of acquisitions, and Our Network has expanded rapidly; JLT has acquired Ingham & Co to add range to its Thistle Underwriting platform; Broker-owned MGAs have become a common feature in the commercial insurance market; Distribution Dynamics; Introduction Face-to-face arrangement through established brokers is the main means by which SMEs arrange their cover; Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs; Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs; Most SMEs learn of their insurance provider through previous experience or proximity; SMEs that are clients of direct insurers, are more likely to have used the internet or a mail shot to learn about their provider; SME insurance providers are generally good at achieving high levels of customer satisfaction; SMEs are generally happy with their insurance provider; SMEs tend to prefer longstanding relationships with their providers, making an initial pitch critical; After their first year of trading, approximately one fifth of SMEs with insurance change their provider; Whilst SMEs generally value provider advice, medium-sized companies are particularly receptive to it; Clients of direct insurers value advice the least; Clients that arrange their insurance face-to-face are most keen to receive advice; When choosing a provider, SMEs value good service almost as much as price; SMEs are sensitive to price, regardless of their size; SMEs that purchase online appear to be the most price sensitive; SMEs that are clients of direct insurers are more likely to have chosen their provider on the basis of price; Many SMEs rely upon their insurance providers for extra services; The majority of SMEs receive some services from their insurance providers, with legal advice the most common; Micro SMEs are less likely to use extra services from their provider, though legal advice is most common; Most SMEs that receive additional services from their insurance provider do so for free; The most desired services are risk management and legal advice; Approximately one fifth of SMEs that do not receive extra services are interested in obtaining them; Potential Switchers; Introduction; SMEs are generally loyal to their existing insurance provider but there is significant churn to exploit; Approximately one fifth of respondents started their relationship with their provider in the last two years; SMEs that have been trading for five to 10 years have typically been with their provider the longest; Banks had acquired the largest proportion of new business in the SME insurance sector; Price was the major driver behind SMEs switching their insurance provider; The number of SMEs thinking of switching has risen to higher, historic levels; More SMEs considered a change of provider in 2009 than in 2008; A variety of companies, from different industries, believe they will change their provider over the next year; SMEs that use the internet to arrange their insurance are the most likely to search out a new provider; Price is the leading reason why SMEs think that they will change insurance provider; SMEs are open to alternatives to face-to face distribution, though the majority still require convincing; Micro SMEs are the most open to buying their cover over the telephone; Approximately one third of the SME insurance market would be willing to arrange their cover over the telephone; Micro SMEs are attracted to the speed and expected cost savings of telephone arrangement; The internet is attractive to SMEs due to its convenience; One third of SME insurance buyers would be willing to arrange their cover online; Micro SMEs are more likely to consider arranging their commercial insurance online; Most SMEs remain opposed to telephone arrangement, though their reasons are varied; The fear of not obtaining the proper cover and expert advice is holding most medium-sized SMEs back from the telephone; Most SMEs prefer the personal contact of face-to-face arrangement rather than the speed of the telephone; Two thirds of the SME market would not consider an online sales process when arranging their cover; Most of the SME market is unwilling to use the internet to arrange their insurance cover; Medium-sized SMEs are the least likely to consider an online option; Of those SMEs willing to buy insurance online or via the telephone, liability products were the most popular; SMEs are most open to purchasing motor and less complex liability products online; Micro SMEs were most likely to consider purchasing public and employers' liability over the internet; Banks and direct insurers can sell into a sizable minority of SMEs but still need to convince most to give them a chance; Approximately one third of SMEs will use a bank as their insurance provider; Micro SMEs are willing to buy their insurance from a bank if the price is cheaper; Almost a third of SMEs are willing to arrange their insurance through a bank; The majority of SMEs are willing to purchase their cover direct; Almost two thirds of micro SMEs are open to buying their insurance direct from an insurer; Cost savings are the main drivers behind SMEs' willingness to consider a direct insurer; There remain significant obstacles to many SMEs considering banks as viable insurance providers; Medium-sized SMEs view banks as lacking expertise and reputation; SMEs are generally content with current providers and doubt banks have the expertise to sell insurance; Direct insurers face less opposition but still have several issues to address; Direct insurers still have to overcome SMEs' current contentment; Medium-sized companies retain doubts about the direct insurance channel; Action Points; Brokers can focus on delivering services and low cost products; The recession will make SMEs more price sensitive, requiring brokers to invest in the ability to deliver at a lower cost; Flexibility and understanding during the recession can prove beneficial; Face-to-face arrangement is popular but investments in online and call center distribution can yield additional business; Legal advice and risk management are the key additional services to offer to medium-sized SME clients; Direct players need to target smaller SMEs and address their perceived faults; Direct insurance players are well suited to the micro end and should focus on these customers; Direct players need to play up the potential cost savings which an SME can obtain from going direct; Stepped up advertising campaigns are necessary to drive consumers to a direct insurance operation; Direct players need to highlight the convenience and relative ease of their distribution platforms; Banks need to address their image as expensive providers with no expertise to break into the micro SME market; Banks can market themselves as low cost alternatives, appealing to SMEs' price sensitivity; Targeting micro SMEs and start-ups would exploit some of banks' natural affinities; Banks need to reinvest in their overall reputations, which appear to have suffered among SMEs
APPENDIX: Definitions; Distribution definitions; Banks/building societies; Brokers; Direct; Utilities/retailers/affinity groups; Premium income; Earned premiums; Gross premium; Written premiums; SME; Methodology; Datamonitor's SME Insurance Survey Q2 2009; Datamonitor's SME Insurance Survey Q1 2008; Datamonitor's SME Insurance Survey Q1 2007; Datamonitor's UK Insurance Broker Database; AP Information Services' Corporate Finance Database; Companies with multiple brokers; Companies with a captive arrangement; Industry sectors; UK Commercial Insurance Broker Survey - March 2009; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Q:"On average, by approximately what percentage have premiums changed in the last year, for the following business lines?" (Q1 2009); Table 2: Profile of UK enterprise by volume, employee numbers and turnover, 2007; Table 3: UK company insolvencies, 2004-2009; Table 4: SME insurance spend by company size (employee band) (£), Q2 2009; Table 5: Top 10 brokers by number of clients with turnover below £20 million, Q1 2009; Table 6: Q:"How long have you been with your current insurance provider?"; Table 7: Length of time with insurance provider by length of time trading, 2009; Table 8: Q:"How important is it to receive advice on an ongoing basis from your insurance provider?"; Table 9: Q:"What were the most important reasons for choosing your commercial insurance provider?"; Table 10: Q:"What services do you currently receive from your insurance provider?" (by SME size, Q2 2009); Table 11: Q:"What services would you like to receive from your insurance provider?"; Table 12: Q:"How long have you been with your current insurance provider?"; Table 13: Q:"How long have you been with your current provider?" (by length of time trading); Table 14: Q:"Why did you switch?"; Table 15: Q:"Do you think you will change your commercial insurance provider in the next 12 months?"; Table 16: Q:"What business sector are you involved in?"; Table 17: Q:"How large is your company in terms of number of employees?"; Table 18: Q:"How large is your company in terms of turnover?"; Table 19: Q:"What business sector are you involved in?"; Table 20: Q:"What business sector are you involved in?"; Table 21: Industry sectors; Table 22: Industry sectors continued
List of Figures: Figure 1: Most SMEs rely upon previous experience when learning about their insurance provider; Figure 2: SMEs show the greatest willingness to purchase public and employers' liability insurance online; Figure 3: A significant proportion of brokers have seen no increase in premium rates, except in commercial motor; Figure 4: The number of UK enterprises reached 4.8 million in 2007; Figure 5: Almost three quarters of UK companies have no employees; Figure 6: Company insolvencies have picked up since the first quarter of 2008; Figure 7: Most SMEs will purchase their insurance in the form of a package; Figure 8: SMEs carry a wide variety of insurance cover; Figure 9: A significant proportion of commercial brokers were approached by Swinton; Figure 10: Brokers have the highest penetration among medium-sized firms; Figure 11: Micro SMEs are most comfortable with arranging their cover over the telephone; Figure 12: Most SMEs rely upon previous experience when learning about their insurance provider; Figure 13: Direct insurance customers rely less on previous experience and more on marketing; Figure 14: Satisfaction levels in the market remain high; Figure 15: Very few SMEs have changed their provider in the last two years; Figure 16: The most common length of an SME's insurance relationship was two to five years; Figure 17: Medium-sized companies are more interested in receiving advice from their insurance providers; Figure 18: Direct insurers' clients generally place less emphasis on insurance advice; Figure 19: Clients with more interaction with their provider are more likely to value their advice; .Figure 20: Price was almost matched in importance by service as a criteria for selecting a provider; Figure 21: Internet clients are the most price-sensitive; Figure 22: Direct insurer clients are slightly more price-sensitive; Figure 23: Few SMEs do not receive extra services from their insurance providers; Figure 24: Take up of extra services among SMEs declines as employee numbers increase; Figure 25: Few SMEs of any size pay for the additional services which they receive; Figure 26: Medium-sized SMEs are generally more keen on receiving services with risk management and HR advice at the top of the list; Figure 27: Demand for services from those not receiving is relatively minor; Figure 28: Most SMEs have a long-term relationship with their provider; Figure 29: One quarter of bank clients in the survey had changed at renewal; Figure 30: Price most often motivates SMEs to change their insurance provider; Figure 31: Companies in the education sector are the most likely to seek out a new quote in the next 12 months; Figure 32: Clients which arrange their insurance through the internet are the most likely to search for another provider; Figure 33: Price is the key motivation behind SMEs looking to change their provider; Figure 34: About half of SMEs that would buy their cover over the telephone would do so because it is quicker; Figure 35: Micro SMEs are more likely to consider telephone arrangement; Figure 36: Convenience, speed and the flexibility of arranging their cover outside of normal business hours are the top reasons why SMEs will consider online arrangement; Figure 37: Many busy micro SMEs are attracted to the convenience of online arrangement of insurance; Figure 38: The potential market for telephone distribution is low among medium SMEs; Figure 39: Most SMEs are not comfortable with arranging their insurance over the telephone; Figure 40: SMEs have a variety of reasons for not buying their cover online; Figure 41: Medium-sized SMEs fear they will not obtain the proper cover online; Figure 42: SMEs show the greatest willingness to purchase public and employers' liability insurance online; Figure 43: Public and employers' liability were the most likely to be considered for an online purchase by micro SMEs; Figure 44: Almost a third of micro SMEs can be persuaded to use banks for their insurance if it is cheaper; Figure 45: Good cheap package products are what convince SMEs to consider banks; Figure 46: Micro SMEs are most likely to consider a direct insurer for the potential cost savings; Figure 47: Cost savings were the number one driver behind SMEs considering a direct insurer; Figure 48: Larger SMEs are content with their current broker arrangements; Figure 49: A lack of expertise as well as SMEs' general complacency and contentment are impediments to banks' growth in the SME sector; Figure 50: A significant proportion of SMEs still view direct insurers as lacking specialist expertise; Figure 51: A slim majority of medium-sized SMEs will not consider a direct insurer as their provider

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Targeting SMEs in UK General Insurance 2009

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