Targeting SMEs in UK General Insurance 2009

Published by: Datamonitor

Published: Oct. 15, 2009

Table of Contents

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

Abstract

• 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

• 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

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