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UK SME Insurance: Distribution Dynamics 2016

UK SME Insurance: Distribution Dynamics 2016


Verdict Financial’s “UK SME Insurance: Distribution Dynamics 2016” report looks at how SMEs buy insurance coverage and the reasons behind their purchasing decisions. This report also examines the services SMEs are currently receiving and the additional amenities they would like from their provider going forward. Other influential factors on the market are also taken into consideration, such as the location of the business (home or on-site/office), or the age of the business owner.

Key Findings

  • Purchasing insurance online via a PC is the most common method by which SMEs arrange cover: 31.6% of respondents claimed to purchase the majority of their insurance over the internet on a desktop PC.
  • SMEs are typically very loyal to their providers with most product markets commonly retaining as much as 80% of their business across SMEs of all sizes, but particularly those at the larger end of the scale.

The SME market is important for commercial insurers as SMEs account for the majority of the UK economy. With insurers increasingly targeting the segment, the market is very competitive and propositions are evolving to cater for small and medium-sized enterprises (SMEs). E-trade, via a broker, is becoming more of a central focus for the insurers in this space, as is the distribution of high-volume, low-value business via the direct channel.

There has been an unmistakable growth in focus on direct-to-SME insurance propositions over previous years, but 2016 has seen brokers fight back. Direct insurers continue to enjoy a significant share of commercial business but brokers are beginning to follow suit in terms of the propositions they’re offering. Increasingly they are striving to promote a more streamlined offering online, as well as maintaining their advice-led services. Brokers driving the resurge are those that have applied their high-volume online personal lines capabilities to the commercial sector, such as Tower gate and Swinton.

The benefits of the direct channel continue to be long-term customer ownership and a fast-flowing distribution chain, enticing the smallest businesses to purchase conveniently online, akin to how their personal insurance is bought. While this is the battleground for micro enterprises, for larger businesses the demand sits towards the other end of the spectrum; a desire for a wider range of services and deeper relationships where capacity from providers is perhaps not being provided to them. Nevertheless, brokers are beginning to cater to customers residing at both ends of the scale, sparking stiff competition between the two channels, a duel which is likely to intensify in the coming years.

Reasons To Buy
  • Identify the most prominent sales channel for SMEs.
  • Adapt/re-evaluate your distribution strategy and proposition to meet the needs of modern consumers.
  • Discover the factors influencing SME purchasing decisions and distribution channel selection.

Brokers are regaining their grip on commercial insurance distribution
Key findings
Critical success factors
Brokers are starting to regain their foothold of product distribution for SMEs
2016 has seen brokers increase their share of product distribution
The direct channel has the most potential, particularly at the micro end of the market
Banks are also beginning to recognize the potential benefits of cross selling
Brokers and the direct channel compete intensely for business in the micro space
Purchasing confusion, seen in personal lines, is growing within the SME market
Insurers need a varied approach to product distribution in the SME markets
Price is the leading reason for SMEs choosing their selected distribution channel
Almost one third of home-based business owners go direct
Packaged products are popular although standalone policies are also highly sought after
Arranging insurance online is most suitable for SMEs
Most SMEs are opting to purchase cover via the internet
The online marketplace appeals to younger/more tech-savvy business owners
Contacting an existing provider is the most common action among SMEs looking to purchase
SMEs still exercise some degree of independence in the purchasing journey
There is ample opportunity to keep existing customers but many seek professional advice
Comparison sites are a popular point of referral for SMEs renewing a policy
The internet is the most popular source of information during pre-purchase activity
Remaining loyal to an existing provider is commonplace in the SME market
Over three quarters of SMEs remain with their chosen provider in most product areas
Price is the most pertinent issue when it comes to switching
Almost half of SMEs switch based on price
More businesses are expected to flock to the direct channel in the coming years
Brokers are still holding their own among expedience- and efficiency-seeking SMEs
Additional guidance from a provider or external party is important
The online tracking of claims is most important to SMEs
Simplicity is key for SMEs in the age of speed and immediacy
18.5% of SMEs regard online claim tracking as the most critical service
SMEs struggle to understand cover for alternative commercial vehicles
Nearly one in five find other commercial motor fleet products difficult to understand
Employee benefit advice continues to be highly sought after
Legal advice is the most common added-value service held by SMEs
Advice around employee benefits remains the most unfulfilled additional service
Price remains the deciding factor for SMEs opting for the broker channel
SMEs' choice of broker is driven by price and complex cover needs
Businesses of a smaller stature have more contact with their broker
Almost two thirds of micro enterprises only speak with their broker at policy purchase
The value SMEs attach to brokers varies by the size of the business
2015 advertising expenditure increased by almost 10% year-on-year
Direct Line still accounts for the majority of business insurance advertising spend
Verdict Financial's 2016 UK SME Insurance Survey
Further reading
About Verdict Financial
List of Tables
Table 1: Channel used by SMEs for the majority of their insurance, by SME size, 2016
Table 2: Channel used by SMEs for the majority of their insurance, by SME size, 2016
Table 3: Reasons for selecting distribution channel, by SME size, 2016
Table 4: Most important reason for selecting a distribution channel, by SME size, 2016
Table 5: Packaged and standalone product purchases, by size of business, 2016
Table 6: Method used by SMEs to purchase majority of insurance, by SME size, 2016
Table 7: Method used by SMEs to purchase majority of insurance, by SME size, 2015
Table 8: Method used by SMEs to purchase majority of insurance, by age of owner, 2016
Table 9: Method used by SMEs to purchase majority of insurance, by age of owner, 2015
Table 10: Pre-purchase activity conducted by SMEs, by SME size, 2016
Table 11: Sources of information used by SMEs pre-purchase, by SME size, 2016
Table 12: SME loyalty by insurance product (those that did not switch at last renewal), 2016
Table 13: Services SMEs would most like to receive from their provider, top selection only, 2016
Table 14: Services SMEs would most like to receive from their provider, top selection only, 2015
Table 15: Added-value services received by SMEs, by SME size, 2016
Table 16: Added-value services received by SMEs, by SME size, 2015
Table 17: Added-value services wanted but not received by SMEs, by SME size, 2016
Table 18: Added-value services wanted but not received by SMEs, by SME size, 2015
Table 19: Reasons for using the broker channel, by SME size, 2016
Table 20: Reasons for using the broker channel, by SME size, 2015
Table 21: Total business insurance advertising expenditure (£), 2012-H1 2016
Table 22: Business insurance advertising by the five highest spending brands (£), H1 2015 and H1 2016
Table 23: In what industry would you classify your business?
Table 24: How large is your company in terms of number of employees?
List of Figures
Figure 1: Brokers are regaining ground at the expense of direct insurers
Figure 2: Direct insurers are most prominent at the micro end of the market
Figure 3: Over 50% of small SMEs now purchase insurance through a broker
Figure 4: Almost 20% of medium-sized SMEs now purchase insurance via the banking channel
Figure 5: Brokers' share has increased marginally while the direct channel has slipped by 2.1pp
Figure 6: Price is the main influence on distribution channel selection
Figure 7: Cover provided is ranked the most important reason for SMEs selecting a particular distribution channel
Figure 8: Over half of on-site businesses use the broker channel for their insurance needs
Figure 9: SMEs generally prefer to purchase packaged insurance products
Figure 10: Using a PC to access the internet is the preferred method of purchase by all SMEs
Figure 11: In 2015, online was also the leading channel for SME insurance
Figure 12: Online purchases via PC are generally preferred by younger business owners
Figure 13: In 2015, online purchases via PC were still preferred by those under the age of 45
Figure 14: SMEs mostly place a call to their existing insurance provider at the point of renewal
Figure 15: The internet and brokers are the main sources of insurance information for SMEs
Figure 16: Customer retention rates are high among micro enterprises
Figure 17: Small business loyalty rates dip below 90% in almost half of the product markets
Figure 18: Customer retention is at its highest among medium-sized businesses
Figure 19: Price is the most important factor for SMEs looking to switch provider
Figure 20: Price has consistently been the primary influence behind an SME's decision to switch
Figure 21: Almost 5% of SMEs intend to switch to a direct insurer for their next policy
Figure 22: SMEs are in constant need of support from their providers around the claims process
Figure 23: In 2015, guidance through the claims process was the most important service feature
Figure 24: Other commercial motor insurance is the most difficult for SMEs to understand
Figure 25: Legal advice, risk management, and employee benefit advice form the core added-value services held by SMEs in 2016
Figure 26: In 2015 legal advice, risk management, and financial advice were the most commonly held added-value services
Figure 27: Almost half of medium-sized businesses access legal advice services
Figure 28: 2015 also saw legal advice as the most commonly accessed added-value service
Figure 29: SMEs would most like to receive more employee benefit advice from their provider
Figure 30: Small and medium-sized businesses show similar demand for advice from insurers that would benefit their employees
Figure 31: 2015 also saw demand for employee benefit advice among SMEs
Figure 32: Small and medium-sized firms are similar in their demands for services not received
Figure 33: SMEs expect brokers to deliver the best prices
Figure 34: SMEs commonly turn to brokers when faced with new and/or complex risks
Figure 35: 2015 saw a significant number of SMEs of all sizes turn to brokers when facing time constraints or a lack of insurance knowledge.
Figure 36: Over half of micro enterprises contact their broker only at the point of renewal
Figure 37: Lager businesses tend to value their broker more than smaller enterprises
Figure 38: 2015 saw increased advertising expenditure on 2014

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