More than 12,000 new businesses set up daily in 2020 in the U.S. alone, ranging from people selling plants from home all the way up to people starting up a multibillion-dollar vacation software company. We expect even more activity in 2021.
There are now so many ways that people can act as businesses, whether on their own or via marketplaces such as Uber and Airbnb, that there is a whole new category of risk.
Most entrepreneurs don’t realize that they are actually operating as “businesses” and, as a business, need insurance. Small companies account for 99.7% of all U.S. businesses, yet Next’s survey of 30,000 small businesses showed 44% have never had insurance and 78% were uninsured at the time of responding.
Why aren’t business owners insuring their businesses?
- People aren’t aware they need insurance. It’s so easy for anyone to start their own business on a marketplace, such as Amazon or eBay, that they’ll simply list their services and think, “That’s it, I’m a business owner.” Maybe they expect the marketplace to deal with legalities, or maybe they simply don’t think of liability without business experience.
- The solutions available aren’t suitable or up to date. Traditional carriers have insurance solutions, but these aren’t going to appropriately cover modern businesses that don't operate with a standard business model. (Startups such as Safely are emerging to fill this vacancy, based on the right data and an agility that lets them adapt insurance products to each business's activities.)
What are the risks if the insurance need isn’t addressed?
Any business owner without insurance, or the right kind of insurance, is at risk. And this risk could be catastrophic. For example, if you don’t have the appropriate cover, you would be liable for large claims such as for bodily injury. But even the little costs, like an oven to replace, can build up. Investing in insurance can give business owners more predictable costs.
If insurance carriers don’t take into account the new ways people are running businesses, they could lose customers as people turn to alternative providers that offer something more suitable.
Who is responsible for providing the right protection?
Many people expect that a marketplace like Amazon or Uber will provide protection, but the type of coverage required often costs more than a marketplace can afford. These platforms are investing their resources into growing, not covering risk issues for the entrepreneurs.
In any case, some business owners have their services listed on multiple platforms, so they couldn't be covered appropriately through a single marketplace like an Airbnb. You need to work with an insurance company that has the welfare of your business at the top of its priority list.
See also: Insurance Technology Trends for 2022
How does the insurance industry need to respond?
There are two things those in the industry need to consider:
1. How do you underwrite the risk?
We’re just at the beginning of this journey. New data sources will be predictive of risk but need to be tested at scale before implementation. The data needs to be more contextual. (The situation matters far more now that it ever did - i.e., risk when you’re renting out your home vs living in your home is very different).
Also, each small business's agenda will vary, and its insurance should cover the right kind of risks it may encounter. The coverage for a property manager is going to vary wildly from what a pet walker requires. There needs to be a continuing evaluation of risk, and it must be personalized.
2. How do you distribute this new type of insurance?
Underwriting and distribution of insurance need to be embedded into different activities in real time. Rather than relying on monthly bills, insurers need to integrate with marketplaces and introduce stop-and-start insurance activity.
Insurance needs to be charged on a per-business level. Some insurance providers are waking up to the new shape of risk but are using old models based on household insurance, which isn’t always appropriate (i.e., coverage continues during off season, when it isn't needed).
Tech’s role in insurance
Technology solutions for the processing and distribution of insurance have advanced massively in the past few years. Tech enables property managers to screen guests, process claims payments quickly and so much more. Companies that have invested in tech can streamline how insurance is delivered to offer high-quality services to their customers.
Not many of us still write with a quill dipped in ink. We’ve evolved with the times. To thrive in this ever-changing, modern business world, insurance companies need to innovate.