In the first of my four blogs on insurer playbooks, we looked at the consumer market from the vantage point of a pre-game analysis. This week, we’ll once again be taking a pre-game approach to playbook development, but we’ll focus instead on scouting out this highly coveted small-medium businesses market for opportunities that may lie in understanding SMB ownership and size.
Playbooks are the core of game strategy. As many watched the Super Bowl, they saw well-honed playbooks in action, with some unique plays to leapfrog the competition and keep momentum — remember Nick Foles’ trick play touchdown! A playbook accomplishes several things at once. First, it gives the coach a group of testing plays that it will run against any team that it encounters. Once the coaches have a feel for the opposing team’s response to those plays, they are then free to quickly adapt their playbook to capitalize on opportunities the rest of the game.
Every team’s playbook is different, and for good reason. Certain plays that work for one team will not be compatible with others. The universal truth behind playbooks, however, is that they are forward-focused. Understanding the NEXT opponent is always more important than looking at your past opponents. In insurance, the same holds true. Understanding where the market is going, rather than where it has been, will help insurers efficiently use their time in preparation. Playbooks unify the insurer’s teams behind the best responses to industry change, ensuring they are in the game to win.
See also: Do You Really Have a Digital Strategy?
In today’s blog, we’ll focus on pregame analysis, and in our next SMB blog we’ll look directly at ideal offerings that insurers can use to target SMB businesses.
SMB Segment Playbooks — Pregame Analysis
An important first step in any pre-game analysis is to obtain a thorough understanding of the background and context within which the game is occurring. The context has been shifting dramatically and rapidly. Insurance 1.0 business models of the past 30-plus years have been based on the business assumptions, products, processes and channels primarily for the Silent and Baby Boomer generations, who built traditional small-medium businesses (SMBs) such as flower shops, retail and automotive repair. As the millennials and Gen Z mature and increasingly become entrepreneurs of new businesses or take over existing businesses, we see the next generation of SMB owners whose influence is growing and intensifying. They are shifting the fundamental business models of all businesses, including insurance, by demanding the use of digital technologies, new products and services that align to their demographics, needs and expectations … creating Digital Insurance 2.0. This will fuel tremendous growth for both SMBs and insurers.
Adding to this growth momentum are unprecedented expansion opportunities for commercial, specialty and group/voluntary benefit insurers in terms of new risks, new markets, new customers and the demand for new products and services. So, having a scouting report to capture these opportunities before others, including new competitors from insurtech or greenfields launched by existing insurers, is more important than ever.
Driving that point home, the results from this year’s SMB research underscore an acceleration in changing behaviors and interest in using new business models and technologies that are reshaping insurance. When it comes to experience with these technologies and trends, there is a clear, strong interaction between business owner age (generation) and the size of the company (number of employees). Cumulative participation rates in the behaviors we asked about increase with company size; but within each company size category, they also are at their highest levels with the Gen Z/millennials group and decrease with increasing age for older generations.
Given the strong interaction effect caused by these two factors, we grouped the SMBs in our survey into eight segments based on three generation groups (Gen Z & millennials, Gen X and pre-retirement Boomers) and three business sizes (1-9, 10-99 and 100-499 employees).
Similar to our companion consumer research study highlighted in our last blog, we categorized our analysis of the segments’ participation in these behaviors into six key areas: gig economy, connected devices, payment methods, products, channels and other emerging technologies. Here are some of the highlights:
- All segments are actively engaged in the gig economy, both as providers and consumers of independent contractor/freelancer services – averaging between 36% and 40%. The smallest companies are most likely to have been an independent business based on working as an independent contractor.
- There is strong, widespread use of apps and connected devices in buildings across most of the segments, with the highest use of 44% by Gen Z/millennials and Gen X in companies with 10-99 employees, followed by a third of those in the largest companies.
- Use of connected devices in company vehicles is less prevalent, but nearly a third of Gen X/millennials with 1-9 employees and Gen Z/millennial and Gen X in companies with 10-99 employees are actively using this technology.
- Use of ApplePay and SamsungPay is strong among all segments except pre-retirement Boomers with fewer than 10 employees. Overall, the increased use of digital payment capabilities is heightening growing expectations across these segments for all types of purchases, including insurance.
- On-demand insurance was particularly strong, with 13% to 41% already purchasing it for a specific event, and with high rates of usage among Gen X and pre-retirement Boomers. Between 30% and 50% of the Gen Z/millennial and Gen X segments are experienced with cloud-based subscription products, highlighting their comfort in purchasing products with this business model approach.
- Most segments have had experience purchasing insurance from a website, with Gen Z/millennials leading the use of this channel at 19%-39%.
- The Gen Z/millennial segments slightly lead the older generations in their use of drones and 3D printers (or items produced by one) with usage at 10%-13%. Interestingly, 30% of the Gen X/Boomer 100-499 employee segment reported the use of a 3D printer. These are two rapidly-growing technologies that create new risk implications and, as such, require new products and services.
- The behavior and expectation increases for Gen X and pre-retirement Boomers coupled with the already high levels for Gen Z and Millennials are driving significant interest in innovative products and channels for insurance, with millennials and Gen Z leading the way.
- A strong appeal among SMBs for reducing costs and risks through value-added services and social networking options stood out.
As new companies emerge and the leadership of companies, both large and small, continues to move to the Gen Z and millennial generations, use and expectations around digital technologies and activities will continue to accelerate, influencing new behaviors, needs and risks that require innovative insurance products and services represented by Digital Insurance 2.0.
Time to Up Your Game
Both traditional business insurers, intent on keeping pace, and startup insurers, intent on staying ahead, are grasping the tremendous gap in SMB coverage and its corresponding opportunities for growth. Digital Insurance 2.0 models are proving themselves to be more valuable and relevant to today’s SMB owners. To look more deeply at model impact, Majesco tested four business models within our survey group to find out which models would resonate with business owners. We also went one step further and examined 30 attributes that can be used to build Digital 2.0 models. Suffice it to say, the responses across these models reached 50%, and with the swing group up to 80% or more across many of the segments, highlighting the competitive threat posed by these new business models.
See also: Linking Innovation With Strategy
In my next blog, we’ll look deeper at the survey results and see how our SMB segment playbooks confirmed the need for different market and product strategies. We’ll tie the most popular of the 30 attributes to specific SMB segments and suggest ideal offerings for insurers hoping to reach those segments. For an in-depth look at Majesco’s findings, download and read Insights for Growth Strategies: The New SMB Insurance Customer.
Digital playbooks are essential to accessing the hard-to-reach SMB customers. Without shifting to a Digital Insurance 2.0 framework, they will be even harder to capture … let alone retain in the coming years, putting insurers stuck in Insurance 1.0 at risk.
Are you ready to move to Digital Insurance 2.0 and capture your share of the $80 billion to $100 billion SMB opportunity?