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Digital Playbooks for Insurers (Part 4)

A playbook is better than a simple plan. A plan is a road map to a desired future based on current conditions and the steps needed to go from the current state to a future state. A playbook acknowledges that there are many possible futures and that businesses need to be built in a way that will adapt and thrive in any of them.

In our past three blogs (here, here and here), we’ve discussed the concept of digital playbooks. Using a variety of digital “plays,” insurers can customize their playbooks in an effort to meet future demands and opportunities with flexibility. Using both the consumer market and the SMB market as examples, we created a pregame analysis. In this blog, as we look closely at small to medium businesses, we’ll consider how the scouting report can help us build Ideal Offerings, plays that are likely to help insurers bring digital capabilities to a ready market.

New SMB Behaviors and Expectations

Business is changing so rapidly that it is difficult for insurers to keep up. Aside from technology changes and generational expectations, the sheer numbers and types of businesses grow daily. The vast majority of new businesses are within the small-to-medium business space — and owners determine or greatly influence purchase decisions.

For that reason, Majesco’s latest SMB research accounted not only for technology needs and trends within businesses, but it also accounted for generational differences in the ownership that controls insurance decisions. We found that when it comes to experience with new technologies and trends, there is a clear, strong interaction between business owner age (generation) and the size of the company (number of employees).

See also: Digital Playbooks for Insurers (Part 1)  

The results of this research can be viewed in our thought-leadership reportInsights for Growth Strategies: The New SMB Insurance Customer. A quick synopsis of the areas of digital impact include:

  • Gig economy shift: Across all generational distinctions, there is growth in independent contractor/freelance services.
  • Apps/Connected Devices: There is strong commercial use of apps and connected devices, with the highest use occurring in companies with 10-99 employees in the Gen Z/Millennial and GenX segments.
  • Digital Payment: All segments have strong use of ApplePay and Samsung Pay, except for Pre-Retirement Boomers.
  • On-Demand Insurance: Commercial use of On-Demand insurance is strong, in addition to online purchasing of insurance and the use of cloud-based subscription products.
  • Drones and 3D Printers: These technologies are both on the rise, indicating new areas of risk that will require new products and services. 3D Printer use is highest among Gen X/Boomer segment companies with 100-499 employees.
  • Risk Prevention: SMBs are willing to look at reduced costs and prevention of risks through value-added services and even social networking.

In creating digital offerings for all SMBs, insurers can begin their brainstorming with a list of digital capabilities and context drivers that are currently relevant to potential new business models and product and service offerings. Keeping this kind of list on-hand will allow companies to add/subtract/combine elements to form new Ideal Offerings.

  • On-Demand
  • Equipment and facility sensors
  • Telematics/vehicle and equipment tracking
  • Real-time data for traffic, weather and GIS
  • Automated mapping and routing
  • Drones
  • Facility monitoring and control
  • Digital security
  • Cloud services
  • Mobile account management
  • Digital assistant
  • Bundled insurance
  • Data-driven pricing
  • Inventory-based pricing
  • Artificial Intelligence
  • Augmented Reality
  • Preventive Services
  • Mobile messenger app-based communications and transactions
  • Fitness tracking for employees
 In our research, we decomposed many of the new business models, products and features that have recently entered the market into 30 different product, service and interaction attributes across six broad categories: Quote/Buy, Pricing, Manage, Context, Value-Added Services and Social. We then surveyed business stakeholder sentiment by generation and business size across these 30 attributes to judge potential interest.

Though any business segment could certainly be a place for a new Ideal Offering, the three company and generational segments with the highest level of interest in new offerings were:

  • Gen Z and Millennials, 10-99 employees
  • Gen Z and Millennials, 100-499 employees
  • Gen X and Pre-Retirement Boomers, 100-499 employees

These segments share traits across many areas, including:

  • Doing things that reduce risk or provide free or discounted services and products and rewards.
  • Using services that prevent or minimize risk, accidents or claims.
  • Using insurance to cover an event of specific duration.
  • Using mobile messaging apps for quoting, policy management, bill payment, claim filing and claim payment.
  • Creating new affinity relationships to get preferred pricing among social groups.
  • Using activity-based pricing for employees/vehicles/equipment.

SMB Playbooks

So, what does this mean to the business insurer playbooks — the ones you may be creating right now?

Well, first, it means that the time is ripe for creative business model, product and service development that shifts into the realms of Digital Insurance 2.0, by re-envisioning within the context of digital possibilities and desired engagement. An organization’s digital plays must include transformations that match generational SMB expectations and needs.

These sought-after attributes are redefining the insurance value chain we have known for the last 30-plus years as Insurance 1.0, and they don’t just represent simple improvements. They represent a new world of Digital Insurance 2.0.

Interestingly, pre-retirement boomers are open to digital services that will save claims and improve rates, signs that they are still engaged in making their businesses profitable and competitive. For example, business owners appreciate transparency in operations. Insurers that can provide an ecosystem of sensors, monitoring and risk reduction will find that businesses are highly ready for improved data and analytics regarding their own processes and risks. Every digital risk mitigation solution removes some of the weight and worry of the unknown. These services may go beyond business insurance products. Majesco fully expects that the insurer digital playbook will rapidly be filled with these non-insurance, value-added services that may also be foundational profit centers.

Mobile and messenger-based apps may soon be considered table stakes with business insurers, but Digital Insurance 2.0 capabilities within these apps will continue to grow and improve. They exist at the intersection of business desirability and the need for portable windows into operations and service.

See also: Darwinian Shift to Digital Insurance 2.0  

Contextual and on-demand insurance need cloud platform solutions to work. An insurer that is using cloud and AI for real-time data management and decisions, for example, will find it much easier to track and insure (and even provide preferred routing for) freight carriers, delivery services and any business that needs to move people or materials.

The gig part of the gig economy also needs episodic insurance. A benefit in this area may be grouping similar businesses for improved service. All of these possibilities fit within the positive opportunities identified by our research.

Insurtech companies and existing insurers are taking advantage of a new generation of buyers with new needs and expectations, capturing the opportunity to be the next market leaders in the digital age, Digital Insurance 2.0. While Insurance 1.0 is still firmly in place with the smallest businesses and Gen X and Pre-Retirement Boomer business owners, insurance companies need to adapt and innovate to compete and prepare for business shifts that are rapidly unfolding.

Where is your organization on the road to Digital Insurance 2.0? To gain more insights from our SMB research, be sure to read Insights for Growth Strategies: The New SMB Insurance Customer. For an in-depth look at how Cloud technologies can place insurers on the right road to digital transformation, check out Cloud Business Platform: The Path to Digital Insurance 2.0.

Taking Care of Small-Medium Business

In the 1973, Bachman Turner Overdrive hit song, Taking Care of Business, it talks about employees getting annoyed and becoming self-employed, something that is happening 45 years later in the new gig economy. The growth of new small and medium businesses and the fight for talent is creating challenges and opportunities for insurers. And just like the song … in today’s rapidly changing marketplace with new products and competitors, insurers must take care of SMB businesses to grow, let alone survive.

Change is being forced on insurers, whether they like it or not. A new insurance paradigm is being crafted, regardless of whether incumbent insurers choose, or are able, to play to compete in a new digital era … Digital Insurance 2.0.

Uniquely, SMBs are at the forefront of this digital shift and at the center of business creation, business transformation and growth in the economy. Representing the vast majority of all U.S. businesses, SMBs promise huge market potential for insurers to provide coverage for both traditional and new, emerging risks. However, the business models and products from Insurance 1.0, present during the last 30-plus years and built around the Silent and Baby Boomer generation business owners, will not work in a Digital Insurance 2.0 era that is driven by Millennial and Gen Z business owners. Succeeding in the SMB market requires an understanding of the unique characteristics of individual segments and developing appropriate strategies for each.

New Expectations and Behaviors Set a New Competitive Bar

To help insurers capture these opportunities and adapt to Digital Insurance 2.0, Majesco recently conducted a new primary research study. The study built on last year’s research, The Rise of the Small-Medium Business Insurance Customer, which revealed increasingly higher participation rates in digital trends and technologies as well as interest in considering new insurance-related digital capabilities, new products and new business models. In this year’s research, we dived deeper into these new products, business models and capabilities to assess their interest and their potential to accelerate the shift to Digital Insurance 2.0 offerings — offerings that could challenge traditional Insurance 1.0 business models. We decomposed a range of new products and business models into individual attributes and gauged reactions to them across both business size and owner generation. The results provide insight on the competitive bar set by these emerging new innovations and competitors.

So, what did we find?

The new research report, Insights for Growth Strategies: The New SMB Insurance Customer, underscores an acceleration in digital-driven SMB behaviors and expectations, as well as strong openness to considering buying and switching to new products, services, capabilities and business models that reflect Digital Insurance 2.0. In analyzing the data, we found that the differences across the business size and owner generation segments have vital implications for insurers on why and how they must shift to engage and provide innovative, relevant products to an increasingly digitally oriented SMB market.

Interestingly, between the 2016 and 2017 Majesco surveys, we found an acceleration of as much as 20% in digital behaviors and the use of new technologies, particularly for Gen X and Boomers. Gen Z and millennials also maintained their digital leadership position, with 80%-90% across all company sizes engaging in at least one trend or technology, but often engaging in multiple trends or technologies. These technology-driven behaviors signal an acceleration across all business sizes and generations in reshaping insurance to Digital Insurance 2.0. Increasingly, these behaviors and technologies are embedded in new products and business models introduced by new competitors, which will attract new customers and encourage existing customers to switch.

See also: How Small Insurers Can Grow  

The top trends and technologies across all the business sizes and generational groups included:

  • hired a freelancer/independent contractor for a limited period,
  • used cloud-based subscription fee software (e.g. Microsoft Office),
  • paid for something with ApplePay/Samsung Pay,
  • used smart devices within the office/building,
  • worked as a freelancer/contractor,
  • and used an app to monitor the business office or building for security or equipment.

Most striking, the relationships between generation and company size accentuates two significant gaps; a growing generational gap and a widening gap between Insurance 1.0 and Digital Insurance 2.0, whereby participation is greater for the larger and younger segments, and decreases for the smaller and older segments. This sets the stage for customers shifting to fresh, innovative products and business models introduced by new competitive players.

New Innovations and Competition to Take Care of SMB Businesses

The digital revolution is rewriting the rules of business and, with it, redesigning organizational and business model structures. Insurers are faced with a predictive dilemma: Among all of the new models and products emerging in the insurance market, which ones will gain traction in the market? How fast? And for whom?

Based on our research, a number of top-rated attributes with overwhelmingly strong appeal offer immediate options for insurers to test and learn in the market. For example, reducing costs and risks through value-added services, quote and buy and social networking options are areas where insurers can immediately begin to innovate. There are numerous additional possibilities for tailoring combinations of attributes to meet unique generation and company size segment preferences that offer innovative opportunities.

In particular, younger generation business owners from the two larger business sizes are the most interested in innovations for insurance and therefore more likely to consider new products and competitors. Many of the new competitors are using different combinations of the 30 attributes we assessed as building blocks to innovate their products and business models. We tested SMB reactions to some of these new business model concepts launched in the market the last several years.

The results highlight strong interest in these new business models, particularly among the younger generations and larger SMB segments. Initial reactions to the business models generally showed positive ratings of 50% or higher. But when adding the neutral “swing groups,” interest significantly rose to more than 80%. This suggests a strong openness to consider these new models. The next question is, will they purchase?

The answer is, “Yes, they will.” Gen Z and Millennials, in particular, indicate positive “likelihood to purchase” ratings of 50%.  But, when adding the “swing groups,” purchase potential jumps to 70%-90% across most of the segments, emphasizing how rapidly swing groups will likely shift the market. While these new models’ long-term viability is yet to be determined, the growing interest and likelihood to purchase suggests they have significant potential to capture the market opportunity, particularly the next generation of SMB business owners.

Generational Transition of Leadership … It’s a Matter of Time and Experience

SMB’s market potential is significant: U.S. Census data show that those with fewer than 10 employees represent nearly 80% of all businesses in the U.S. And while distribution economics dictate that the optimal way to reach them is through digital channels, with direct-to-business models via self-service, the research results indicate a “one size fits all” approach will not work. Two powerful forces are compelling insurers to make the transition to meet the needs of this important market: time and experience.

First, it’s just a matter of time before traditional operating models will no longer work based on a combination of new factors. By 2020, more than 60% of small businesses in the U.S. will be owned by millennials and Gen Xers — two groups that greatly prefer digital engagement. The 2016 Upwork and the Freelancers Union’s annual survey, Freelancing in America, estimated that 35% of the U.S. workforce is made up of freelancers and independent contractors, the basis of the new gig economy. Furthermore, globally, millennials appear to be more active in the startup space. Dubbed “millennipreneurs,” they are starting more companies per person, managing bigger staffs and targeting higher profits than their baby boomer predecessors did. And finally, a 2016 survey of U.S. young adults 15-32 years old, Gen Z and millennials, showed that 55% expressed interest in starting their own business or non-profit someday.

Second, it’s about experience. Digital experience. As the transition of SMB businesses from the baby boomers and Gen X to the next generation of Gen Z and millennials continues to accelerate, digital experience matters more and more. The older generations have extensive experience with Insurance 1.0, but despite their increasing use of new trends and technologies, they lag in digital experience and comfort in embracing Digital Insurance 2.0. In contrast, Gen Z and millennial SMB owners are overwhelmingly embracing and expecting Digital Insurance 2.0 models.

The question is … are you ready?

Bridging the Business Gap of Insurance 1.0 to Digital Insurance 2.0 to Take Care of SMB Business

While Insurance 1.0 preferences are firmly in place with the smallest businesses and older-generation business owners, insurance companies must rapidly adapt and innovate to retain them as the businesses move to a younger generation of leaders. Adding fuel to the shift, the growth in the gig economy and SMBs’ rising Digital Insurance 2.0 preferences are creating a significant business gap in products and business models that insurers need to bridge, rapidly.

How to proceed?

Insurers can use these findings to strategize, prioritize and develop unique business plans to capture these diverse SMB market segments. With the pronounced differences in patterns across generations and business sizes, different market and product strategies are necessary. To facilitate this thinking, we developed SMB segment playbooks that highlight the attributes (the “ingredients”) that constitute the “ideal” insurance offerings (“the innovations”) for each segment (the “recipe model”).  But regardless of segment, insurers must rapidly move to a new generation of digital insurance platforms that personalize and maximize the customer journey with deeper engagement, enable process digitization, use digital data-driven insights, adapt to rapid market changes or opportunities and enable rapid rollout of new products and capabilities … a Digital Insurance 2.0 platform.

See also: Secret Sauce for New Business Models?  

It is a new age of insurance — a digital age.  And it’s all about taking care of business … small-medium businesses. For those willing to bridge the business gap from Insurance 1.0 to Digital Insurance 2.0 … join the chorus with the new generation of SMB customers!

And we be taking care of business (every day)
Taking care of business (every way)
We’ve been taking care of business (it’s all mine)
Taking care of business and working overtime.