Tag Archives: the rise of the small-medium business insurance customer

Update IT Systems One Slice at a Time

Every business today has legacy processes and systems and faces the dilemma on how to transform the business to adapt to the rapidly changing market dynamics that are driving the shift to the digital age. Is there a proper approach? Insurtech is embracing these dynamics and powering the shift through the significant capital flowing to new technology and startup companies from MGAs and insurers. There is much discussion and debate on how the shift will reshape the insurance market as we have known it for the last 50 years. But the industry should not forget that this same disruption has also affected other industries such as retail, media, travel, telecom and banking, where successful companies created new business models, technology solutions and more.

The insurance industry has long had a degree of protection from new entrants, provided by the complexity of the regulatory environments. However, regulators are quickly realizing they need to understand the new digital technologies and work with the insurance industry to integrate them into the market. Today, we are seeing that new entrants are making strong moves into the market by working with regulators. At the same time, existing insurers are bringing new, innovative products to market within their current businesses.

Irrespective of where one operates within the insurance market and across the insurance value chain, change is coming. The change is being driven by a combination of new customer needs and expectations, the rapid adoption of new technologies that offer significant opportunities to innovate and the changing market boundaries that expand market reach. The result is the rapid emergence of new entrants who see the selling, marketing and servicing of insurance in a very different light to the more traditional entities.

See also: How to Enhance Customer Service  

For existing insurers with legacy technology estates, tinkering around the edges or waiting to be a fast follower will not work, given the pace of change. As we have described in our research, Future Trends 2017: The Shift Gains Momentum, we are experiencing a tectonic shift that is creating a market dynamic that we call Digital Insurance 2.0.

If you embrace the need for change, what should you do to help adapt and innovate for the new world? Which slices should be approached first? Here are some suggestions:

Understand and Listen to the Customer. This is basic stuff, but the industry does not do it so well. In Majesco’s research, The Rise of the New Insurance Customer and The Rise of the Small-Medium Business Insurance Customer, insurance ranks at the bottom in its interactions with customers. In today’s digital age, the customer is in control. So, to transform a business, it is imperative to take the time and make a concerted effort to understand your customer needs and expectations … because your new competitors are.

Evaluate alignment of your strategy to your current systems’ infrastructure and organization. You’ll most likely find that your legacy systems’ estates are inhibiting your ability to change, let alone shift to Digital Insurance 2.0. Digital Insurance 2.0 requires a modern, open architecture that is cloud-ready and has open API capabilities to integrate new data sources, new technologies and more. Trying to apply a closed technical infrastructure to address the needs of Digital Insurance 2.0 is the proverbial square peg in a very round hole.

Prioritize. You can’t flip an established business on its head overnight. It’s just not going to happen. You need to grow the existing business while transforming and building the new business. This is crucial. Marketing and distribution should not pull back from traditional business in anticipation of the launch of new business models, new products or new channels. The current business is funding the future and needs to be kept running efficiently and effectively as the market shifts.

At the same time, you need to optimize the existing business while building the new businessIdeally, one would seek to transform a “sliver” of the operation which goes from “front-end” right through to the “back-end” function. If an organization’s teams have been working toward placing digital front ends on the traditional business to engage customers, they shouldn’t stop in the middle of the bridge. Any process that can be optimized on the traditional side will help to maximize the existing business, reduce the cost of doing business and provide a bridge from the past to the future while beginning to enable realignment of resources and investment into the new business. These are very often the incremental changes that will also gently shift the customer base through new ways of doing business.

Evolution vs. Revolution. Evolving a business is not going to be without its difficulties; but the greatest risk is allowing “old thinking” to solve “traditional issues.” This is not an ageist issue but a state of mind – “We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein.

As you bring your thinking into what the new world looks like – most likely it won’t look like what is currently in place. From an organizational perspective, one should also be very open to creating “greenfield” entities — new structures built on a clean slate approach rather than replicating the traditional silo approach so frequently seen in large corporations.

Increasingly, insurers are developing a new business model for a new generation of buyersSome insurers have made the mistake of envisioning their digital front end as their big leap into the future, not realizing that they have only just touched the new landscape. They need a strategy for a new business model that supports simultaneous leaps forward that will create new customer engagement experiences underpinned by innovative products and services. This will create growth, competitive differentiation and success in a fast-changing market.

Creating the requisite infrastructure to address the realities of the market shift shouldn’t be underestimated; it will not be a trivial investment. Many insurers are looking at justifying investment based on growth strategies as well as competitive survival. Strategically, more are moving to the buy vs. build approach. Forward-looking companies are seeking a cloud-ready platform with a modern architecture that can support all the insurance business functions, as well as increasingly sophisticated digital and data capabilities to support the customer and distribution channels.

See also: Roadblocks to Good Customer Relations  

These solutions seamlessly integrate core insurance processing with a growing ecosystem of other technology providers, third-party data sources and the growing number of external sales/service platforms or marketplaces. As systems and their underlying architectures become more open, products and services will be sold and serviced as part of “non-owned” processes. As a result, insurers will need to integrate their data collection and transactional requirements into portals and platforms that they don’t control directly.

Clearly, we are seeing the shift to Digital Insurance 2.0, a key topic of discussion and strategic planning in the boardroom, though many may not fully appreciate the extent and ramifications of this shift. Truly transforming a business to Digital Insurance 2.0 will be a customer-centric, digital-first endeavor. The digital age shift is creating both a challenge and an opportunity for insurers. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.

This article was written by Mike Smart.

What Small Firms Want to Buy

American entrepreneurship is alive and well and growing! There are countless rags-to-riches stories of how people with a good idea, boundless energy and infectious optimism have made it big, or simply made a rewarding livelihood and legacy for themselves and their families. Today’s fintech and insurtech movements are testament to this in spades! And while most national news stories focus on big business, and national cultural events like Black Friday tend to overshadow small businesses, there’s a growing movement embracing these vital contributors to our communities and economy.

Insurance and other services are vital components for the vitality, risk protection and longevity of small businesses, and suppliers that are easy to do business with can capture a larger percentage of the market. Unfortunately, new research by Majesco, The Rise of the Small-Medium Business Insurance Customer: Shifting Views and Expectations…Is Your Business Ready for Them?, reveals that the insurance industry (as compared with other industries with which small businesses work) is “not easy to do business with.” The problem creates an opening for insurance startups.

The Rise of Small Businesses and the Shop Small Movement

On Nov. 26, 2016, the 7th annual Small Business Saturday event sponsored by American Express and the National Federation of Independent Businesses (NFIB) was held to encourage shopping and patronage of local small business merchants – in the wake of the preceding day’s big box store Black Friday shopping hysteria.  According to research done by these organizations after last year’s Small Business Saturday, more than 95 million consumers shopped at small retailer businesses, spending $16.2 billion, up 8% from 2014. Interestingly, the event garnered support from many corporate sponsors – many of which count small businesses as their customers.

Millennials show strong support for local small businesses, indicating they want to be “connected” to the products and businesses they buy from. A study by Edelman Digital showed that 40% of millennials preferred to buy goods and services from local small business retailers, even if doing so cost more.

See also: Why Start-Ups Win on Small Business  

While Small Business Saturday and Buy Local have a decidedly retail focus to them, the importance of all types of small businesses cannot be overlooked. U.S. Census Bureau figures from 2014 showed that businesses with fewer than 10 employees make up nearly 80% of all firms in the U.S. This is a huge market with enormous needs for products and services, including insurance to keep them running, protected and competitive.

Where’s the Love?

The Rise of the Small-Medium Business Customer research sought to understand small-medium business decision makers’ perceptions and views of those who support and supply them, including insurance. Four hundred business owners were surveyed using the Census Bureau’s definitions of very small to medium-sized businesses (SMBs), which we grouped into three segments (1-9 employees, 10-99 employees and 100-499 employees). The survey provided insights to evaluate perceptions on SMB customer views of insurance as compared with other businesses

The results were enlightening. Interestingly, fair price was more important than lowest price across all of the business segments. However, the ability to create a custom product from a range of options is more important than both lowest price and the ability to pick from a set of “pre-packaged” options. This finding reflects the increasing demand for personalization rather than price-driven mass production of insurance products.

Even more revealing were the results among the smallest (1-9 employees) businesses. The survey highlights that the traditional insurance business model has not been built with the capability to adequately meet the unique needs and expectations of SMBs. The industry has, instead, pursued a “one size fits all” approach. The consequences are that this segment of smallest SMBs (though with the largest number of such businesses) is uninterested in insurance, sees little value in insurance and considers insurance a necessary commodity or “necessary evil” required for their businesses.

All three segments of SMBs, regardless of size, did not rate insurance as being particularly easy to do business with, in terms of researching, buying and servicing products, compared with the other types of businesses we asked about in the survey. Among the 1-9-employee segment, P&C, life and employee benefits ranked in the bottom half on all three of these aspects.

Much more telling, however, this segment gave the lowest Net Promoter Scores (NPS) to insurance, showing a gap of as much as 60 points between insurance and the top business. (Net Promoter Scores measure the likelihood that a customer will make a recommendation to a prospective customer.)

Adding fuel to the fire, these small businesses were the least likely to say insurance was responsive, innovative, had easy to understand products and provided good value for the money. This is not a pretty picture for traditional insurance — but a great opportunity for innovative “greenfields” and startups.

Going Small Requires Big Thinking

Increasingly, small business customers are demanding a personalized and digital experience, representing the shift from mass standardiza­tion of insurance to the micro-personalization of insurance, requiring broader data and sophisticated analytics to truly understand and respond to small businesses as well as a digital experience via a multi-channel approach.

The rapid emergence of digital direct-to-SMB insurers and MGAs such as Assurestart (now part of Homesite/American Family), Cover Your Business.Com (a Berkshire Hathaway company), Hiscox, Insureon, Bolt, Slice and others are leveraging these ideas to reach the small business market. They are providing innovative products, streamlined and simple processes and digitally engaging capabilities that are extending the direct business model to SMB customers. In addition, aggregators, comparison sites or new distribution channels like Ask Kodiak help small businesses find the insurance products they need more easily.

Our research identified gaps between many industry-held perceptions and customer-defined realities, which expose an insurance industry steeped in tradition — its business models, business processes, channels and products that are difficult to find, buy and service — and opens the door to new competitors. We have seen this play out before with personal lines over the last 10 to 15 years. The difference is that the pace of change and adoption of a digital play is unfolding more rapidly this time in commercial insurance, demanding that insurers respond, because the window of opportunity is smaller.

Each company serving the SMB market must itself strategic questions, such as: “How do we bridge between the past, today and the future? How do we keep current customers loyal and engaged as we redefine our business to meet the needs of the vastly underserved and growing small business market? How do we get on par with other digital businesses that are setting new expectations for the SMB market?” If traditional insurers don’t ask these questions and respond, others will – taking current and future market share.

See also: Secret Sauce for New Business Models?  

Small businesses today are at the forefront of building new, technology-enabled, digitally first, innovative businesses that operate in a multi-channel world … like what we are seeing in insurtech. These businesses are increasingly led by millennials who have “grown up” digital and, as a result, seek fresh alternatives to age-old formulas … especially for insurance needs and offerings, helping them effectively meet their unique needs and expectations.  It’s time for the insurance industry to translate the good will from the Buy Local and Shop Small movements into big thinking and innovative solutions.

A new generation of small business insurance buyers with new needs and expectations create both a challenge and an opportunity. There is no clear path or destination. The time for plans, preparation, and execution is now — recognizing that the SMB customer is in control. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business that aligns to a rapidly growing, millennial-owned, innovative SMB marketplace.  Insurance companies must stop talking about the opportunities and being digital, and start doing something about it by using the disruption and change as a catalyst for “real change.”