While big corporations might have far greater spending power, the insurance premiums written for SMEs are much more substantial than those for their larger counterparts, representing over 60% of gross premiums written for commercial property and casualty lines.

With factors such as COVID-19 having caused many SMEs to amend their business models in response, the segment still has plenty of growth potential for insurers, but the traditional insurance industry is failing to keep pace with the changes brought in the wake of the pandemic.

However, the emergence and growing popularity of challengers to traditional insurance models is highlighting that a new approach – namely one that acknowledges how SMEs have evolved in recent times and that adapts products and services accordingly – is sorely needed.

A shift to digital is key

Research conducted by McKinsey shows that, between May and November 2020, the importance of digital services for SMEs grew by five percent, due to their convenience and efficiency.

This increase was, of course, also driven by lockdown measures imposed across the UK during this time, which meant that face-to-face interactions with service providers weren’t possible in many cases.

However, the same research reveals that 17% of all SMEs intend to stop using in-person communication with their insurer altogether once the pandemic is over.

These statistics demonstrate a growing call for their insurers to adopt a more digitally focused approach to their service offering and suggest that this trend is likely to persist among SMEs well after the pandemic is over.

This is something that the challengers to the industry’s traditional players are already addressing, with many having already developed a strategic approach that is both agile and flexible enough to adapt to rapid change.

If insurers fail to respond to the widening digital landscape and continue to rely on a traditional long-term plan for SMEs, they run the risk of becoming obsolete in years to come, whereas many challengers have already laid solid foundations to adapt their service model in line with customers’ evolving needs.

Creating a user-friendly experience

McKinsey’s research also highlights the increasing demand among SMEs for a more retail-like experience when dealing with insurers.

A full 30% of SMEs reported that they find each step along the new-product purchase journey especially challenging, beginning with identifying the suitable coverage package for their requirements.

Instead, organisations expressed a desire for providers to deliver simpler, more intuitive interfaces and journeys for customers, and use language that is straightforward and easy to understand.

Many challengers have responded to this by marketing themselves as ‘one-stop shops’ that can address all their customers’ needs, rather than providing unbundled individual products – some of which are likely to have little or no relevance to the policyholder.

The traditional insurance model is failing to take this simplified, tailor-made approach to the delivery of products and services, and is therefore likely to see their SME customers switching their allegiances to challenger counterparts in increasing numbers.

Focus on value

The relevance of certain insurance products for SMEs ties in with another key finding of McKinsey’s research – namely, the particular focus on value and pricing that many customers now have. 

With the pandemic having brought about a ‘back to basics’ mindset, the core components of insurance – including coverage, service and value – have become increasingly vital for SMEs.

According to McKinsey’s survey, the primary factor in deciding on an insurance provider is getting ‘good value’ from products, while SMEs have become considerably more price sensitive.

In addition to this, SMEs are placing a greater level of scrutiny on products, which has caused the market to become much more fluid.

This has enabled challenger insurers to undercut the offerings of bigger, more traditional entities within the market, meaning firms receive a higher value, more cost-effective service.

Furthermore, some challengers have gone as far as to present a model by which customers only pay for the services that they use, which results in cheaper premiums without having to compromise on the coverage or service that they require.

While traditional models elongate the insurance process without adding value, the technology that challengers are using enables customers to report a claim or make policy changes with ease, without having wait to speak to providers over the phone and exchange pleasantries – both of which can cost time and money.

Winning the SME market

The pandemic has presented the perfect opportunity for traditional insurers to make important steps towards revitalising and adapting the SME segment in line with the changing requirements of policyholders, so it is regrettable that so many have shown such little willingness to do so.

Fortunately for SMEs, challengers are filling the gap and have proved their commitment to supporting clients through what has been especially turbulent time by tailoring their approach and adding value to products and services.

Unless the traditional players take urgent action to refresh their business models to best cater for SMEs, they are likely to find themselves surplus to requirements in the months and years ahead.