Known as ‘InsurTechs’, these companies are harnessing emerging technologies to provide coverage to a more digitally-proficient customer base and – in some locations, including the UK – regulatory barriers have been lowered to encourage InsurTechs to trial their innovative business plans on specific client segments, such as small and medium-sized enterprises [SMEs].

As they account for 99% of all companies and 77% of the workforce, according to McKinsey, SMEs are, by far, the largest commercial segment in the UK.

Many InsurTechs have already tailored their offerings to meet the customisation and flexibility needs of SME clients, and are ushering in a new, technology-driven era of customer convenience, for the insurance sector as whole.

How are incumbent insurers failing SMEs?

Traditional insurers have been failing to adapt to the changing demands of SMEs for some time now, with a 2016 report by Accenture revealing that only 22% of insurance companies had already launched personalised, real-time digital or mobile services for clients.

The pandemic and a range of other factors have now caused a further evolution of client needs and have left incumbents struggling to keep pace with the competition.

This is because the coronavirus crisis accelerated the demand for digital services among SMEs – supported by McKinsey research showing that, between May and November 2020, the importance of digital services grew by five percent within the segment, due to their convenience and efficiency.

The same research goes on to reveal that 17% of all SMEs have intentions to cease using in-person communication with their insurer altogether once the pandemic has ended.

It is clear, therefore, that there are growing calls from SME clients for a more digitally driven experience with their insurance companies, and this trend is likely to remain long after the pandemic is over.

However, incumbents are failing to react to this change in customer behaviour, thereby paving the way for InsurTechs to deliver a service offering that is far more in line with the requirements of SMEs in a post-COVID landscape.

Creating customisation and flexibility

Many InsurTechs, on the other hand, have demonstrated an understanding that each SME client is unique, and that a tailored approach is required to win a greater market share off the larger players who stick to the same, ‘one-size-fits-all’ offering.

This is why many InsurTech companies do not offer unbundled individual products – some of which are likely to have little or no relevance to the policyholder – and instead focus on being a ‘one-stop shop’ for all their customers’ needs, allowing them to customise the products and services they receive however they see fit.

Not only does this provide SMEs with greater power over their customer experience, but it also makes the entire process far more simplified for them – thereby promoting the sense of convenience and efficiency that customers are increasingly looking for.

Furthermore, McKinsey’s research indicates that SMEs are scrutinising products far more than ever before, and this level of scrutiny has brought about much more fluidity in the market.

Consequently, InsurTechs have been able to be considerably more flexible than their traditional counterparts, meaning clients receive a higher value and more cost-effective service.

In addition to this, some challengers have even presented models that enable SMEs to pay only for the services that they use, giving access to cheaper premiums without a need to compromise on the coverage or service that they require.

Instead of padding out the insurance process without adding any actual value, InsurTechs take a more user-friendly approach to service provision and put customers in far more control over their policies, as well as the services that they use and pay for.   

The outlook for traditional insurers

The threat that InsurTechs poses to traditional business models is certainly real, as digital innovation continues to shape the future of the insurance sector.

If incumbents are unwilling to adapt, they must face the prospect of losing their market share to InsurTechs, who are achieving much higher levels of customer engagement.

Until such a time as incumbents address the need for adaptation, however, challengers are free to claim the SME segment for themselves and to continue evolving their products and services in line with the changing needs of their customers.