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Ask brokers or insurers what SMEs want and they’ll generally tell you it’s value for money, great service and the swift processing of claims – all things they pride themselves on already.

But ask the SMEs themselves and, while they do want all those things (who doesn’t?), they also have other requirements the industry either doesn’t seem to have picked up on, or for which it hasn’t found an easily marketable answer to.

The good news is that SMEs don’t spend much time expressing discontent with the insurance sector, though this is partly because all their negative energies are directed against the fat cat bankers who still won’t lend them any money.

“If businesses have a problem with institutions, it’s with the banks not with insurance brokers or companies,” Federation of Small Businesses (FSB) chief spokesman Stephen Alambritis says. “They feel generally well-served and well-looked after by the insurance industry.”

But it’s what SMEs don’t say that’s more revealing. In the FSB’s latest annual survey of nearly 10,000 of its members, it asked them where they turned for business support. Insurance brokers didn’t feature. While brokers may think they are providing specialist tailored advice, SMEs themselves don’t seem to think so. According to John Grange, an adviser with the government’s Business Link service, the broking sector still has some way to go in shaking the image of insurance as a necessary evil, and demonstrating their own value.

“Insurance is a valuable product, and the people selling it need to make sure the people buying it appreciate that,” he says. “People do have the feeling they’re getting ripped off because they’ve gone somewhere else and found a policy £400 cheaper. Brokers have to invest a bit more time in talking about different products and what they do.

“It’s easy to assume that the person on the end of the phone understands the jargon, but things that brokers take to be common knowledge are not obvious to other people. The danger is that they will just compare prices without appreciating what they’re buying, and brokers will lose business.”

Even at the smallest end of the market, SMEs do like to feel they’re receiving a personal service. But this cuts to the heart of an eternal dilemma for insurers and brokers attempting to serve this sector. It’s a vast pool of tiny organisms, that in size and spend aren’t much bigger than the creatures in the heavily commoditised personal lines market. But when you peer closer, each of these micro businesses is just as unique as the much larger companies that can afford in-house insurance experts and bespoke professional advice.

SMEs are as hard to produce commoditised products for as they are to define. So how can the industry give them all want they want in a cost-effective way?

Computer assisted

Right now, the answer on everybody’s lips is technology. Streamlining the distribution channel promises to cut the costs of securing this low-margin business, speed up the service brokers offer and, most importantly, free them up to spend more time talking to their clients. But a more technological solution is inevitably a less bespoke one. The question is, how can the industry make sure the efficiency gains of commoditisation genuinely lead to a better service for their clients?

Broker Lark Insurance’s managing director, Stephen Lark, welcomes the idea – up to a point. “It’s useful in certain sectors of the market; towards the bottom end, where things tend to fit the products a bit more snugly. As businesses get bigger, they tend to have more facets that don’t fit electronic trading.” Core commercial combined products would be fairly easy to sell online to smaller businesses, he suggests, as well as personal accident and travel or paperwork-heavy marine cargo.

But where you draw the line is a question insurers are struggling with. “How far can you take automation?” wonders QBE’s managing director of commercial business insurance, Graeme Rayner. “Clearly the product has to be relatively simple, but it also has to do what the insured expects it to do. Can we get efficient systems and processes that allow us to commoditise products, but maintain the level of underwriting contact for our brokers?”

QBE’s understanding of SMEs are businesses paying annual premiums below £10,000, and it hopes to do £20m worth of business through online channels this year. Rayner stresses that,­­ in addition to its e-trading platforms, brokers will also have easy access to underwriters “who are more than just call centres, with the technical knowledge and authority to make decisions quickly”.

Groupama promises the same thing. “We don’t just want a situation of ‘computer says no’,” head of commercial distribution, Alison Andrews, says. “Brokers can trade online but they always have the fall-back of talking to an underwriter and doing a deal.”

Groupama also specialises in the smaller end of the SME sector, but Andrews says it is writing larger risks as customers paying premiums below £5,000 are increasingly going online themselves to direct writers. She thinks the industry is in something of a transition period, before the lower end of the market is inevitably commoditised.

“I don’t think it’s going to be possible to take a traditionally traded commercial combined product and stick it online,” she says. “But it will develop and follow a similar model to other products going online.

“Over time, we’ve learned to underwrite online, starting with very simple products and becoming more complicated. There will be products out there catering for more straightforward risks, but there is a point at which you can’t cater for more complex business.”

Groupama only sells through brokers, and it has worked with them to develop stripped-down versions of SME products to cater for companies that are watching their costs closely or have shrunk during the recession.

Last September, it launched a combined liability-only product, without property or business interruption insurance, to fulfil an SME’s minimum legal requirements. It is also allowing fleet customers to buy cover in even smaller packages, down to just a couple of vehicles. “It can be a problem because some of the SME products are so small anyway, with such low average premiums,” Andrews says. “What we don’t want is to strip it down to a no-frills policy that doesn’t offer the level of cover they need.”

Instant gratification

While commoditised products generally have to be a vanilla offering with fewer covers or reduced limits, there is scope for greater flexibility, according to Brit’s head of distribution, Tim Grant. Brit’s target SME market is companies with a turnover of up to £2m, from sole traders to micro businesses with 10 employees or less. In 2007, it earned less than 5% of its GWP from this sector; that rose to 10% in 2009, all traded electronically and 80% without any need for intervention from the insurer.

“You can build a website to offer the standard product and then at the next screen add extra covers or increased cover,” he says. “The cost of delivering that is minimal. Increasingly, clients are becoming a little bit more sophisticated; they like being able to pick and choose and see the impact on the price.” The next generation of Brit’s extranet, to be launched in the third quarter of this year, will have that functionality. “Society is a little bit more impatient now. People expect more and want instant gratification,” he points out.

At the FSB, Alambritis has noted his members’ increasing reliance on the internet. “There are new breeds of entrepreneur: young, female, working from home; or male and highly mobile. People increasingly want to access insurance over the internet, with perhaps a decision there and then.”

Grange suggests online platforms could be designed to prompt discussion and explanation with a simple tick-box system. “These days, there is so much on the internet, all processes are speeded up, so that knowledge transfer and interaction time has lessened,” he warns. “In the process of making it quicker, more efficient and cheaper, brokers have to make sure interaction is not lost so people can make informed choices. It’s very easy to go online, but brokers still have to be providing a service.”

Every little helps

Some insurers are looking further than the IT department for ways to differentiate themselves and their brokers. RSA is launching 10 new products aimed at SMEs, delivered over a variety of electronic channels, and it interviewed 120 businesses and 40 brokers to discover the best way to target them. It has come up with some ingenious solutions.

For example, one worry for fleet customers is the requirement to check the licences of all their drivers. “That can be hit and miss within a small fleet,” SME director Daniel Greaves says. “But RSA has access to a clearing service. The driver signs a mandate, and then we can do the clearing for the fleet manager every six months to make sure none of their drivers has any convictions. We’re not offering this to everybody, but it’s one way a broker could make life easier for their client.”

For property owners, brokers could offer a tenant vetting service or put them in touch with a third party. They could also help with the perennial headache of finding a good plumber by tapping into the insurer’s approved repairer network. Though RSA does sell direct to SMEs through More Th>n, Greaves says that 90% of its business goes through brokers and he doesn’t see that changing.

Another tool at brokers’ disposal is Aviva’s ‘Hard Facts’ series of information sheets, covering more than 200 risk management issues, available free from its website. For its own commercial insurance customers, there is the ‘Cut Red Tape’ website, with more detailed business advice, constant updates and document templates.

“Most SMEs don’t have specific departments that deal with legal or compliance issues,” commercial product development manager Alex Royce says. “We’ve obviously got that expertise within Aviva, so we felt we could help.”

At network Brokerbility, whose 34 members do the majority of their business with busy SMEs, managing director Ian Stutz thinks these kinds of tools could be useful for explaining the added value of different policies: “One of a broker’s tasks is to try to differentiate the services of individual insurers. A client may be prepared to pay extra for a risk management service. Having access to that information will help us.”

But it’s still no substitute for the bespoke risk management advice that brokers can give, Biba technical services manager Steve Foulsham cautions. “SMEs do need guidance from somewhere and I don’t think they can expect insurers to provide it, especially not as they survey less and less,” he says.

“The broker is the real place where they should be able to turn. Many small business directors or partners, or sole traders, still value that initial discussion face to face.” IT

Voice of the SME

John Kaiser, managing director, Paramount Performance Tuning

Annual premium: around £10,000

The problem is: if you’re a small company, you fall between two stools. If you’re a large company, you have opportunities to negotiate or take on part of the risk yourself. If you’re a private individual, you’re offered cheaper this, cheaper that, something else thrown in free of charge. As a small business, you don’t get the benefits of either.

I guess insurance is pretty low on the radar of most small companies. There are lots of risks in running a small business, and I think there are a lot of people who are severely underinsured. Subcontractors, for example, may have £1m of insurance, but if they burn a building down, that could be a £5m-£6m liability. I’ve heard of cases where people have been underinsured and they’ve gone under.

Maybe there’s an assumption that because you are in business, you understand insurance. I’ve never had a broker say to me: “This is what public liability is …” My business is tuning and servicing prestige cars. I employ five people and my annual turnover is between £550,000 and £750,000. I think I’ve got employers’ liability wrapped up in my public liability policy, but nobody has explained that. Year after year, they say ‘here’s the best policy’ and I pay for it. I don’t think any small business owner is going to read the clauses until they’ve got a claim, by which time it’s too late. I’ve never made a claim, but as a small business, you don’t build up a no claims bonus in the same way as a private individual.

Would I buy direct from insurers? The issue is, you’d get even less advice if you didn’t have a broker in the middle. Brokers serve their community and the people they deal with. You tend to put your faith in your broker like any other professional, and it’s too much aggro to change. You hope that they’re giving you the right advice and not just chasing down the biggest commission. It’s one of the last bastions of someone coming along, telling you their expert opinion and you’ve got no way of checking because of the complexity of it. The tendency is to go with the one you’re with. There aren’t price comparison websites for business products, but I’ve got mixed feelings about that. I can see that it’s fraught with dangers.

I think sometimes brokers do need to be a little more proactive. I’m always surprised when they say “we’re renewing your policy, has anything changed?”. Of course, I say no. If you have someone come and sell you a pension, you have to go through a form. There doesn’t seem to be the same sort of thing for insurance. The tendency is just to renew everything, and businesses are just thinking about one thing – is it going to cost any more?