SME customers are increasingly being drawn to buying insurance online. But while aggregators are trying hard to win commercial customers, brokers and insurers argue that the e-trading model can't meet SME customers' complex needs
The SME sector remains dominated by brokers, whose knowledge and understanding of the needs of small and medium-sized businesses have held great value. However, one facet of the recent recession is that the much-touted loyalty of SME clients to their brokers and insurers is diminishing as cost pressures mount.
Technology is also playing a part in driving change, as new entrants like LV= and others combine traditional sales techniques through brokers on the ground with up-to-date innovations such as electronic trading.
LV= commercial director Mike Crane believes the flexibility that firms such as his have in offering clients a range of transactional options, including online, is central to their success in gaining market share. “We do a good chunk of our business on the web," he says. "It’s not a standalone route to market, but we’ve focused on blending online, telephone and face-to-face dealing to give brokers the range of options they want. You look at legacy operators, and they would struggle to blend those channels in the same way."
Surplus to requirements?
Although online trading is increasing in commercial lines, the industry remains doggedly tied to the view that it is not suitable for SME insurance. Despite a recent report that showed around one-third of SMEs would buy their cover online, the digital revolution in this sector has so far been restricted to very small businesses with straightforward cover requirements.
But in spite of the obvious shortcomings in dealing with more complex SME cover, the pervasive nature of the internet is increasingly extending itself to commercial lines. Price comparison websites are now including products for the SME market, with tradesman, office, shop products and other smaller premium products all available online. Indeed, a number of insurers only offer this kind of cover through the internet because it is the only way to make a profit from it.
Side-stepping the broker relationship is one obvious consequence of e-trading. But there is a side-effect to online insurance buying that should concern insurers too. Research also shows that companies that use the internet don’t tend to have the same loyalty to an insurer or broker because of the price-driven nature of the beast. Thus the role of the broker in this sector, traditionally valued by SMEs, and the additional services they provide, could one day become surplus to requirements.
Not quite there yet
As costs pressure continue to plague SMEs, many are logging on to the internet to see what alternatives are available, even if actual online transactions are currently few and far between. In effect, SMEs are getting quotes from insurers' websites and using them as a benchmarking tool against what their broker is quoting. So far the broker is still usually doing the final transaction, largely because the software doesn’t exist to cater for the complexity of most SME products.
“Yes, there has been an increase of e-trading in SME,” says QBE portfolio manager for small business insurance, Nick Dinsdale. “But there is a threshold in complexity below which e-trading works quite well, but above which you need advice from an insurer or broker to make sure your business is properly insured.”
And bearing in mind the collapse of the ill-fated commercial aggregator Coverzones, is it worth asking whether or not there is actually any real demand for an online insurance service for SMEs?
“Many more people are looking at the aggregator model for SME,” says PricewaterhouseCoopers insurance broking leader Roy Clark. “But a lot of entrepreneurs still like and want advice from a broker to ensure they have appropriate coverage. There are more hurdles to online in the SME sector than in personal lines. I’ve no doubt it will take more share, but I'm not sure that SME will be transformed in the short term in the same way as personal lines.”
'Totally different model'
There is also an important distinction between the type of online offering in personal lines and what has so far been made available for SMEs.
“The aggregator model that works in personal lines hasn’t really appeared in the commercial arena,” says Groupama commercial lines director Malcolm Smith. “Aggregators are driving some commercial volume, but they are working with brokers by switching customers to brokers’ sites - they’re not operating a comparison site for commercial insurance. It’s a totally different model to the personal lines aggregator.
"Will it go down the same route as personal lines? I don’t think so. Business customers tend to want advice, and that doesn’t lend itself to the aggregator model.”
Moreover, it is worth pointing out that insurers have long complained about instances of fraud or, more accurately perhaps, customers being economical with the truth when keying in their details for online policies. The situation is likely to be worse when it comes to commercial transactions, causing a further deterioration in the quality of insurers’ books as it has in many personal lines.
Clearly, it is in both brokers' and insurers' interests to find a way to offer SME customers the flexible options they increasingly expect, while communicating the added value of the broker relationship.
