In an industry filled with InsurTech startups, new MGAs and a host of complementary organizations, the insurance industry's execs should be interested in the success of SMEs. We know their power to produce good ideas, launch new companies and drive with agility. We know their creative strength. We also know about their obstacles, such as financing, talent talks, operational barriers and the need for simple solutions to complex headaches.
But there is a trend we should see within InsurTech that will lend to insurance interest rates more than anyone else – SMB spread and growth. The rapid multiplication of SMEs, which all need insurance products and services, is a trend that is taking place in almost all industries. Tech companies are on the rise. Services are increasing. Despite historically low unemployment, new companies are able to find enough talent to start and grow. According to the US Small Business Administration, the SME market size is huge and continues to grow ̵
Of course, SMB growth does not understand in larger insurance sales. But since these companies are important drivers for the overall economy, and where market development and innovation arise, the insurance companies find great synergy between these types of new companies and their own paths towards innovation and business model change. SME growth is increasingly driven by digital technology that provides efficiency and improves competitiveness, such as the ability to innovate with new products and services, scale quickly and cost-effectively and broaden grace in existing or new markets.
The segments highlight the possibilities.
Majesco recently conducted its third annual SMB survey that split SMBs along two lines. First, the companies were segmented by size with the number of employees. (1-9 employees, 10-99 employees and 100-499 employees). Then, and most significantly, it was segmented by the decision-maker's age and split employment sizes into two groups; Millennials / GenZ and GenX / Boomers. Using these six groups, we identified trends related to demand and purchasing. From next week you can access the Majesco find by downloading our thought leadership report, "Building the business model for the next generation of small business owners."
Trends point to changing behavior.
In our latest consumer research to understand today's customers and their impact on insurance industry models (see the customer report here), we identified channel and purchasing trends that are significantly correlated with the customer's age. It is clear that SMEs would also be subject to similar age-related insurance behaviors and expected developments – although these trends must be seen through the corporate size lens.
Using both of our guidance studies, we found that the inclusion of digital technologies by SMEs will accelerate, as Millennials and Gen Z become the dominant population among both consumers and SME owners and leaders – and that is within the next 7 years! Their impact will be felt when starting new starters and taking over existing companies. This new generation of SMB leaders uses technology to engage in new behaviors and businesses that need new risk products and services.
However, we were surprised to find that increased expectations among small and medium-sized businesses make them embrace certain market developments
Here are some of what we found:
- Up to 38% of Gen Z and Millennials SMEs purchased insurance online, within the 10-99 employees segment. It is twice as much found in last year's survey.
- Up to 32% of SMEs purchased on-demand insurance to cover an event or product over a certain period of time.
- Gen Z and millennial small and medium-sized businesses are leading the use of digital and mobile channels to engage with their insurance companies.
- From 37% to 48% of Gen Z and Millennial SMBs use connected devices such as security systems and cameras, thermostats and smoke detectors. The use of smart speakers also grows among Gen Z and Millennial companies.
- Almost 35% of major Gen Z and Millennial SMBs offer employee discounts on life insurance or health insurance if they use fitness tracker.
- Connected vehicles that monitor employees' driving behavior
- SMBs employ freelancers and independent contractors for projects and time-limited work, which gives rise to the Gig economy – where voluntary benefits may be needed. Almost 50% of the smallest companies have also worked as an independent contractor.
- The use of drones and 3D printing reaches almost 20% in multiple SMB segments, led by Gen Z and Millennials and larger companies.
Matching behaviors in business models.
The rapid growth of these market trends and digital technology increases SMB's interest in new insurance products, services and business models. They provide insurance companies with innovative offers in a strengthened position to gain market shares and drive growth strategies. SMEs have great interest in value-added services – almost 75% across all segments . They have strong levels of interest (almost 60%) in social and peer-to-peer functions and business models.
Among medium-sized and larger Gen Z and millennial SMBs, it is extremely strong interest for products that use new data sources for pricing and insurance risk. If we look at the interest in value-added services and the increased comfort level with new data sources, we see that insurance companies have a significant opportunity to move their business models to match. A plug-and-play microservices approach to data collection and analysis will help the front-end insurance companies, while engaging with partners to provide unique services will value the relationship, create a relevant, personal and future-ready business model value chain. Expansion of distribution and engagement strategies offers another opportunity that we will discuss more in our SMB Engagement blog, which comes within two weeks.
However, there is an underlying threat. Gen Z and Millennials would consider buying insurance from "Tech Giants", including Amazon, Google, Apple, Netflix and others. They are familiar with these brands and their service levels – creating a unique loyalty that will float them if the tech giants make a move. An important reason why they should change is the digital experience of the technical giants they expect from others that they do business with – as insurers. In order to keep SMB customers loyal and capitalize on higher growth opportunities for SMEs, insurance companies should prioritize digital quotes, purchases and service functions and technologies at the top of their digital transformation.
The growing demand for and use of digital technology, the continued growth of innovative business models and products, and the rapid transition of Gen Z and Millennials as owners of SMEs will require innovative new approaches from existing insurance companies to retain customers and capture market shift and corresponding growth opportunities. The crucial and strategic issue for existing insurers is: Are you ready to capture the enormous growth opportunities in this large market – but in a new, innovative and digital way?
Changing business models today will place insurance companies for optimal SME market growth.
Within the next 7 years, Gen Z and Millennials become the dominant segment in the SMB owners' 30-60 year old "sweet spot". This is the window of opportunity for insurance companies to adapt to a new era of digital insurance for SMEs.
But what does this business model shift really mean? Should insurance companies set up innovation goals for their products and services or prioritize distribution and engagement strategies? In our next blog, we will discuss our SMB findings in depth to help insurance companies position themselves for greater product and service innovation. We will look carefully at how new business methods give new business opportunities and we will examine why insurers may want to "push the boundaries" now in order to achieve sustainable growth in the future.