Online small business insurance sales to explode 725% by 2020

Expect more of your small business clients to get their coverage digitally underwritten as Millennials and Gen-Xers set to own 60% of smaller companies, according to new research

Insurance News

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Once considered the safe stronghold of traditional commercial insurance, a new report suggests that coverage for small businesses will be increasingly written and purchased digitally.

In its analysis, Morgan Stanley Research and the Boston Consulting Group found that innovation in insurance is being driven by the emergence of technology-based startups and the rise of Millennials and Gen-Xers as business owners.

In fact, the report authors estimate that these two generations will own more than 60% of US small businesses by 2020 – an increase over the 38% they own today. With their preferences for tech-based solutions, Morgan Stanley and BCG expect digitally underwritten insurance could grow from $4 billion in 2015 to as much as $33 billion by 2020. That’s a 725% increase within just four years.

Kai Pan, lead author of the report and property/casualty insurance researcher at Morgan Stanley, likens the adaptation to direct underwriting in the auto space.

“We believe the pace of digital adoption in the small business insurance market could be much faster, as the internet and mobile technologies are ubiquitous now,” Pan said.

The desire is already there. The report found that 38% of small businesses would buy insurance online if they were starting out today.

Morgan Stanley and BCG’s analysis echoes similar opinions reflected in a 2013 study from the Deloitte Center for Financial Services. About half of the 751 small businesses surveyed for that report indicated they would be at least somewhat likely to consider buying some of their insurance policies directly from a carrier.

Despite 83% of small businesses saying they are satisfied with their current agent, their willingness to part company in order to save on premium is rather higher than some agents may be comfortable with.

“If online sellers provide value-added self-services in addition to discounts, there may be a growing risk of disruption and disintermediation unless agents and their carriers respond in kind,” the Deloitte report says.

However, while this business model has been successful for auto insurance, the greater complexity of commercial policies and the politics associated with dropping insurance agents and brokers has kept this wish from becoming a reality. In fact, the direct sale of small-business insurance in the United States comprises just 1% of the market.

And insurance carriers are not exactly chomping at the bit to develop the capabilities. Morgan Stanley notes that only a few traditional commercial insurance companies have explored online sales and digitally underwritten policies, either through investment or partnerships with startups.

It will take a number of new entrants to gather the momentum to unseat traditional methods, Pan said. Specifically, carriers will need to make their insurance products less complex, with easier to understand terms and a less cumbersome claims process.

“By making the right digital investments, carriers will be able to automate more processes, enable self-service where appropriate and redeploy their human resources more productively,” said Achim Swetlick, a partner and managing director at BCG.

In its report, Deloitte concluded more cautiously.

“It is unlikely that agents and brokers will be significantly disintermediated in the small-business market any time soon,” the analysis said. “However, additional direct initiatives will likely be launched, requiring a response by their legacy agency competitors.”


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