Jonathan Guard is Director of Commercial Markets, Insurance, UK, LexisNexis Risk Solutions
In the UK, 72% of small business owners[i] buy their personal insurance online. But there is an unmet increasing demand for digitised services in SME insurance.
96% of UK businesses are microbusinesses,[ii] employing up to nine people. As such, insurance is often purchased by the owner, who is likely to approach the process in a similar way to how they would purchase personal insurance. They want tailored cover that reflects their risk, at a fair price, via a quick, streamlined process.
According to a 2017 study by PwC’s Strategy&,[iii] limited online commercial insurance offerings meant only 24% of small businesses purchased their most recent business insurance in this way. However, the study found that 48% would prefer to buy online and 65% said they are quite or very likely to do so in the future.
In particular small business owners who organise their personal insurance online want to be able to do the same for their business insurance – 70% of PWC survey respondents who buy personal insurance online would prefer to do the same with business insurance.
Business insurance is of course a more complex proposition than personal policies. However, contributory databases and data enrichment at the point-of-quote have transformed the personal lines market, helping to deliver more accurate quotes at speed in an online environment, leading to smoother processes, improved loss ratios and greater operational efficiencies. Taking these benefits and applying them to the commercial insurance market to support a speeder quotation process is the natural next step.
Traditionally, providing insurance to small businesses has relied upon the ability to pull together a range of data points from various sources, before making a full assessment of the risk.
Data used in assessing risk and underwriting SME insurance include details of the business, its business leaders and directors, its location/s, type of premises (warehouse, office, retail unit) and contents of the premises. And when company cars are added to the equation, information must include previous motor claims and NCD information. This can mean multiple callouts for data before the underwriter is able to gather a consolidated view of the risk, and set an accurate premium.
At LexisNexis Risk Solutions, we are looking to the future of this process to automate data enrichment at point of quote and bring in new data sets that help build the fullest picture of risk. This includes the valuable ability to link director or business owner data to any previous or current records held for that individual.
Appetite for improvement
To help establish how well business/SME insurers understand the risk of their customers and their attitudes towards data enrichment and contributory databases, we recently undertook a study of the market.[iv] Despite general positivity over the future use of data enrichment, 50% of those we surveyed do not use data enrichment today because they don’t currently see a need. Out of that group 47% said it is because they have not had access to the right type of data.
Nevertheless, those in the market that are using data enrichment see a positive outcome. 75% of this group said it is extremely useful, so there is evidence for a growing appetite in the future.
Commercial insurers that we have spoken to in the past have expressed a serious interest in contributory databases, with 67%[v] saying they would welcome the opportunity to share and in turn access data related to policies, properties or claims. Our latest research further supports this view as 98% of business/SME insurers said that claims information for the last 3 years will be important for the pricing and underwriting processes.
Spreading the net wide
SME insurance providers need more of the right data delivered at speed at point of quote to enable a full assessment of the risk. For SME insurance, we summarise this as data covering – people (Directors), property or vehicle, past policies, past claims. When bringing all these data sources together at point of quote, the process of customer verification, risk assessment and pricing is vastly improved.
Drilling down into the specific data the business/SME insurance providers want, virtually all of the providers we surveyed (98%) said previous claims that the business owner has had in the past 3 years would be somewhat or very important, 85% said County Court Judgments and 91% said information on bankruptcies.
Combining data about the business with data about the property goes even further to give a complete view of risk. 63% of business and SME insurers want to know about the construction of the building, 57% want to know the value of the property at the time of survey, and 52% want to know about the building owner.
Perils mapping tools such as Map View already provide a thorough understanding of location risks and perils such as flood, fire and subsidence.
Adding insurance-specific customer verification and data enrichment to the SME insurance quote process could give providers a choice of attributes. These could cover information on relevant crimes, Land Registry data, unemployment information, details from the Edited Electoral Roll as well as any CCJs or insolvencies.
Linking disparate records could also build a picture of the business and those behind it. Insurance providers are able to see that John Smith who just opened a boutique shop in Leicester is the same John Smith who had a motor policy with your insurance brand when he lived in Kingston three years ago.
Supplementing the insurance provider’s existing picture of the customer with industry contributed data on No Claims Discounts and policy history attributes from personal motor insurance clarifies the risk still further.
The picture of risk becomes even more defined with access to industry-contributed claims data related to the property and the person. While this is a vision rather than a reality at this stage, the commercial insurance market has told us it is ready to embrace this type of data enrichment.
Data enrichment for SME insurance at point of quote is the way forward, leveraging the broadest range of data from across the insurance industry to understand the customer risk at both an individual and a business level. In this way, insurance providers will be in a better position to give their small business customers the streamlined digital experience they want and compete more effectively for their slice of the market.
[iv] LexisNexis Risk Solutions anonymous research, based on a mixture of telephone and online surveys of 101 insurance professionals working in relevant lines of insurance, and was completed during January 2019.
[v] Enabling Enrichment, LexisNexis Risk Solutions white paper, September 2018. Survey of 77 individuals working for commercial property insurance providers. LexisNexis Risk Solutions was not identified as the sponsor of either of these pieces of research, which were conducted from November to December 2017 and December 2016 to January 2017 respectively.