UK Small Business Insurance

UK Small Business Insurance

A study of business insurance purchase behaviour among small businesses

July 2016

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This report is the first in a series of surveys in the SME sector which showcases our commitment to, and understanding of the SME sector.

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Contents

MARKET CONTEXT: how do small businesses feel about insurance?
BRAND AWARENESS AND RELATIVE IMPORTANCE OF BRAND WITHIN THE PURCHASE DECISION
INSURANCE COVERAGE
THE JOURNEY: factors driving choice of provider
THE JOURNEY: factors driving channel
PROVIDER MARKET SHARES AND RELATIONSHIPS
THE UNINSURED
PEN PORTRAIT SEGMENTS
APPENDIX: sample profile

Introduction

The 2016 SME Insurance survey on small businesses with 2 – 50 employees focuses on those with 2 – 50 employees. The rationale for this is:

This sector represents the large majority of businesses within the UK
It is quantifiable: the National Statistics Office estimates a population of 1,117,000 businesses within this band
Given that they are all employers, it could be hypothesised that this sector represents a core sector for general insurers targeting the small business sector
It delivers a more focused lens on one sector of the very broad and heterogenous SME landscape

The study was designed to provide a snapshot of current attitudes and insurance purchase behaviour as well as trends over the six years since the DVL Smith Nov 2010 SME Survey

Survey logistics

A random sample of 261 small businesses
Employee base 2 – 50 employees
On-line methodology (Research Now panel)
Respondent: business decision maker with responsibility for insurance matters
Fieldwork dates 24/05/2016 – 27/05/2016
Details of the sample profile are shown as an Appendix to the main report:

1 in 3 businesses are home-based
50% have turnovers below £500K
42% in ‘professional’ sectors; 58% non professional/trade

MARKET CONTEXT: HOW DO SMALL BUSINESSES FEEL ABOUT INSURANCE?

HIGHLIGHTS

1 in 3 feel under-insured
Biggest fear is to be served with public/professional liability claims – not surprisingly the core insurances held
Emerging segmentation

by professional/non professional sectors re. relevance of insurance risk categories and number of insurances held
by Direct/broker led purchase re. price sensitivity and perceived complexity of product needs

Even with 2+ employees, not all businesses have specific business insurance. 1 in 3 feel under-insured

What risks are businesses trying to protect themselves against?

The biggest fear is being served with professional or public liability claims; most businesses will have taken out insurance to protect against this. ‘Non professional’ businesses are much more likely to also appreciate a need to protect against environmental and income continuity

Attitude toward risk & coverage: a general appreciation that insurance is important but also a pragmatic attitude toward the amount of cover

Attitude toward holding business insurance: direct purchasers are more cost sensitive; those using brokers are less confident and more time-poor

Attitude toward holding business insurance: advice is trusted more from a broker than an insurance provider

Attitude toward holding business insurance: demonstrating the importance of claims handling. Businesses do differentiate between providers

BRAND AWARENESS AND RELATIVE IMPORTANCE OF BRAND WITHIN THE PURCHASE DECISION

HIGHLIGHTS

Few brands trip off the tongue spontaneously although 11 companies have total awareness levels (spont/prompted) over 50%. But there are a lot of ‘also rans’
Extremely consistent brand awareness levels over the past six years for the major players

Brand Awareness: (Top of mind; spontaneous and prompted) Top companies

Average number of companies mentioned: 9.3

Q: Which insurance companies can you think of who offer business insurance?Looking at the list of business insurance providers below, which of these companies have you heard of, if any? (n=261)

Brand awareness: other (minor) providers

Q: Which insurance companies can you think of who offer business insurance?Looking at the list of business insurance providers below, which of these companies have you heard of, if any? (n=261)

Brand awareness: 2010 - 2016 (where comparable) shows a high level of consistency

Q (2010) When thinking about insurance, which is the first commercial insurance provider that comes to mind? (n=697)Which other commercial insurance providers can you remember? (n=697)

Q (2016): Which insurance companies can you think of who offer business insurance?Looking at the list of business insurance providers below, which of these companies have you heard of, if any? (n=261)

INSURANCE COVERAGE

HIGHLIGHTS

Average number of risks covered = 5.7 (more so for non professional/trade than professional)If they recognise the risk, they are likely to have a policy in place to cover it; few ‘market gaps’ (accident & health, legal expenses, Director liability)
Risks not covered tend to be less ‘on the radar’ or more expendable

Insurance coverage: incidence of cover has remained stable over the past six years; average no. risks insured = 5.7

Non professional businesses will have more insurance (ave. 5.8 risks covered) than professional (5.2)

There is a high correlation between the recognition of insurance needs and actually holding relevant policies

Key policies across the board relate to public/employer liability and professional indemnity

Where relevant insurance risk isn’t covered, there are opportunities for providers to encourage and facilitate take up

THE JOURNEY: FACTORS DRIVING CHOICE

HIGHLIGHTS

Key drivers of choice relate to getting the basics right: the right product, good customer service and confidence in the provider. Low cost and Brand are secondary issuesBUT drivers do differ by segment - especially by purchase channel
Complex, innovative products are not likely appeal to business customers per se
Trends over the past six years see less emphasis on price and more on product features
Businesses do not go far-afield researching insurances before they buy (ave 1.5 sources)
As a source of information, online has increased from 25% – 39%.
Most obtained at least 2 quotes before making a decision; half did not choose the cheapest price

Broker recommendation

Key influencers on choice of specific insurance provider

Index of influences on choice of insurance provider (Net +/- scores)

Sources of information referenced pre-purchase:

Businesses do not go far-afield researching insurances before they buy (ave 1.5 sources).

How has on-line impacted the purchase of business insurance over the past six years: pre-purchase as a source of information

Pre-purchase, for information and price comparisons, the percentage of businesses going on online has risen from 25% to 39%

80% businesses renewed on the last occasion: 20% bought ‘new’

For those obtaining at least 2 quotes, cost is not the prime consideration for half of all businesses

THE JOURNEY: FACTORS DRIVING CHANNEL

HIGHLIGHTS

Brokers are still the most common channel to buy business insurance – but this is a sector in long term decline
Banks have virtually no presence as insurance providers in this sector
Overall, as a purchase channel, online has only grown from 15% - 26% over the past six years – as a result of increased online presence by Direct providers
Price aggregator websites have minimal influence and profile in this sectorPurchase channel presents a discriminating segmentation - by size, status and purchase drivers
Generally, convenience and habit are responsible for channel choice: but more complex needs steer businesses toward personal contact, whether face to face or phoneNo noticeable customer ‘pull’ to buy insurance online next time: the trend is likely to continue to be driven by providers

Purchase Channel

On-line has also grown as a purchase channel (led by Direct providers)

Factors driving channel

Insurance coverage

Factors driving choice

Provider market share

Pen portraits of sectors

But some might argue this is a modest rise in penetration over a six year period

Purchasing drivers are similar for F2F and telephone channels. Online purchase is more likely to be driven by convenience speed and price

Purchase channel trends: 2010, 2016… and next time (envisaged)

Q (2010): How did your organisation buy or renew its last insurance policy? (n= 697)

Q (2016): How did you purchase your most recent business insurance policy? (n=219)

Q (2016) How are you most likely to buy your next insurance policy? (n=219)

There is no noticeable customer ‘pull’ to increase online as a purchase channel (N.B. 9% don’t know how they are likely to buy insurance) Broker phone based relationships are in decline

PROVIDER MARKET SHARES AND RELATIONSHIPS

HIGHLIGHTS

AXA and Aviva dominate this marketplace: accounting for almost half of the small business relationships
Hiscox holds the third biggest market share, but very focused in the professional sector, reflecting its branding and advertising positioning over the past years
No doubt brand awareness is significantly driven by consumer/retail presence, but some providers have been more successful than others in converting brand awareness into market share (partic Hiscox, as a specialist insurer)
Industry average NPS score is 11%

A consolidation of market share over the past 6 years with the top two providers – AXA and Aviva - servicing almost half of all businesses

Q (2010) : Which of these companies currently provides some or all of your organisation's commercial insurance coverage? (n= 697)

Q (2016): For each of the business insurance policies that you hold, please specify which company currently provides it. (n=219)

Hiscox has a strong 12% share but the rest of the market is fragmented across several players. But within this Towergate, Direct Line for Business and LV= have achieved a presence which did not exist 6 years ago

Hiscox has successfully carved a niche within the professional sector

.

Q (2016): For each of the business insurance policies that you hold, please specify which company currently provides it. (n=219)

A dilemma for insurance providers: how can one convert high levels of awareness into market share?

Awareness is inevitably driven by retail/consumer presence but there is a need to broaden awareness into the business arena – something Hiscox have done as a specialist business insurer with proportionally better success.

The dilemma for insurance companies is how can one convert high levels of awareness into market share?

Finding one’s space in the market is key to successful strategy: e.g. Towergate has disproportionally high market share in relation to their awareness level

Which providers are used for the key areas of insurance?

Likelihood to Recommend Insurance Provider

The overall NPS score for small business insurers is +11 with the top providers being Hiscox, LV, Aviva and RSA.

The best providers (with NPS scores above average)

LV (+36)
RSA (+20)
Hiscox (+14)
Aviva (+13)

THE UNINSURED

HIGHLIGHTS

Those buying business insurance for the first time are likely to look and buy on-line
Challenged by time and lack of urgency rather than cost. But they would purchase direct from insurance companies (rather than brokers) when, and if, they buy.

Online searches and brokers are popular options amongst the uninsured

40% of uninsured respondent would purchase their business insurance online

Key challenges: time and lack of urgency rather than cost. But they would purchase direct from insurance companies when, and if, they buy.

PEN PORTRAIT SEGMENTS

HIGHLIGHTS

There are clear differences in profile, mind-set and behavioural patterns by:

purchase channel
provider
business activity (professional/non professional)

Pen portraits by channel identify a basic but meaningful segmentation

24% bought their most recent business insurance online

Smaller business (under £500K)
Possibly home-based, simpler needs
Professionally orientated sectors
Least number of business risks to cover
Key purchase drivers: policy features, lowest price, online purchase channel, positive previous experience
Off-the shelf products appropriate
Least likely to perceive provider differentiation (32% feel all insurance providers are the same)
Convenience and speed determine purchase channel NPS score based on experience of their providers: +7
Likely to buy online next time

41% bought their most recent business insurance over the phone

Skewed toward retail, catering and accommodation but also professional services
Average number of business risks to cover
Key purchase drivers: broker recommendation, policy features, positive previous experience, lowest price
Relatively cost conscious: most likely to feel they pay too much for their insurance
No time to work out who are the best providers for business insurance
Convenience and habit determine purchase channel
NPS score based on their experience: +4 Likely to buy by phone next time

21% bought their most recent business insurance face to face

Production-orientated business sectors (construction/engineering/manufacturing)
Highest turnover (£1m+) often with a Finance Director
A need to insure against the highest number of business risks
Key purchase drivers: broker recommendation, policy features, positive previous experience, expertise in their industry
A need for customisable products Convenience and habit and need for advice determine purchase channel
NPS score based on their experience: + 26
Likely to buy f2f next time

Pen portraits by Provider (direct/broker) also demonstrate differentiation of customer mind-sets and complexity of product needs

42% bought their most recent business insurance through a broker

37% bought their most recent business insurance direct from a provider

More cost conscious (than broker-led businesses): 44% feel they pay too much for insurance, 52% are looking to reduce their insurance costs
Only 52% say they trust the advice given by their providers
Recommendation and positive previous experience are relatively important in the choice of provider
Most got at least one other quote before renewing their policy (usually an online comparison site)

Larger businesses (£1m+)
Time-poor and likely to feel policy wording too technical/jargon
A more complex range of business risks covered (business continuity, business interruption, Directors and Officer liabilities, loss of income)
Delegatory relationship: 80% trust the advice given by their brokers
BUT 33% feel they pay too much for their insurance

Pen portraits by professional vs non professional

Non – Professional business sectors (n = 109)

Identify greater number of risks
Most get their information on business insurance from brokers (54%) and only 35% use online channels
69% said they purchased insurance face to face or over the phone

Professional business sectors (n = 152)

More likely to protect their human assets
45% use online channels to research and get information for insurance
34% bought their business insurance online
28% of professional sector respondents said that they wanted the option to purchase online with a further 17% wanting a provider that gives them e-documents

Considerations, thoughts and opportunities for providers

The study highlights the need to fully understand how business customers decide whether to renew with the same provider, how to lock into, and respond to, clients researching alternative options before renewal, e.g.

Price pledges
Embedding customer loyalty/reason to stay

We see a clear, basic segmentation of customer needs and drivers by purchase channel: how best can a provider build optimum business models to increase profitability e.g.

Migrating simple/low cost insurance clients from phone to online
Establishing a convincing platform of industry specialism and expertise/breadth of cover which may include stronger differentiation between retail and business branding.

Similarly the study reinforces the opportunities by broad sector: non professional businesses need a wider range of policy cover, professional businesses may have fewer areas of risk but more expensive to cover them e.g.