Insights
Data Republic website
Published
Share
Share on facebook
Share on twitter
Share on linkedin
Share on email

SME insurance in Australia: a market ripe for change

McKinsey Australia’s Small Commercial Insurance Consumer Survey examines the competitive landscape of the Australian small and medium enterprises (SMEs) insurance market by polling more than 400 small business decision-makers who have direct responsibility for buying insurance. The ensuing report investigates the untapped potential of the market, evaluates dissonances between insurance providers and decision makers that deter growth, and concludes by recommending steps in which providers can optimize their marketing strategies to cope with the highly heterogeneous preferences and risk profiles of SMEs.

A market ripe for disruption

Australia’s sizeable small business sector consists of over two million businesses and accounts for an estimated AU $9.4 billion in general insurance premiums. However, the report notes that a significant proportion of SMEs (13%) are uninsured or underinsured due to a combination of factors, including unattractive price levels, time constraints and a lack of awareness on risk exposures. Barring any significant innovation, closing the reported 13% non-insurance gap alone will bring up to AU $1.4 billion in new premiums. Australia’s SME insurance market grew at a rate of 2.5% a year from 2011 to 2015, slightly behind the SME output growth of 2.9% over the same period. Historically, focus has been placed on serving larger players with high service requirements and advice needs. Smaller premiums and significant variation in risk appetite and coverage preferences have made it difficult for insurance providers to economically cater to the needs of SMEs. This, along with the considerable number of uninsured companies, suggests that providers have much to gain from creating new value propositions and platforms that can effectively address this gap.

The Australian SME sector: a myriad of micro-niches

The authors of the report highlight the diversity in risk profiles that exist in the SME market as a core point– small businesses vary from sole proprietorships to publicly listed companies and operate in a wide range of industry sectors with different risk exposures. As such, the resultant heterogeneity in purchasing attitudes and behaviours underscores the need for insurers to define a distinctive value proposition for the diverse SME segments that exist. From the results of the survey, the authors broadly outline four groups of SME customers that exhibit similar characteristics, namely:

1) Convenience Seekers

This particular segment depends almost exclusively on brokers to source the best policy price; and the right coverage and claim services. They are willing to pay more for a better proposition and services, and they exhibit low affinity to online channels.

2) Online DIYers

This segment is comfortable with purchasing insurance online, and generally has standardised product needs. While not overly price sensitive, they are willing to chalk out additional sums just to be able to manage their insurance policies online.

3) Expert seekers Consisting mostly of sole proprietors  this segment needs tailored products and expects not only solid insurer expertise and reputation, but also show a favourable disposition towards high levels of customer service. This segment also exhibits higher levels of brand loyalty to their insurers.

4) Uninvolved Bargain Hunters

This segment is the most price-sensitive, and does not generally have a need for extra coverage or tailored offerings. It is also characterized by an equal preference for broker intermediation and direct purchase.

The Online DIYers and Convenience seekers dominate the premium SME insurance market and are considered the ‘value play’ segments by insurers, while Expert Seekers and Uninvolved Bargain Hunters make up the remainder of the market and termed as ‘volume plays’.

Insurance purchasing: the SME decision making process

The authors observe from the survey results that nearly half are of the respondents are ‘shoppers’, meaning that they do not automatically renew their policies with their current insurers and will seek alternative quotes from different providers. Price increase is the primary trigger for shopping: 20% of SMEs that shop around were prompted to do so by marginal price hikes (<5%). However, only 19% of ‘shoppers’ ever make the switch, alluding to the lack of suitable and convenient alternatives and limited brand differentiation in the market. Roughy 25% of customers are ‘passive loyalists’-- dissatisfied customers who remain bound to their insurers as they find the process of finding new providers, and switching, not worth the hassle. The triggers that influence the SME decision-making process occur at a range of touchpoints. These include traditional advertising, online research (including insurer websites, social media and aggregator sites), brand recognition, recommendations from others, previous experience, brokers and trade associations. SMEs generally consider generally consider three or four brands during the insurance purchasing process, and obtain quotes from two or three. Despite the relative accessibility of online channels, brokers remain squarely a key influencer during the purchase phase. Websites are are increasingly being used to retrieve quotes, but not to actually seal insurance deals. The authors note that the most effective approach to reach new customers continues to be through traditional advertising, although the authors note that many of the existing advertising strategies lack emotional appeal — a key ingredient in establishing customer loyalty. Social media mentions of insurers is the second most reported driver of consideration for Australian SMEs, emphasising the importance of effectively leveraging this rapidly expanding channel for reaching potential customers.

How does digitisation play into all of this?

To be successful going forward, insurers will need to develop a business model that is able to survive in a digital environment. Firstly, insurers should master digital marketing capabilities and promote their brand and products. Secondly, insurers should use digital tools to personalise and enhance the customer experience — a key ingredient in establishing customer loyalty. Lastly,insurers should harness the power of data analytics to efficiently serve a fragmented market of niches at scale through automated and lower-cost digitised processes; for example, streamlining and simplifying the process of providing information, quotes, purchase options and policy management abilities, predicting client churn, modelling price sensitivity, enhancing cross-sell opportunities and reducing the cost of reaching the consumer on these points. On a conclusory note, the authors emphasize on the importance of not spreading oneself too thin. Instead of trying to appeal to all segments within the SME insurance market, insurers should take a narrower focus and deliver targeted propositions — making it easier to implement sustainable and cost-effective operating models.   Click here to access the full report.   ]]>

Share this Article
Share on facebook
Share on twitter
Share on linkedin
Share on email
Related Insights
Featured
Amsterdam Fintech Week
Take a look at our yearly fintech festival, Amsterdam FinTech Week. Go on the dedicated website to check out the 2021 wrap up!
AMLD5 Guide
A source for consulting PSD2 legislation coupled with commentary, tips & tricks, applicability, in collaboration with our member law firms.