By John Swigart
The combination of mobile devices and online services is making it possible for SMB owners to operate their entire business from their cell phone or tablet. A Forbes study of more than 500 business leaders found that 10% of those surveyed were already using their cell phone as their primary business device, a trend that will likely gain steam. By 2020, more than 60% of businesses will be owned by Generation X or Millennials, digital natives that are already spending 6 hours per day on their cell.
While many industries have shown the agility necessary to create exceptional digital and mobile experiences, insurers have generally struggled to keep pace. The typical business model in insurance relies on a number of participants. Customers work through an agent, who may request quotes from multiple insurers. Each insurer then analyzes the request and assigns some sort of risk profile, this can be automated or rely on underwriters, but is generally accomplished using data that actuaries have assembled. The agent then receives quotes, and passes them to his or her customer. The entire system lacks efficiency, but because so much business is generated through agents, many insurers are loathe to build out simpler customer-facing websites and apps, fearing that doing so will cannibalize their biggest sales funnel. Because of the process, many insurers view their “customers” as the agents, rather than policyholders.
The market is shifting, however, and some insurers are now offering a combination of educational materials and buying options that empower SMB owners to meet their legal insurance obligations and adequately protect the financial health of their businesses through online purchasing. For instance, workers’ compensation carriers like biBerk.com, a subsidiary of Berkshire Hathaway, have enabled small business owners to get a quote and buy a policy online, and Pie has just launched its online sales and will be expanding quickly across the United States.
Workers’ Compensation is mandatory in every state except Texas, so the incentive to improve customer journeys or remove friction from the buying cycle is very limited. However, the line offers tremendous value to SMB customers, protecting a business in the event of an employee injury or illness caught while performing their job. Injury and illness are far more common than most SMB leaders understand; the United States Department of Labor estimates that employers collectively pay nearly $1 billion per week for direct workers’ compensation costs. In addition to financial liability, workers’ comp insurers also help the injured worker recover and get back to work quickly, shortening the time a business must operate with an absent employee.
Workers’ Compensation isn’t the only type of coverage that’s available online. Commercial auto, business owners policies (BOP) and cybersecurity insurance are all gaining traction in direct-to-business purchasing:
- If a business owns and uses vehicles, commercial auto insurance is legally required. This coverage functions much like personal auto insurance and offers liability protection in the event of an accident, as well as financial loss from theft. A study from The Hartford found the typical claim for commercial auto claims is $45,000, a price many SMBs would be unable to shoulder without insurance. Progressive Insurance is not only a major personal auto insurer, but also the largest commercial auto insurer in the country. It has been a pioneer in the digital space and offers the most robust online offering for commercial auto insurance today.
- BOP policies are roughly equivalent to what a homeowner’s or renter’s insurance policy is for an individual. Three types of coverage often included as part of a BOP are property insurance, business interruption insurance, and liability protection. The Hartford study found that many common business insurance claims, such as water/freezing damage, wind and hail damage, fire, and customer slip and fall each averaged more than $15k in claims. BOP has typically been driven by insurance agents, because of the variability in what policies should cover across industries, but there are companies that are looking to digitize the insurance line. Hiscox has been selling directly to small business owners for a number of years, while CoverWallet is a new digital agency that also offers BOP policies online.
- Cybersecurity insurance can mitigate losses from incidents such as data breaches, business interruption, and network damage. According to the most recent Ponemon research, the average cost of a data breach is more than $3.5 million, and nearly half of SMBs in the US have been victimized by breaches. This makes cybersecurity insurance critical to mitigating risk and harm to a business from online threats. Despite the digital nature of cybersecurity, the market for purchasing this type of coverage online is still relatively limited. CyberPolicy is among the first companies to offer these policies online, though many companies and agents are packaging cybersecurity insurance into their small commercial or BOP offerings. According to the Insurance Information Institute, nearly a third of cybersecurity insurance was sold as part of a package.
Insurance is one of those “annoyances” of running a small business. Dealing with it does not help an SMB gain or serve customers, but insurance is critical to protecting the financial health of a business. Without the right coverage, businesses regularly fail after a major employee injury, fire, natural disaster, cyber incident or vehicle accident. Fortunately for business owners who want to purchase and manage their policies online or via mobile phone, there is a growing number of options that permit them to do just that.
John Swigart is the co-founder and chief executive officer of Pie Insurance, a digitally native full-stack insurer serving small businesses.