Entering a New Era: SME Insurance and Technology
Jul 14, 2021
A webinar summary.
Recent developments in technology have significantly changed the SME insurance industry. Insurtechs, insurance companies and other financial services providers are expected to explore new approaches to serve the SME market together. Jackson Theuri (Britam General Insurance Kenya Ltd.), Khue Dinh (Chubb Vietnam), and Douglas Franklin (Digital Fineprint) joined the panel to share their insights on providing insurance solutions to small businesses in different regions and discuss the challenges and opportunities facing SME insurance. The webinar was moderated by Susan Holliday, a senior advisor at the IFC.
Britam is a leading diversified financial services provider in the East African market. SMEs, with an estimated to number of 1.56 million, are major actors in the Kenyan economy, contributing almost one-third of its GDP. However, their annual business insurance expenditure was only KES 43.9 billion. Insurance penetration remains low among the small businesses due to the lack of targeted go-to-market strategies, hence SMEs represent less than one-third of the total insurance market premium in the country. According to surveys conducted by Britam, the key risk perceived by the SMEs is illness of self, family members, and staff, which is a direct result of the relatively smaller size of the businesses. Business related losses, such as robbery, are another area of major concern. In 2021, the Kenyan SME owners identified access to finance, harassment by government authorities, inadequate business management skills, as well as the impact of COVID-19 as the biggest obstacles they encounter. It is critical for the insurance industry to address these challenges and design solutions and models suitable for SMEs who usually have irregular incomes and higher susceptibility to changes in the economic environment. To assist SMEs during pandemic, Britam has developed several products. For example, Britam Covid-19 Cash Benefit Cover aims to provide fixed benefits to the insured in the event of hospitalization. The business owners have choices over the use of funds, such as paying for their hospital expenditures or adding to their working capital. Britam also partnered with corporations in various fields, including Little (a telemedicine company) and Twiga (digitally enabled food delivery), in order to offer SMEs more comprehensive and convenient services with enhanced ways of delivery. Technology and innovations have enabled Britam to identify the needs of its clients more accurately and provide better insurance solutions accordingly.
Khue Dinh shared Chubb’s experience in Vietnam. As a result of Covid-19, small-sized private enterprises had a higher rate of revenue decline (around 39%) and were forced to lay off about 40% of their workforce. At the same time, Vietnam is one of the countries with highest digital penetration, which has been further accelerated by the pandemic. In 2020, the number of users in the e-commerce and retail sectors has increased by 41%, and 91% of the new users are expected to stay on the digital platforms after the pandemic. Chubb aims to support the small businesses in the digital era by partnering with the entrepreneurs to navigate the new risks that they may not know exist yet. The first step of the Chubb approach is to keep customers informed and stay ahead by sharing relevant information with them. For example, the company recently consulted with 1,350 business professionals and executives of SMEs from nine markets and issued Digital Business Accelerated Report to help their customers navigate the digital landscape and leverage the emerging opportunities. In the report, Chubb identified four mega-trends that the entrepreneurs should consider incorporating into their developmental strategies: navigating digital-first communications, harnessing the power of data, supporting a transformed workforce, as well as playing in the global market. Secondly, Chubb provides insurance as a service, which is beyond traditional insurance coverage. For example, in the event of a cyber incident, SMEs will be able to access an incident response team who will assist with the recovery process from informing the regulators to managing the public relations or customer service crisis etc. Lastly, Chubb enables access to SMEs by connecting them to an ecosystem. Chubb Studio, conceptualized as an “insurance in a box” solution, connects to the SMEs’ systems to offer modular coverages and embedded solutions at speed. These innovations have enabled Chubb to serve the Vietnamese SME community with more accessible and relevant solutions and products.
Douglas Franklin introduced Digital Fineprint’s work in the UK and the US and shared his insights into the future of SME insurance from a technology perspective. He pointed out that the small commercial insurance market has become a sweet spot in a challenging industry landscape and that SMEs are seeking digital solutions in this new environment. Consequentially, insurance carriers are also turning to technology innovations to meet their SME customers’ needs. One of the issues that Digital Fineprint has observed among the insurance providers is that getting a clear read on what the insured actually needs leads to a tradeoff between inefficient small business underwriting and leakage. The traditional approach, which includes completing many forms and questionnaires, does not allow the insurers to accurately understand the SMEs’ business activities while bringing complexity to the buying process for SMEs. Digital Fineprint has moved on from the static data collected through proposal forms to dynamic data, which is available in thousands of open data sources online. The company pulls data from various sources on the Internet and develops algorithms to pre-underwrite and assess the risk associated with the SME applicants’ behaviors. The system automates the underwriting process and creates an investigation dashboard that contains all the datapoints available. It also allows the insurance companies to review and analyze the whole portfolio, which shows their outlying SME clients that need special products and services. Technology enables enhanced portfolio insights for the insurance industry by improving pricing accuracy and reducing loss experience with higher efficiency. It is the objective of Digital Fineprint to respond to the market needs for new technological solutions swiftly and to support insurers to enhance the digital experience for their customers.
For SMEs to have more convenient access to the insurance market, there are still many challenges need to be addressed by the industry. Insurance companies should find ways to simplify their current solutions with the aid of technology and provide products that are relevant to their SME customers.