The Insurtech opportunity for the underserved SME market

By Ben Haywood-Abbott, Commercial Director Digital Fineprint
Follow: @DgtlFineprint 

SME insurance is an $80billion industry in the US – and there are over 5.7million SMEs in the UK – so why is this huge financial opportunity universally underserved – and how can technology, specifically AI and open data, change that for the better?

Small business owners aren’t experts in insurance and they’re not in a position to research every policy that could possibly be relevant to them. Even if the most studious business owners did this at inception, it’s near impossible to do this at a rate that accurately reflects their ever-changing risk due to growth.

The only visibility insurers and underwriters have, currently, is from companies house files and records that SMEs will file once, perhaps twice a year – it’s simply not enough. There are hundreds of open data sources available that can supercharge the available risk profile and present risk, change and financial data in real-time; from hygiene ratings of restaurants to crime records in the local area. We’re moving away from static records that leave SMEs under-insured and at risk to providing data and analytics that can help prevent events from ever taking place.

This isn’t just about insurers, or brokers, leaving money on the table, (although the financial opportunity here, due to the sheer scale, is significant) – there’s also a moral responsibility for ensuring small business owners are adequately covered: an uninsured loss of $40,000 or more would lead to 40% of SMEs going out of business.

The insurance language may make sense to those issuing policy and those in the industry, but it’s undeniably archaic and alienating. Protracted debt? Professional indemnity? Trade credit? These aren’t terms that will be natural to the bake-shop owner, to the mechanic, or even to the guy writing this who is new to the world of insurance. Without significant education, it’s hard to tell SMEs why they need a certain type of insurance, and a lack of education means that SMEs will be unknowingly underinsured. Open data can help present the reasons why these risks exist, backed up with evidence from sources they understand, like police records, government records and companies house. This can arm brokers in their conversations or help the growing number of businesses who want to buy direct. Staggeringly, 58% of SMEs are not insured against their top 3 perceived risks.

It’s not just in insurance where the conversation needs to change, it’s also with Artificial Intelligence and within InsurTech. It may be sexy and exciting to talk about wholesale disruption, but it’s also slightly misleading. Insurance hasn’t fundamentally changed since it’s modern inception in 1688. It has improved, drastically, with iterative changes at a mild pace – but the single most ‘transformational moment’ in insurance history remains the introduction of the fax machine. The expectation was that removing the telex machine would lead to mass redundancies, but something else happened entirely. The telex workers moved into client facing roles and the value of their companies grew exponentially. In the short term, data enrichment across all aspects of the value chain will lead to an increase in efficiencies – but it’s unlikely we’ll see the mass loss of jobs some are predicting any time soon – there’s little need. Google, from which some of the most expansive and high profile, (think Deepmind) stories of advancement has come is adding employees, (5,000 in 2017 alone) – not making them redundant.  This is due to exploring new avenues of growth but also due to the incredible value, per employee, they generate. Each of Google’s 88,000 employees generates roughly £350k – for contrast, AIG’s circa 56k employees generate £900k of GWP: The need for drastic and immediate change simply isn’t there.

Change will come – and for the better, but it will be gradual. AI is an opportunity for everyone, not just those in insurance, to engage in far more fulfilling work practices with menial tasks, (including tedious research that can be replaced by open data aggregation), performed by AI and machine learning. There will be an increased focus on the aspects of the job that create value, both monetary and in relationships. The proliferation of AI and open data, mixed with new and emerging threats that need to be covered means we’re not at a point where insurance will be fundamentally disrupted, far from it – we’re actually approaching a golden age of insurance, where SMEs in particular will be better educated and better protected against their emerging threats – allowing them to concentrate on what’s important and thrive.