Targeting SMEs in UK General Insurance 2009

Introduction

This report provides a unique evaluation of the purchasing behavior of SMEs based on Datamonitor's exclusive SME survey, giving the reader an edge in this dynamic area. The report also explores how SME's attitudes differ depending on size, allowing for more precise targeting of market segments.

Scope

*A detailed look into SMEs' insurance purchasing patterns by company size

*An evaluation of the potential for growth for direct insurers and bancassurers in the SME sector

*Action points detailing potential strategies for different providers wishing to target SME business

Highlights

Of the SMEs in Datamonitor's survey, 46.0% indicated that they purchased just package products in 2008. The popularity of package products reflects the success of simple packages like shops and offices policies that can accommodate a broad range of risks, but also the more niche products designed for specific trades, such as the motor trade.

Overall, 34% of the SMEs surveyed were willing to consider arranging their insurance over the telephone. Of those that were willing to consider a telephone arrangement, 51.0% cited speed as a reason why they would.

A majority of SMEs that would buy online were inclined to purchase less complex products such as public or employers' liability, or commercial motor.

Reasons to Purchase

*Improve customer retention by understanding SMEs' reasons for staying with a provider, as well as their reasons to switch providers

*Boost customer acquisition by understanding what insurance products SMEs are willing to buy online and via the telephone

*Understand the current competitive environment of the SME sector in relation to competitor strategies and current distribution trends


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The SME market is attractive for its sheer size, though the recession will have an impact 2
The SME market was estimated to be worth £5.4 billion in 2008 2
The recession has put pressure on SMEs and is resulting in more insolvencies 2
Package products are the principle means through which SMEs purchase their cover 2
SME insurance needs are varied and encompass a range of products 2
Face-to-face arrangement through established brokers is the main means by which SMEs arrange their cover 3
Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs 3
Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs 3
Most SMEs learn of their insurance provider through previous experience or proximity 3
SMEs are generally loyal to their existing insurance provider but there is significant churn to exploit 4
More SMEs considered a change of provider in 2009 than in 2008 4
Approximately one third of the SME insurance market would be willing to arrange their cover over the telephone 4
Most of the SME market is unwilling to use the internet to arrange their insurance cover 5
SMEs are most open to purchasing motor and less complex liability products online 5
Insurance providers need to make the necessary investments so they can offer quality low cost products 6
The recession will make SMEs more price sensitive, requiring brokers to invest in the ability to deliver at a lower cost 6
Direct players need to play up the potential cost savings which an SME can obtain from going direct 6
Banks can market themselves as low cost alternatives, appealing to SMEs' price sensitivity 7
Table of Contents 8
Table of figures 9
Table of tables 10
Market Context 11
Introduction 11
The SME market was worth over £5 billion in 2008, with rates hardening in motor 11
The SME market was estimated to be worth £5.4 billion in 2008 11
A large proportion of brokers reported no change in premium rates over the last year 11
The SME market is attractive for its sheer policy volume, though the recession will have an impact 13
The number of UK enterprises grew by 4.7% to 4.8 million 13
More than 99% of UK companies are small businesses 14
The recession has put pressure on SMEs and is resulting in more insolvencies 16
SMEs often require a range of cover, generating a wide range of premiums for insurers 19
Package products are the principle means through which SMEs purchase their cover 19
SME insurance needs are varied and encompass a range of products 20
SME insurance policies can vary considerably in value, depending on the size of the risk 21
Affinity propositions are increasingly targeting the SME market 22
Traditional affinity partnerships in the SME market have been based on trade associations 22
There has been significant interest from some personal lines affinity players in distributing SME insurance 22
Two high profile affinity partnerships have announced their expansion into the SME insurance market 23
Kwik Fit has teamed up with Moorhouse to target SMEs 23
Heath Lambert and Fortis announced a deal to distribute SME insurance through the Post Office 23
Several insurers have adapted their SME broker offering, reflecting the competitive nature of the market 23
QBE has rolled out a range of online SME products 23
MMA reworked and relaunched its SME product range 23
Chaucer made changes to gear up for an SME push 24
RSA is aiming to increase its SME market share with better and faster service 24
SME insurance giant Aviva closed its direct commercial operations, concentrating on broker distribution 24
Brit Insurance expanded its SME product range with a new PI product 24
Allianz Commercial is targeting growth in SME business in Scotland 25
The motor trade has attracted a great deal of attention for those insurers looking at growth in the SME market 25
AXA redesigned its motor trade product 25
NIG is focused on the medium-sized motor trade business 25
MMA launched a new motor trade internal risks product at the start of 2009 26
Many brokers have organic or acquisition driven growth ambitions for the SME market 26
AXA rebranded Venture Preference and continued to add to it with acquisitions 26
Swinton has identified growth in the SME market as a priority, supported by its consolidation activities 26
Swinton has approached nearly half of the respondents of a Datamonitor broker survey with an offer for their business 27
Aon launched a credit insurance service to SMEs and acquired the specialist broker Supercover 27
Marsh is reaching out to regional brokers in an SME push 28
A new consolidator is looking to create a leading SME insurance presence 28
Broker Direct has also announced a number of acquisitions, and Our Network has expanded rapidly 29
JLT has acquired Ingham & Co to add range to its Thistle Underwriting platform 29
Broker-owned MGAs have become a common feature in the commercial insurance market 29
Distribution Dynamics 30
Introduction Face-to-face arrangement through established brokers is the main means by which SMEs arrange their cover 30
Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs 30
Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs 31
Most SMEs learn of their insurance provider through previous experience or proximity 32
SMEs that are clients of direct insurers, are more likely to have used the internet or a mail shot to learn about their provider 33
SME insurance providers are generally good at achieving high levels of customer satisfaction 34
SMEs are generally happy with their insurance provider 34
SMEs tend to prefer longstanding relationships with their providers, making an initial pitch critical 35
After their first year of trading, approximately one fifth of SMEs with insurance change their provider 36
Whilst SMEs generally value provider advice, medium-sized companies are particularly receptive to it 38
Clients of direct insurers value advice the least 39
Clients that arrange their insurance face-to-face are most keen to receive advice 40
When choosing a provider, SMEs value good service almost as much as price 41
SMEs are sensitive to price, regardless of their size 41
SMEs that purchase online appear to be the most price sensitive 43
SMEs that are clients of direct insurers are more likely to have chosen their provider on the basis of price 43
Many SMEs rely upon their insurance providers for extra services 44
The majority of SMEs receive some services from their insurance providers, with legal advice the most common 44
Micro SMEs are less likely to use extra services from their provider, though legal advice is most common 45
Most SMEs that receive additional services from their insurance provider do so for free 46
The most desired services are risk management and legal advice 47
Approximately one fifth of SMEs that do not receive extra services are interested in obtaining them 49
Potential Switchers 50
Introduction 50
SMEs are generally loyal to their existing insurance provider but there is significant churn to exploit 50
Approximately one fifth of respondents started their relationship with their provider in the last two years 50
SMEs that have been trading for five to 10 years have typically been with their provider the longest 51
Banks had acquired the largest proportion of new business in the SME insurance sector 52
Price was the major driver behind SMEs switching their insurance provider 53
The number of SMEs thinking of switching has risen to higher, historic levels 55
More SMEs considered a change of provider in 2009 than in 2008 55
A variety of companies, from different industries, believe they will change their provider over the next year 55
SMEs that use the internet to arrange their insurance are the most likely to search out a new provider 56
Price is the leading reason why SMEs think that they will change insurance provider 57
SMEs are open to alternatives to face-to face distribution, though the majority still require convincing 58
Micro SMEs are the most open to buying their cover over the telephone 58
Approximately one third of the SME insurance market would be willing to arrange their cover over the telephone 58
Micro SMEs are attracted to the speed and expected cost savings of telephone arrangement 59
The internet is attractive to SMEs due to its convenience 60
One third of SME insurance buyers would be willing to arrange their cover online 60
Micro SMEs are more likely to consider arranging their commercial insurance online 61
Most SMEs remain opposed to telephone arrangement, though their reasons are varied 62
The fear of not obtaining the proper cover and expert advice is holding most medium-sized SMEs back from the telephone 62
Most SMEs prefer the personal contact of face-to-face arrangement rather than the speed of the telephone 63
Two thirds of the SME market would not consider an online sales process when arranging their cover 64
Most of the SME market is unwilling to use the internet to arrange their insurance cover 64
Medium-sized SMEs are the least likely to consider an online option 65
Of those SMEs willing to buy insurance online or via the telephone, liability products were the most popular 66
SMEs are most open to purchasing motor and less complex liability products online 66
Micro SMEs were most likely to consider purchasing public and employers' liability over the internet 67
Banks and direct insurers can sell into a sizable minority of SMEs but still need to convince most to give them a chance 68
Approximately one third of SMEs will use a bank as their insurance provider 68
Micro SMEs are willing to buy their insurance from a bank if the price is cheaper 68
Almost a third of SMEs are willing to arrange their insurance through a bank 69
The majority of SMEs are willing to purchase their cover direct 70
Almost two thirds of micro SMEs are open to buying their insurance direct from an insurer 70
Cost savings are the main drivers behind SMEs' willingness to consider a direct insurer 71
There remain significant obstacles to many SMEs considering banks as viable insurance providers 72
Medium-sized SMEs view banks as lacking expertise and reputation 72
SMEs are generally content with current providers and doubt banks have the expertise to sell insurance 73
Direct insurers face less opposition but still have several issues to address 74
Direct insurers still have to overcome SMEs' current contentment 74
Medium-sized companies retain doubts about the direct insurance channel 75
Action Points 77
Brokers can focus on delivering services and low cost products 77
The recession will make SMEs more price sensitive, requiring brokers to invest in the ability to deliver at a lower cost 77
Flexibility and understanding during the recession can prove beneficial 77
Face-to-face arrangement is popular but investments in online and call center distribution can yield additional business 77
Legal advice and risk management are the key additional services to offer to medium-sized SME clients 77
Direct players need to target smaller SMEs and address their perceived faults 78
Direct insurance players are well suited to the micro end and should focus on these customers 78
Direct players need to play up the potential cost savings which an SME can obtain from going direct 78
Stepped up advertising campaigns are necessary to drive consumers to a direct insurance operation 78
Direct players need to highlight the convenience and relative ease of their distribution platforms 78
Banks need to address their image as expensive providers with no expertise to break into the micro SME market 79
Banks can market themselves as low cost alternatives, appealing to SMEs' price sensitivity 79
Targeting micro SMEs and start-ups would exploit some of banks' natural affinities 79
Banks need to reinvest in their overall reputations, which appear to have suffered among SMEs 79
APPENDIX 81
Definitions 81
Distribution definitions 81
Banks/building societies 81
Brokers 81
Direct 81
Utilities/retailers/affinity groups 81
Premium income 81
Earned premiums 81
Gross premium 82
Written premiums 82
SME 82
Methodology 82
Datamonitor's SME Insurance Survey Q2 2009 82
Datamonitor's SME Insurance Survey Q1 2008 84
Datamonitor's SME Insurance Survey Q1 2007 85
Datamonitor's UK Insurance Broker Database 86
AP Information Services' Corporate Finance Database 86
Companies with multiple brokers 86
Companies with a captive arrangement 86
Industry sectors 87
UK Commercial Insurance Broker Survey - March 2009 88
Further reading 88
Ask the analyst 88
Datamonitor consulting 88
Disclaimer 89
List of Tables
Table 1: Q: "On average, by approximately what percentage have premiums changed in the last year, for the following business lines?" (Q1 2009) 13
Table 2: Profile of UK enterprise by volume, employee numbers and turnover, 2007 16
Table 3: UK company insolvencies, 2004-2009 19
Table 4: SME insurance spend by company size (employee band) (£), Q2 2009 22
Table 5: Top 10 brokers by number of clients with turnover below £20 million, Q1 2009 28
Table 6: Q: "How long have you been with your current insurance provider?" 36
Table 7: Length of time with insurance provider by length of time trading, 2009 38
Table 8: Q: "How important is it to receive advice on an ongoing basis from your insurance provider?" 39
Table 9: Q: "What were the most important reasons for choosing your commercial insurance provider?" 42
Table 10: Q: "What services do you currently receive from your insurance provider?" (by SME size, Q2 2009) 46
Table 11: Q: "What services would you like to receive from your insurance provider?" 48
Table 12: Q: "How long have you been with your current insurance provider?" 51
Table 13: Q: "How long have you been with your current provider?" (by length of time trading) 52
Table 14: Q: "Why did you switch?" 54
Table 15: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 55
Table 16: Q: "What business sector are you involved in?" 83
Table 17: Q: "How large is your company in terms of number of employees?" 83
Table 18: Q: "How large is your company in terms of turnover?" 84
Table 19: Q: "What business sector are you involved in?" 85
Table 20: Q: "What business sector are you involved in?" 86
Table 21: Industry sectors 87
Table 22: Industry sectors continued 88
List of Figures
Figure 1: Most SMEs rely upon previous experience when learning about their insurance provider 4
Figure 2: SMEs show the greatest willingness to purchase public and employers' liability insurance online 6
Figure 3: A significant proportion of brokers have seen no increase in premium rates, except in commercial motor 12
Figure 4: The number of UK enterprises reached 4.8 million in 2007 14
Figure 5: Almost three quarters of UK companies have no employees 15
Figure 6: Company insolvencies have picked up since the first quarter of 2008 18
Figure 7: Most SMEs will purchase their insurance in the form of a package 20
Figure 8: SMEs carry a wide variety of insurance cover 21
Figure 9: A significant proportion of commercial brokers were approached by Swinton 27
Figure 10: Brokers have the highest penetration among medium-sized firms 31
Figure 11: Micro SMEs are most comfortable with arranging their cover over the telephone 32
Figure 12: Most SMEs rely upon previous experience when learning about their insurance provider 33
Figure 13: Direct insurance customers rely less on previous experience and more on marketing 34
Figure 14: Satisfaction levels in the market remain high 35
Figure 15: Very few SMEs have changed their provider in the last two years 36
Figure 16: The most common length of an SME's insurance relationship was two to five years 37
Figure 17: Medium-sized companies are more interested in receiving advice from their insurance providers 39
Figure 18: Direct insurers' clients generally place less emphasis on insurance advice 40
Figure 19: Clients with more interaction with their provider are more likely to value their advice 41
.Figure 20: Price was almost matched in importance by service as a criteria for selecting a provider 42
Figure 21: Internet clients are the most price-sensitive 43
Figure 22: Direct insurer clients are slightly more price-sensitive 44
Figure 23: Few SMEs do not receive extra services from their insurance providers 45
Figure 24: Take up of extra services among SMEs declines as employee numbers increase 46
Figure 25: Few SMEs of any size pay for the additional services which they receive 47
Figure 26: Medium-sized SMEs are generally more keen on receiving services with risk management and HR advice at the top of the list 48
Figure 27: Demand for services from those not receiving is relatively minor 49
Figure 28: Most SMEs have a long-term relationship with their provider 51
Figure 29: One quarter of bank clients in the survey had changed at renewal 53
Figure 30: Price most often motivates SMEs to change their insurance provider 54
Figure 31: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 56
Figure 32: Clients which arrange their insurance through the internet are the most likely to search for another provider 57
Figure 33: Price is the key motivation behind SMEs looking to change their provider 58
Figure 34: About half of SMEs that would buy their cover over the telephone would do so because it is quicker 59
Figure 35: Micro SMEs are more likely to consider telephone arrangement 60
Figure 36: Convenience, speed and the flexibility of arranging their cover outside of normal business hours are the top reasons why SMEs will consider online arrangement 61
Figure 37: Many busy micro SMEs are attracted to the convenience of online arrangement of insurance 62
Figure 38: The potential market for telephone distribution is low among medium SMEs 63
Figure 39: Most SMEs are not comfortable with arranging their insurance over the telephone 64
Figure 40: SMEs have a variety of reasons for not buying their cover online 65
Figure 41: Medium-sized SMEs fear they will not obtain the proper cover online 66
Figure 42: SMEs show the greatest willingness to purchase public and employers' liability insurance online 67
Figure 43: Public and employers' liability were the most likely to be considered for an online purchase by micro SMEs 68
Figure 44: Almost a third of micro SMEs can be persuaded to use banks for their insurance if it is cheaper 69
Figure 45: Good cheap package products are what convince SMEs to consider banks 70
Figure 46: Micro SMEs are most likely to consider a direct insurer for the potential cost savings 71
Figure 47: Cost savings were the number one driver behind SMEs considering a direct insurer 72
Figure 48: Larger SMEs are content with their current broker arrangements 73
Figure 49: A lack of expertise as well as SMEs' general complacency and contentment are impediments to banks' growth in the SME sector 74
Figure 50: A significant proportion of SMEs still view direct insurers as lacking specialist expertise 75
Figure 51: A slim majority of medium-sized SMEs will not consider a direct insurer as their provider 76

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List of Tables
Table 1: Q: "On average, by approximately what percentage have premiums changed in the last year, for the following business lines?" (Q1 2009) 13
Table 2: Profile of UK enterprise by volume, employee numbers and turnover, 2007 16
Table 3: UK company insolvencies, 2004-2009 19
Table 4: SME insurance spend by company size (employee band) (£), Q2 2009 22
Table 5: Top 10 brokers by number of clients with turnover below £20 million, Q1 2009 28
Table 6: Q: "How long have you been with your current insurance provider?" 36
Table 7: Length of time with insurance provider by length of time trading, 2009 38
Table 8: Q: "How important is it to receive advice on an ongoing basis from your insurance provider?" 39
Table 9: Q: "What were the most important reasons for choosing your commercial insurance provider?" 42
Table 10: Q: "What services do you currently receive from your insurance provider?" (by SME size, Q2 2009) 46
Table 11: Q: "What services would you like to receive from your insurance provider?" 48
Table 12: Q: "How long have you been with your current insurance provider?" 51
Table 13: Q: "How long have you been with your current provider?" (by length of time trading) 52
Table 14: Q: "Why did you switch?" 54
Table 15: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 55
Table 16: Q: "What business sector are you involved in?" 83
Table 17: Q: "How large is your company in terms of number of employees?" 83
Table 18: Q: "How large is your company in terms of turnover?" 84
Table 19: Q: "What business sector are you involved in?" 85
Table 20: Q: "What business sector are you involved in?" 86
Table 21: Industry sectors 87
Table 22: Industry sectors continued 88

List of Figures
Figure 1: Most SMEs rely upon previous experience when learning about their insurance provider 4
Figure 2: SMEs show the greatest willingness to purchase public and employers' liability insurance online 6
Figure 3: A significant proportion of brokers have seen no increase in premium rates, except in commercial motor 12
Figure 4: The number of UK enterprises reached 4.8 million in 2007 14
Figure 5: Almost three quarters of UK companies have no employees 15
Figure 6: Company insolvencies have picked up since the first quarter of 2008 18
Figure 7: Most SMEs will purchase their insurance in the form of a package 20
Figure 8: SMEs carry a wide variety of insurance cover 21
Figure 9: A significant proportion of commercial brokers were approached by Swinton 27
Figure 10: Brokers have the highest penetration among medium-sized firms 31
Figure 11: Micro SMEs are most comfortable with arranging their cover over the telephone 32
Figure 12: Most SMEs rely upon previous experience when learning about their insurance provider 33
Figure 13: Direct insurance customers rely less on previous experience and more on marketing 34
Figure 14: Satisfaction levels in the market remain high 35
Figure 15: Very few SMEs have changed their provider in the last two years 36
Figure 16: The most common length of an SME's insurance relationship was two to five years 37
Figure 17: Medium-sized companies are more interested in receiving advice from their insurance providers 39
Figure 18: Direct insurers' clients generally place less emphasis on insurance advice 40
Figure 19: Clients with more interaction with their provider are more likely to value their advice 41
.Figure 20: Price was almost matched in importance by service as a criteria for selecting a provider 42
Figure 21: Internet clients are the most price-sensitive 43
Figure 22: Direct insurer clients are slightly more price-sensitive 44
Figure 23: Few SMEs do not receive extra services from their insurance providers 45
Figure 24: Take up of extra services among SMEs declines as employee numbers increase 46
Figure 25: Few SMEs of any size pay for the additional services which they receive 47
Figure 26: Medium-sized SMEs are generally more keen on receiving services with risk management and HR advice at the top of the list 48
Figure 27: Demand for services from those not receiving is relatively minor 49
Figure 28: Most SMEs have a long-term relationship with their provider 51
Figure 29: One quarter of bank clients in the survey had changed at renewal 53
Figure 30: Price most often motivates SMEs to change their insurance provider 54
Figure 31: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 56
Figure 32: Clients which arrange their insurance through the internet are the most likely to search for another provider 57
Figure 33: Price is the key motivation behind SMEs looking to change their provider 58
Figure 34: About half of SMEs that would buy their cover over the telephone would do so because it is quicker 59
Figure 35: Micro SMEs are more likely to consider telephone arrangement 60
Figure 36: Convenience, speed and the flexibility of arranging their cover outside of normal business hours are the top reasons why SMEs will consider online arrangement 61
Figure 37: Many busy micro SMEs are attracted to the convenience of online arrangement of insurance 62
Figure 38: The potential market for telephone distribution is low among medium SMEs 63
Figure 39: Most SMEs are not comfortable with arranging their insurance over the telephone 64
Figure 40: SMEs have a variety of reasons for not buying their cover online 65
Figure 41: Medium-sized SMEs fear they will not obtain the proper cover online 66
Figure 42: SMEs show the greatest willingness to purchase public and employers' liability insurance online 67
Figure 43: Public and employers' liability were the most likely to be considered for an online purchase by micro SMEs 68
Figure 44: Almost a third of micro SMEs can be persuaded to use banks for their insurance if it is cheaper 69
Figure 45: Good cheap package products are what convince SMEs to consider banks 70
Figure 46: Micro SMEs are most likely to consider a direct insurer for the potential cost savings 71
Figure 47: Cost savings were the number one driver behind SMEs considering a direct insurer 72
Figure 48: Larger SMEs are content with their current broker arrangements 73
Figure 49: A lack of expertise as well as SMEs' general complacency and contentment are impediments to banks' growth in the SME sector 74
Figure 50: A significant proportion of SMEs still view direct insurers as lacking specialist expertise 75
Figure 51: A slim majority of medium-sized SMEs will not consider a direct insurer as their provider 76
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