General Insurance analyst Danielle Cripps has been working on our “UK SME Insurance: Market Dynamics and Opportunities 2016” report. Here, we ask her about the key findings of her research, new and emerging trends, and how she expects the market to develop over the coming years.
How has the market fared over the last year?
The UK SME insurance market has continued to grow. This has been driven by a growing economy, which has facilitated increases in the number of SMEs in the UK and consequently the opportunity to sell commercial insurance. Micro enterprises (businesses with 0–9 employees) have driven the rise in the number of SMEs, according to the Department for Business, Energy & Industrial Strategy. Considering that micro enterprises account for 95.5% of all UK SMEs in the private sector, and that according to our 2016 UK SME Insurance Survey the penetration of commercial insurance products is lowest for this sub-segment, micro enterprises are a growth prospect for insurers.
What opportunities are there for insurers operating within the SME market?
With a growing number of SMEs in the UK, there is greater opportunity to sell commercial insurance – especially within the micro segment of businesses. In order to reach the large volume of SMEs, commercial insurers should focus on delivering fast-flow and commoditized products. This strategy is important to lower the operational costs associated with distributing a high volume of smaller risk products.
Improving product penetration and reducing underinsurance for SMEs is also a growth opportunity. Smaller companies perceive themselves to be at less risk and thus less in need of insurance. Smaller businesses also have lower budgets to spend on insurance, which can account for lower penetration levels. They additionally have less experience purchasing insurance, and have lower awareness and knowledge about insurance products. Brokers and insurers should aim to educate SMEs about the range of commercial products available and why they are a worthwhile purchase, in order to increase penetration and reduce underinsurance in order to grow their commercial books.
What is the future outlook for the SME insurance market?
SMEs are most concerned about an event that would stop them trading. Brexit is therefore likely to be a big concern as the UK enters a period of political and economic instability. Just as with larger businesses, SMEs are affected by a weaker pound. While a weaker pound may increase exports, imported goods may impact the costs SMEs face in trading.
However, the SME insurance market is forecast to continue growing over the next five years. Growth is forecast to slow slightly moving forward to 2017 due to the impacts of Brexit and a slowing economy on business numbers. But after 2017 the rate of market growth will begin to pick up again as both the economy and the business landscape recover.
By Danielle Cripps, General Insurance Analyst