UK SME Insurance: Distribution Dynamics 2016

EXECUTIVE SUMMARY

Brokers are regaining their grip on commercial insurance distribution

Key findings

Critical success factors

THE SME PURCHASING JOURNEY

Introduction

Brokers are starting to regain their foothold of product distribution for SMEs

2016 has seen brokers increase their share of product distribution

The direct channel has the most potential, particularly at the micro end of the market

Banks are also beginning to recognize the potential benefits of cross selling

Brokers and the direct channel compete intensely for business in the micro space

Purchasing confusion, seen in personal lines, is growing within the SME market

Insurers need a varied approach to product distribution in the SME markets

Price is the leading reason for SMEs choosing their selected distribution channel

Almost one third of home-based business owners go direct

Packaged products are popular although standalone policies are also highly sought after

Arranging insurance online is most suitable for SMEs

Most SMEs are opting to purchase cover via the internet

The online marketplace appeals to younger/more tech-savvy business owners

Contacting an existing provider is the most common action among SMEs looking to purchase

SMEs still exercise some degree of independence in the purchasing journey

There is ample opportunity to keep existing customers but many seek professional advice

Comparison sites are a popular point of referral for SMEs renewing a policy

The internet is the most popular source of information during pre-purchase activity

SME LOYALTY AND SWITCHING

Remaining loyal to an existing provider is commonplace in the SME market

Over three quarters of SMEs remain with their chosen provider in most product areas

Price is the most pertinent issue when it comes to switching

Almost half of SMEs switch based on price

More businesses are expected to flock to the direct channel in the coming years

Brokers are still holding their own among expedience- and efficiency-seeking SMEs

SME SERVICING

Additional guidance from a provider or external party is important

The online tracking of claims is most important to SMEs

Simplicity is key for SMEs in the age of speed and immediacy

18.5% of SMEs regard online claim tracking as the most critical service

SMEs struggle to understand cover for alternative commercial vehicles

Nearly one in five find other commercial motor fleet products difficult to understand

Employee benefit advice continues to be highly sought after

Legal advice is the most common added-value service held by SMEs

Advice around employee benefits remains the most unfulfilled additional service

SMES AND BROKER RELATIONSHIPS

Price remains the deciding factor for SMEs opting for the broker channel

SMEs' choice of broker is driven by price and complex cover needs

Businesses of a smaller stature have more contact with their broker

Almost two thirds of micro enterprises only speak with their broker at policy purchase

The value SMEs attach to brokers varies by the size of the business

MARKETING ACTIVITY

2015 advertising expenditure increased by almost 10% year-on-year

Direct Line still accounts for the majority of business insurance advertising spend

APPENDIX

Definitions

Brokers

Direct

SME

Methodology

Verdict Financial's 2016 UK SME Insurance Survey

Further reading

About Verdict Financial

Disclaimer

Table 1: Channel used by SMEs for the majority of their insurance, by SME size, 2016

Table 2: Channel used by SMEs for the majority of their insurance, by SME size, 2016

Table 3: Reasons for selecting distribution channel, by SME size, 2016

Table 4: Most important reason for selecting a distribution channel, by SME size, 2016

Table 5: Packaged and standalone product purchases, by size of business, 2016

Table 6: Method used by SMEs to purchase majority of insurance, by SME size, 2016

Table 7: Method used by SMEs to purchase majority of insurance, by SME size, 2015

Table 8: Method used by SMEs to purchase majority of insurance, by age of owner, 2016

Table 9: Method used by SMEs to purchase majority of insurance, by age of owner, 2015

Table 10: Pre-purchase activity conducted by SMEs, by SME size, 2016

Table 11: Sources of information used by SMEs pre-purchase, by SME size, 2016

Table 12: SME loyalty by insurance product (those that did not switch at last renewal), 2016

Table 13: Services SMEs would most like to receive from their provider, top selection only, 2016

Table 14: Services SMEs would most like to receive from their provider, top selection only, 2015

Table 15: Added-value services received by SMEs, by SME size, 2016

Table 16: Added-value services received by SMEs, by SME size, 2015

Table 17: Added-value services wanted but not received by SMEs, by SME size, 2016

Table 18: Added-value services wanted but not received by SMEs, by SME size, 2015

Table 19: Reasons for using the broker channel, by SME size, 2016

Table 20: Reasons for using the broker channel, by SME size, 2015

Table 21: Total business insurance advertising expenditure (£), 2012-H1 2016

Table 22: Business insurance advertising by the five highest spending brands (£), H1 2015 and H1 2016

Table 23: In what industry would you classify your business?

Table 24: How large is your company in terms of number of employees?

Figure 1: Brokers are regaining ground at the expense of direct insurers

Figure 2: Direct insurers are most prominent at the micro end of the market

Figure 3: Over 50% of small SMEs now purchase insurance through a broker

Figure 4: Almost 20% of medium-sized SMEs now purchase insurance via the banking channel

Figure 5: Brokers' share has increased marginally while the direct channel has slipped by 2.1pp

Figure 6: Price is the main influence on distribution channel selection

Figure 7: Cover provided is ranked the most important reason for SMEs selecting a particular distribution channel

Figure 8: Over half of on-site businesses use the broker channel for their insurance needs

Figure 9: SMEs generally prefer to purchase packaged insurance products

Figure 10: Using a PC to access the internet is the preferred method of purchase by all SMEs

Figure 11: In 2015, online was also the leading channel for SME insurance

Figure 12: Online purchases via PC are generally preferred by younger business owners

Figure 13: In 2015, online purchases via PC were still preferred by those under the age of 45

Figure 14: SMEs mostly place a call to their existing insurance provider at the point of renewal

Figure 15: The internet and brokers are the main sources of insurance information for SMEs

Figure 16: Customer retention rates are high among micro enterprises

Figure 17: Small business loyalty rates dip below 90% in almost half of the product markets

Figure 18: Customer retention is at its highest among medium-sized businesses

Figure 19: Price is the most important factor for SMEs looking to switch provider

Figure 20: Price has consistently been the primary influence behind an SME's decision to switch

Figure 21: Almost 5% of SMEs intend to switch to a direct insurer for their next policy

Figure 22: SMEs are in constant need of support from their providers around the claims process

Figure 23: In 2015, guidance through the claims process was the most important service feature

Figure 24: Other commercial motor insurance is the most difficult for SMEs to understand

Figure 25: Legal advice, risk management, and employee benefit advice form the core added-value services held by SMEs in 2016

Figure 26: In 2015 legal advice, risk management, and financial advice were the most commonly held added-value services

Figure 27: Almost half of medium-sized businesses access legal advice services

Figure 28: 2015 also saw legal advice as the most commonly accessed added-value service

Figure 29: SMEs would most like to receive more employee benefit advice from their provider

Figure 30: Small and medium-sized businesses show similar demand for advice from insurers that would benefit their employees

Figure 31: 2015 also saw demand for employee benefit advice among SMEs

Figure 32: Small and medium-sized firms are similar in their demands for services not received

Figure 33: SMEs expect brokers to deliver the best prices

Figure 34: SMEs commonly turn to brokers when faced with new and/or complex risks

Figure 35: 2015 saw a significant number of SMEs of all sizes turn to brokers when facing time constraints or a lack of insurance knowledge.

Figure 36: Over half of micro enterprises contact their broker only at the point of renewal

Figure 37: Lager businesses tend to value their broker more than smaller enterprises

Figure 38: 2015 saw increased advertising expenditure on 2014