Business Insurance Stands to Make Huge Gains from Tech Disruption

The sweet spot for the burgeoning insurtech and digital insurance market may be the small business sector.

That’s the gist of a report published jointly by Boston Consulting Group and Morgan Stanley, which estimated that small business insurance is a $100 billion market that is ripe for digital disruption. Currently, the report states, only about four percent of premiums are digitally underwritten. This is expected to grow five-fold over the next four years -- Morgan Stanley and BCG predict that by 2020 as much as 24% of small business insurance will be sold digitally, or $26 billion of premiums. That's a 46% compounded annual growth rate.

“We think the $100 billion small business insurance market is in the early stages of a digital disruption,” the report’s authors opine. A big part of this shift is demographics – “by 2020, more than 60% of small business in the US will be owned by Millennials and Gen Xers, two groups that prefer to purchase and manage insurance digitally.”

In addition, the report adds, a recent BCG survey affirms that “38% of small businesses would buy insurance online if they were starting their businesses today.”

Interestingly, there is no dominant player in the small business insurance market, either – which also suggests it is ripe for opportunities for companies with digital solutions. “None of the top players has more than a five percent share,” the BCG-Morgan Stanley report adds. This “dearth of digital offerings makes it attractive to insurtech start-ups who are driving digital disruption and threatening incumbents who are not moving quickly enough.”

The handwriting is on the wall – the insurance sector is seeing the beginnings of disruptions by digital players, as well as by carriers moving quickly to digital mode. Be it small business owners, millennials, or all other types of customers, it no longer makes sense to have to push paperwork and play phone tag to shop for policies or file claims. Likewise, on the back end, insurers can no longer afford to manage paper-pushing processes that require manual labor and also slow down customer engagements.

The only thing holding back complete disruption by insurtech players is their relative lack of experience in the sector, the report adds. With the right industry partnerships, this could change. This change may be comparable to the travel industry. Or the auto insurance market – “over the past two decades, the top three direct underwriters (GEICO, Progressive, and USAA) collectively gained 17% market share, at the expense of both larger and smaller competitors who are unable or unwilling to adapt the changing consumer preference.”

In the end, of course, it all comes down to who best serves the customer. “Insurance buyers, especially in small business insurance, have unmet needs in product simplicity and shopping experience,” the report states. “Insurtech companies or even traditional insurers and brokers could learn from other successful digital marketplace models. Positive customer experience benefits from more selections, customer reviews, price comparison, frictionless purchase process, step changes (selling adjacent products/services), and sharing (who bought what).”