There’s never been a more exciting time to start a business in the UK. Over 600,000 new businesses were started last year, up 4.6% on the year before, as more and more entrepreneurs decide to take the plunge. And while starting a business is always a challenge, in many ways it’s never been easier, with technology and co-working spaces reducing overheads and many of the barriers to entry. Barely a day goes by when I don’t hear another story of somebody innovating and disrupting, to improve what’s gone before.
But despite these great strides forward in the business landscape, the insurance industry has been characteristically slow to respond, leaving many start-up and growing businesses, particularly those in the innovative tech space, woefully short of options.
A new breed of business
Businesses today don’t fit into the neat categories that they did in the past, with new sectors appearing all the time. Go back 20 years and who would have predicted that the world’s biggest transport and accommodation companies would one day be software developers?
The difficulty defining new businesses today has made designing commercial insurance much more complex. It is no longer as simple as ticking ‘software developer’ on the application form. Businesses need insurance providers and brokers that understand and cover for all the facets of what they do.
Furthermore, as the nature of business has changed so has the nature of the risks they face, with issues such as cyber-attacks and data breaches replacing fires, thefts and floods as the biggest concerns. Recent Government research found that a third of small businesses and half of medium-sized businesses were hit by a cyber-attack or data breach last year, yet insurers have been slow to provide the kind of specialist policies that protect against these threats. The same survey found that only 37% of firms currently have cyber insurance, meaning that a significant number could face a hefty bill in the event of an attack.
With attacks and breaches becoming more sophisticated and evolving all the time, it’s crucial for the industry to provide specialist products that sufficiently cover for all the eventualities. There is also the new Data Protection legislation to consider - coming into force in 2018 - which means the potential impacts will become even greater. The new rules will give customers greater powers to take legal action in the case of a breach, while fines are set to increase to as much as €20m, meaning the right insurance will be paramount.
Serving the millennial generation
The insurance industry has also been slow to respond to changes in how businesses like to buy their insurance, with many commercial brokers and providers still operating purely offline, through the so-called ‘old-boys’ networks’. With today’s start-ups increasingly consisting of digital-native millennials, this approach is rapidly reaching its sell-by date.
A recent study by CapGemini found that 23% of Generation Y consumers globally are very likely to buy insurance from technology companies, compared to 14% of other consumers. It seems unlikely that their preference will be any different when running a business. After all, this is the Uber and Airbnb generation that expects a seamless online customer experience every time, along with transparent communications and pricing. With complex application forms, 12-month contracts and limited flexibility, this isn’t something the traditional insurance industry has excelled at in the past.
Furthermore, in a fast-moving world, where needs and risks can easily change on a month by month basis, long-term contracts and annual engagement with customers just don’t cut it. Risk is something to consider throughout the year, not just every 12 months at renewal. Customers that remain actively risk aware are better customers, while insurers that provide ongoing value are more likely to inspire loyalty. There is currently a complete lack of this kind of engagement, to the detriment of both sides.
The insurance 'brand' and delivery model also needs a reboot to appeal to the new generation of businesses. Insurance is complex and confusing and as result has a negative stigma attached. To overcome this, the industry needs to start delivering in a modern, non-corporate fashion, while educating and communicating with the audience in an appropriate way. That means, keeping it simple and cutting out the jargon.
Change is coming
Disruption in the business insurance industry has been slow to materialise, but with the rise of Insurtech, we’re starting to see some welcome innovation. According to Accenture, investment in InsurTech rose from $800m in 2014 to more than $2.6bn in 2015, while the Instech community in London’s Tech City now boasts over 1,000 members.
As part of that revolution, Digital Risks has worked hard to push the industry in the right direction, spending time working with underwriters to refine our products to fit with the needs of businesses today. That means cover that is specifically designed for the technical and cyber risks they face, an online broker model and monthly subscription that gives greater flexibility.
But there is still a long way to go, with opportunities for providing ongoing risk management support to businesses, enhancing the customer experience through mobile, and using data analytics to better understand customers’ risk profiles. Insurance cover must become real-time and interactive, so that businesses can be sure they have the right protection as their needs change and are rewarded for proactively reducing their risk exposure.
The pace of change in business only looks set to go one way; the insurance industry needs to make sure it’s ready.
By Cameron Shearer, CEO and Co-Founder, Digital Risks.