Gone are the days of working with brokers to procure a business insurance policy.
For a younger generation of business owners and managers especially, the need to research, procure and manage insurance products online is crucial, and it has given rise in recent years to a community of InsurTechs taking a digital-first approach to what has historically been a very paper-intensive industry.
But an insurance firm must do more than simply offer policies to businesses online in order to meet a host of more sophisticated demands from small- to medium-sized businesses (SMBs). To operate as a true InsurTech, industry players will be faced with difficult market headwinds and opportunities to modernize the business of SMB insurance.
B2Z Insurance Founder and CEO Kuldeep Malik explored how a challenging business environment is testing the resiliency not only of SMBs, but of insurance providers, too. And, as industry shifts like the proliferation of real-time payments seep into the insurance market, the industry will continue to see new risks and benefits to embracing digitization.
Amid one of the most volatile times for SMB owners, procuring insurance has perhaps never been more challenging, yet more imperative.
On one hand, months of shifting regulatory mandates around how mom-and-pop shops and restaurants can operate has made it increasingly difficult to assess which insurance policies are the right fit. Employee furloughs and re-hires, as well as shifting business models from in store to online, mean the procurement of a workers compensation policy or business owners policy that covers physical storefronts can go awry as coverage changes shift.
At the same time, having insurance coverage can be the difference between staying afloat and going under in such a difficult market.
“The small business owner really is having a difficult time over-planning,” said Malik. “Let’s say you are a restaurant. You don’t know when you’ll be allowed 50 percent capacity, or just to do takeout.”
As a result, businesses are struggling to budget for marketing, hiring, inventory and other investments. Yet if a customer slips and falls, or if there is a cyberattack, those businesses can be out tens of thousands of dollars.
“When you take all these things into account, it becomes harder for any small business that is not insured to survive through these kinds of claims,” Malik added.
Yet as he noted, today’s entrepreneur is not willing to call a broker and wait a week for someone to present their insurance policy options. These professionals need to buy insurance for their businesses the same way they buy insurance in their personal lives — or buy anything as a consumer, for that matter. That means an online-first approach that can assess a business’s needs and present that company with a range of products in a consolidated fashion.
The researching, underwriting, purchasing and management of SMB insurance can be fully digitized, so any payments involved in that policy management must similarly be electronic. Support for online payments acceptance from insurance providers is now a must-have for their SMB clients, but payments digitization in the SMB InsurTech arena doesn’t end there.
Malik emphasized the importance of streamlined insurance payouts for SMBs, particularly at a time when access to capital is essential to surviving an event like a cyberattack or natural disaster.
“Cash flow is the big thing that businesses need to manage,” he said. “Payment processes from insurance companies have typically been through check, which would delay your payment by a week or two before you can get that check.”
Accelerated direct bank transfers are invaluable to an SMB owner stuck with a $50,000 bill for damages or other costs related to an insurance claim. As such, Malik said that the emergence of real-time payments is a promising evolution for the insurance space, enabling providers to facilitate instant payouts to policy holders.
While this adds value for customers, it can also expose carriers to new risks. Most notably, the rise of real-time payments has raised concerns about the ability to combat fraud when the window of opportunity to identify malicious activity and recuperate funds is so small.
The FBI estimates that insurance fraud costs more than $40 billion every year, not including health insurance fraud cases, resulting in higher premiums for policy holders. When payouts happen instantly, recouping losses in instances of fraud can be a challenge.
Even so, Malik said electronic payments, even real time, remain far better and more secure than paper check payments that have been used for decades by the industry.
“Digital is the best way to go when it comes to payment,” he said. “It’s fully traceable — that’s the key part of it… Everybody’s trying to go digital fast, and small business owners are doing exactly the same.”