Uncertain economic conditions highlights opportunity for brokers in SME market
The Vero SME Insurance Index, now in its 10th year, surveyed 1500 SMEs to understand the current business climate, insurance purchasing behaviour, and perceptions of brokers and the insurance industry.
Twelve months on from the declaration of the pandemic, confidence levels among Australian SMEs are mixed, but there are signs of a heightened interest in brokers, according to the 2021 Vero SME Insurance Index, released today.
While many SMEs (48%) say they feel optimistic, the number saying they don’t feel confident about their business prospects for the year ahead has doubled to one in five, with economic downturn topping their list of concerns, overtaking increasing costs for the first time.
Vero's Head of Commercial Intermediaries, Anthony Pagano said it wasn’t surprising that the challenging economic conditions brought about by COVID-19 would influence confidence levels as Australia’s recovery continues, but highlighted the opportunity this presented for brokers to add value.
“Whether your client is feeling confident or not, businesses are operating in a fragile economic environment and many are facing issues not experienced before, like problems with stock availability, the movement of their goods, changes in their business operations and complications in recruiting and training staff.
“There are new conversations to be had to ensure the cover reflects the exposures they are now under, such as implications to workers compensation and associated health and safety regulations, underinsurance for rising stock levels, marine transit covers for goods held up in ports or simply how to manage road risks with growing fleet operators.
“It is important brokers understand their clients’ situation, so they can have an open discussion about their insurance choices.”
Broker usage and consideration up
The Index revealed early signs of increasing broker usage, suggesting potential reversal of the declining trend seen in previous years, with 40% of SMEs stating they purchased their last policy through a broker, up from 35% in 2020.
The research also highlighted more than half of direct buyers are considering using a broker in the future, continuing an increasing trend over the last few years.
We could be seeing a ‘flight to trust’ as SMEs look for additional port for their insurance needs, giving brokers an opening to demonstrate their benefits as risk and insurance advisors, providing valuable guidance throughout the process.
“Insurance, regardless of what people believe, is a complex contract and needs to be properly understood to ensure it reflects the business needs and associated lifestyles.
“Brokers can encourage those direct SMEs with complicated insurance needs to make the switch, by helping them feel more informed and supported end-to-end,” Mr Pagano said.
Brokers must emphasise both expertise and service
Consistent with findings over the past decade, the Index shows that brokers who provide proactive value-add services and maintain regular contact drive satisfaction, with 51% of SMEs who have a collaborative relationship with their broker saying they are highly satisfied, compared to only 24% of those who have minimal interaction with their broker.
“Brokerages are often small businesses themselves, so they’re well-placed to consider their clients’ needs and expectations. The data shows that taking the time to invest in your clients as you’d like your own providers or suppliers to support you, pays off.”
Mr Pagano noted the shift in recent years with great service overtaking expert knowledge as the primary reason for working with their current broker.
“Relationships remain important to driving satisfaction and SMEs are continuing to seek proactive updates from their brokers over and above renewing policies and administration.
“Great service in tandem with specialised expertise will go a long way in reassuring SMEs in this tough environment - they want brokers proactively checking up on business changes that could impact their insurance needs, outlining the reasoning behind their recommendations, providing alternative and cost-effective options as well as educating clients on insurance industry issues such as natural catastrophes and emerging claim trends.”
“SMEs are looking for personalised experience and insights to demonstrate their broker understands their business to help them feel they have made the right choice and are protected,” he said.
Underinsurance risk for cost-cutting SMEs
While many SMEs have left their insurance in place through the pandemic, around a third claimed to have made at least moderate reductions to their coverage, with larger SMEs, newer businesses and those industries which have been more negatively impacted by the pandemic more likely to have reduced cover.
A concerningly large group, 30%, did not even think about the risk of underinsurance when they reduced their cover.
“There is a clear role for brokers to educate SMEs on the risks of cutting coverage and the consequential impacts it can make to their balance sheet and/or insurance programs in place, so they need to make carefully considered decisions, as a loss to an uninsured event could hamper business performance more significantly than a short-term saving in insurance.”
Interestingly, direct buyers who have reduced their insurance are more likely to consider using a broker in the future, suggesting that having to review their insurance may have highlighted the need for professional advice.
On celebrating a decade of the Vero SME Insurance Index, Mr Pagano noted that we’re currently witnessing some of the most rapid change the industry has seen in several decades.
“When we think back to the broker of 2011 and compare it to the broker of today and how much has changed, be it through emerging AR networks, consolidation of brokerages and cluster groups, the regulatory landscape, product and technology innovation and how that was all designed to benefit clients and their businesses as brokers became increasingly diversified into new streams of insurances and advice through offerings such as management liability, cyber, workplace health and safety as well as fleet telematics.
“Likewise, SME’s have also changed, be it through their adoption of broker usage, understanding of insurance implications and purchasing behaviours. So, insurers and brokers alike must continue to evolve to keep up. It’s certainly a challenging time, but I think there’s plenty for us to be excited about.”
Vero will share further updates from the Index via email and LinkedIn throughout the year, including:
- Changing communication preferences
- The importance of brokers in the claims process and natural disasters.
If you’d like to receive these updates please contact your Vero representative or follow Vero on LinkedIn.
Download the report to see the full findings for 2021 and what they mean for brokers.
Register to watch the Vero SME Insurance Index Webinar on demand
Source: The SME Insurance Index report research was conducted by BrandMatters. See www.brandmatters.com.au
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