2016: The Small Business Market - Evolution in Distribution
The small commercial market is an area of intense interest to insurers due to the complex market dynamics and accelerating use of analytics and direct distribution. As in past years, Conning has analyzed industry and small business market data and surveyed industry participants to develop this study of the small business insurance market. Conning’s study sizes the market, industry segments, and participants. Trends in distribution and industry segments are analyzed and presented, along with a discussion of the future of the market.
2. Executive Summary
3. The Small Business Insurance Market
- Defining Small Business
- Executive Interviews
- Digging Deeper
- Conning’s Definition of Small Business
- The Insurance Market for Small Business
- Competitive Conditions Likely to Intensify
- Technology and Scale Are Keys to Success
4. Evolution of Distribution
- Managing High Distribution Costs
- Focus on Technology
- Small Business Owner Expectations
5. InsurTech and Digital Distributors Look to the Micro Market
- The Micro Market—The Small End of Small
- Digital Distributors
- The Online Quote Experience
6. Principal Small Business Market Distribution Trajectory
- Product Development
- Technology-Enhanced Services and Ease of Doing Business
7. Digital Disintermediation Has Arrived
- Insurers’ Projections
- Digital Distributors’ Projections
- Is the SBM Going Direct?
- Alternative Distribution
8. Small Business Dynamics and Economic Landscape
- Employer Statistics
- Nonemployer Firms
- Small Business Industry Sector Catalog
- Target Industry Sectors for SBM
A. Insurance Executive Interviews
B. Small Business Market Premiums
C. Digital Distributors
D. Small Business by Industry Sector
The insurance marketplace for small businesses (or SBM) is diverse. We believe the next critical phase of development will include more consolidation among distributors, despite the rapid expanse of high-tech distribution alternatives. Indeed, insurers also continue a circuitous consolidation of small business market share, at least in standard small business market insurance classes that Conning has defined as the Principal Small Business Market. The top 20 insurers in the market, as projected by Conning, added about one percentage point of market share in 2015 compared to 2013. The overall distribution of small business market share among large ($2.5 billion total property-casualty premium), midsized, and small (less than $500 million) insurers is only marginally changed from 2013. We see a small decrease in market share from the small insurers, mostly moving to large insurers.
We see above-average growth for insurers with a reputation for investing strongly in the small business market. We also hear expectations among insurance executives that the gap between successful and unsuccessful market participants is moving wider in the next 24 months, with the potential for a crevasse that will divide the market players from the market dabblers.
Findings from Conning’s 2014 small business study identified a multi-decadal trend of a lower growth rate for small businesses compared to midsized and large businesses and that the small end of small is where most of the growth for SBM is likely to occur. We also noted a critical new battleground developing in distribution focused on the small business market, especially in the small end of the market. In 2016, we see a breadth of developments in distribution targeting the SBM. This study focuses on SBM distribution while updating conditions and trends observed in 2014.
Critical to our understanding of the market, Conning interviewed executives from 18 insurance companies (see Appendix for more detailed information regarding the interviews). The main sources of small business data for this study are the U.S. Bureau of Labor and the U.S. Census Bureau. We also reviewed small business portals and surveys from a number of sources. For insurance data, we used property-casualty insurer annual statement data, insurance company public statements, websites, and publicly available marketing materials and reports.