To say that small insurers have been hard hit by the recession is an understatement. Representing approximately $71B in direct premiums, the sector faces constraints affecting long-term growth. As most analysts will agree, the small insurance business market has been squeezed in a contraction not seen in decades, and in spite of expectations to the contrary, the market has not regrouped in 2010.
Personal and commercial lines insurers are doing their best to respond to several business factors out of their control, such as a reduced construction market, a commodity strategy used by larger insurers that sets them apart as the low-cost provider, a reduced ability to access affordable capital, and market conditions that continue to favor large insurers.
According to the latest report issued by
1) building new products that address changing exposures and that are valued
by small insurers;
2) prudently leveraging electronic interface to expand the distribution footprint while managing channel conflict;
3) effectively employing predictive analytics to achieve lift and improve market reach.
“For insurers, the increased use of technology by small businesses has been a double-edged sword,” notes the report. “It has undoubtedly helped many small businesses to compete successfully, increasing their numbers. It also is allowing small businesses to operate with substantially less infrastructure—much of which is the basis for premium exposure. As businesses increasingly lease computing time and outsource/offshore operating tasks, the traditional premium exposures will continue to erode. Insurers may need to revise and rebuild insurance policies that address virtual exposures in a way that creates more premium for the insurer and more value for the insured.”
In addition, despite the shift of market share from small to larger insurers, Conning notes that not all small insurers are losing share, and not all large insurers are gaining.
“The insurers that have been increasing their market share have been active in the market, acquiring business, expanding products and services, and increasing their distribution services,” notes the report. “The implication, perhaps more relevant today than ever before, is that this is not a market where standing still leaves you where you were for very long. An advantage appears to be developing and expanding for insurers with product innovation and increasing distribution services. Certainly, there are different ways to develop both as well as substantial associated costs and risks.”
Another solution is to partner with capital resources to help assure that resources are available for deserving businesses, notes Conning. Further, thanks to advances in communication technologies, small businesses see more affordable opportunities to increase services and products, thereby expanding customer markets.
“In many ways, the Internet infrastructure has leveled the playing field among all businesses, regardless of size or location,” says Conning. “Predictive analytics to enhance market knowledge and business intelligence continues to develop.”
The implication here is that although the ultimate benefits of using predictive analytics are uncertain, says Conning, it appears to favor larger businesses that have more data. Therefore, smaller companies that take advantage of this technology would have an obvious advantage.
