What do small business owners really need from their insurance providers? The answer is less complicated than you might think:
- The right mix and amount of coverage so they can move forward confidently—to bid on jobs, stay compliant with statutory or contractual requirements, and of course to recover from accidents, errors, hacks, theft, etc.
- Speed and convenience when buying a policy, when renewing it and, importantly, when service is required. Bonus for doing these things fully online.
- The lowest possible premiums.
Insurance providers are expected to deliver all three. But while some business owners might be willing to pay a bit more for the added convenience of a sweet buying experience, for any amount and type of coverage, number 3—price—is most often what makes or breaks the sale.
Ask any small business owner you know and they’ll tell you without hesitation that they need the insurance coverage but don’t want to pay a penny more for it than they have to. The owner of a bakery may see clear value in investing a bit more on a higher-end espresso maker or a more reliable delivery van, but when securing her workers’ comp, business owner’s and commercial auto policies she’ll demand the lowest possible price every time.
Her auto dealer may have delivered the van per her exact specifications and provided her with great service, but if she feels she overpaid in the first place, she’s more likely to consider another dealership next time. Similarly, if she’s not confident she’s paying the lowest possible premiums for her insurance coverage, she’ll shop her business around at renewal time.
And she should.
Full-stack. Full Hype?
Small commercial insurance is traditionally purchased in one of two ways: directly from the underwriter (carriers and MGAs), or from an independent agent or broker. What’s relatively new, however, is the migration of these channels to online platforms. Consumers, starting with Progressive back in 1999, have been able to buy and manage home, auto and other insurance products online for some time. Small businesses, a much more complex segment of the market to insure, have only recently been able to confidently purchase coverage through online providers. Sure, insurers are mobilizing to compete (and collaborate) in the digital arena, but the process has been slow.
Enter the full-stack insurtechs. These smaller, well-funded, tech-savvy, venture-backed companies are built to disrupt the traditional small-commercial carrier-agent-customer value chain. The “full-stackers” are set up to both digitally and directly acquire customers and underwrite policies all under one vertical brand, thus pushing away from the traditional agency model of product and pricing. They’re injecting both excitement and fear into the traditionally unadventurous small business insurance sector. Fair enough.
Insatiable for both cash and headlines, they’re grabbing the attention of investors and the media alike. They’re also spending on tech and marketing at a breathtaking pace. And while media coverage is so far outpacing adoption, there is data suggesting certain small business insurance buyers—the constituent who matters most in this equation—are comfortable buying direct and through the browser.
So long as the coverage she needs is available and adequate, why not take advantage of the speed and convenience offered by a purely online experience? Most important, because she’s buying from a vertically integrated, 100-percent digital provider, she’ll be paying the lowest price for her coverage. Right?
Not so fast.
To choose or not to choose?
The most important difference between a small business insurance agent or broker and a full-stack provider is choice. And choice means better pricing.
Request a quote for a policy from a full-stack provider and that quote, if the coverage is available in the first place, will be based on one reference point. (Remember, these are young companies still doing the hard regulatory/filing work of standing up in multiple states.) Full-stackers underwrite their own policies by either taking on the role of carrier (backed by a larger reinsurer) or by acting as another carrier’s MGA with discretion to quote and bind policies. Either way, it’s a single-source model. To their financial backers and reinsurers, however, loss ratios still count. A lot. Based on a number of factors, including their breadth and depth of underwriting experience, full-stackers are likely not being granted full pricing discretion and therefore aren’t quoting premiums as competitively as they might otherwise. This means there’s a very good chance our bakery owner won’t be quoted the best possible price. And she won’t ever know it.
Conversely, a quote requested through an online insurance agent or broker will be a best pick—price and coverage—garnered from a number of independent insurance carriers quoting premiums as they compete for her policy. The carriers know they’re not the only insurer quoting a piece of business. If you listen carefully, you can hear pencils sharpening. Quotes from multiple insurance companies create choice for the buyer. In an industry where price rules, choice wins.
How do the two quoting models compare head-to-head?
Shop and Compare
We recently did some mystery shopping to reinforce the point that the multi-carrier choice model of online quoting and pricing consistently outperforms the single-source model of a full-stack insurance provider.
Here’s how it worked:
Using a number of scenarios that included factors such as business type, location, coverage amount and other required information, we requested quotes from our partner carriers using our multi-carrier quoting technology. Internally (and affectionately) known as SmartAgent, this technology uses a set of algorithms to seek and return quotes from multiple carriers based on literally thousands of state-specific permutations. As expected we instantaneously received a number of responses from the carriers. If this were a real customer scenario, we would have digitally presented the most appropriate coverage and best quotes from the group to our customer who would then decide if they wanted to proceed with the purchase.
Simultaneously, we requested quotes using the same information sets from Next Insurance, one of the full-stackers getting a lot of attention in the small-commercial space. We ran this test many times.
The results were stunning but not entirely surprising. In every scenario, Next quoted a higher premium than our best SmartAgent quotes. In most cases the difference was significant. Stated another way: in every scenario when we mingled the quotes returned to us from our multiple carriers with the commensurate quote provided by Next, we would have presented the Next quote to the customer zero percent of the time based on price.
Our hero the bakery shop owner wouldn’t buy her new espresso maker, delivery van or any other mission-critical purchase without getting quotes from multiple suppliers. Leveraging choice between and among the many sellers of anything she needs to run her business is to her great benefit. Why should her purchase of business insurance be any different? A multi-carrier choice model produces more competitively priced policies than full-stack, single-source insurance providers ... and price rules.
Been there, done that. In full disclosure we launched a full-stack MGA to source, quote and bind workers’ comp policies for small businesses in 2018. It became the tech proving ground for what is now our straight-through, bind-online capability we enjoy with a number of our top carrier partners.