Insurance and the SME – what really matters to small businesses

Risk Management computer button

Recently, the leadership team at Digital Fineprint – the insurtech that I have the pleasure of working at as Chief Operating Officer – gathered together for a few hours to plan ahead for 2019 and reflect on our ‘raison d’être’ as a business. Whilst fame, glory and the chance to be the first insurtech unicorn are all great motivators, what really makes us get out of bed each day and brave the London commute is something less measurable, but altogether more important. Alongside our core values, which include ‘simplicity‘, ‘grit‘, and ‘speed‘, our reason for being as a business, or ‘mission‘ as we like to call it, is pretty simple – to use technology to ‘help protect all small businesses‘.

 

We think it is a pretty noble cause. After all, SMEs are the backbone of the UK economy and provide over 60% of all employment, and often navigate along a knife-edge for survival – indeed a recent survey by RSA found that a significant proportion of UK SMEs wouldn’t have the financial security to survive a £40k hit on their business.

 

To the trained eye, however, it might seem strange that an insurtech start up that sells enterprise-grade software and analytics capabilities to some of the biggest and most well known insurance brand names, could, should or would consider it’s key mission to protect all small businesses. The two seem mutually exclusive, and indeed, some of DFP’s own dedicated staff have questioned the leadership team on this very point, and rightly so.

 

As a firm believer that one should test one’s own opinions, theories and conclusions on a regular basis (after all, I am an economist by training), the above got me wondering – how can we do business with big business but have a positive impact on small business too? After some active thinking (I do all my best pondering on my bike to and from work), it struck me that I should, for once, look inwards – after all, Digital Fineprint is itself a small, albeit fast growing, business. Putting myself in my own shoes, so to speak, might actually be useful for once!

 

In an effort to keep things more concise (I don’t want to take up all of your coffee break), I will split my response into 2 posts. In this post I am going to examine what it really means to be a small business when it comes to buying insurance, and later I will look at how technology can help solve some of the associated challenges.

 

So, the first question I need to answer is “what does insurance mean to small business?”. I’m not talking about a definition, but more of how insurance and risk fit in to the day to day life of an SME. I’ve outlined some of my thoughts below:

 

1. Insurance is never front of mind

As the old saying goes, ‘no one sits down with a glass of wine at the end of the day and thinks “boy am I looking forward to buying my insurance“.’ OK, so whilst that might be the best known of old adages, it is pretty on point. Insurance is often an after thought for small businesses. When you initially found a company, once you’ve sorted employer’s liability purchase (if you intend to hire staff), all other thoughts tend to go into growing your business. Every day, small business owners ask themselves a simple question – “what do I need to do today and how important is it to my company?“. The answer is more often than not something to do with the here and now – it’s putting out an ad for a new hire, meeting an existing client, or negotiating a new contract. Very rarely does insurance cross your mind on a day to day basis. If I asked myself, as COO of our company, how often I reviewed our own insurance, the genuine answer would be “not often enough“. Very few business owners think about insurance on a daily, weekly or monthly basis (unless, of course, you work in insurance), and for the most part, it only really comes back into focus for two reasons – either at renewal or, heaven forbid, you have a claim.

 

2. Understanding your own risks is harder than you think

Working in an insurtech, you would hope that we would understand more about insurance risk than your average small business. In reality, it is hard to really get a handle on the risks that you face as a business. For example, as an asset light tech startup than makes big use of cloud computing and remote working, office contents insurance doesn’t immediately resonate or seem relevant. We don’t have large banks of on-premise servers that need to be backed up on a daily basis, nor do we have expensive stock left in the office overnight. But you only have to look at the recent news regarding the break in at fellow insurtech business, Brolly, to see how much of an impact it can have. Brolly’s CEO, Phoebe Hugh, estimated that the cost of replacing their laptops was c.£15,000 – in her own words, ““for a tech company, that is quite significant”. Whilst laptops are replaceable, the damage to confidence business operations, and unnecessary stress and strain it can add on top of the usual challenges of running a small business, are significant. Furthermore, as tech businesses with a large reliance on data and online services, cyber threats are and will continue to be a source of concern. It’s hard to quantify how much of a threat small businesses face, but with one recent survey finding that 85% of SMEs have faced some kind of cyber attack in the last year, and the ABI estimating that cost of a cyber attack to an SME could be north of £50k, it’s a hard danger to ignore.

 

3. Tracking how your risks change is even harder!

Small businesses are rich in many ways – rich in variety, ideas, agility, and with bucket loads of ‘get back up and at ’em’ to boot – but in other ways they are poor – time poor, resource poor, and often cash poor too. Small business owners are jugglers – they wear many hats at once and must be everything from a leader to a follower, often at the same time. It’s not uncommon to find a Managing Director at a small business closing deals one minute, then restocking the loo roll the next. They really are the masters of being jack of all trades! With so much to do and so little time, it’s hard to keep a handle on your risks and how they evolve. For example, in the last 12 months, DFP has grown it’s number of employees 4x, moved office twice as we outgrew the last ones, increased our revenues, established new partnerships, taken on larger contracts, and invested in new technology to support our development. This will have had an impact on our risk – our potential exposure will have increased as the business has grown. Therefore, in the event of a loss, it is not inconceivable that the cover we have will be inadequate to get the business back on its feet. But who’s responsibility is it to track this? Arguably it is the business itself (I am sure that all policies have this get out written into the documents somewhere), but placing the onus on the party in the chain that has the least time, resources and risk understanding seems somewhat counter-intuitive to me, however logical it might seem to others.

 

4. Price is important but service matters too

When the banking sector finally got around to embracing fintech and connecting with their customers, they were fighting a winning battle. “Cash is king”, so people want to engage with their banking providers frequently, and therefore service is a key component of the purchasing criteria. It’s hard to say the same about insurance (you only really need it when you need it, if that makes sense), so it’s also hard, at first glance, to see how insurers or brokers can compete on anything but price at the point of purchase. I’m currently in the middle of reviewing the insurance for our business (by the time this goes to print, I will hopefully have completed this process, so no inbounds please!), and despite all the noise being made in the sector about aggregators eating SME brokers’ lunch, the first thing I did when I started my review was contact a few connections and ask “who would you recommend I speak to about our insurance?“. Each of my contacts, even those who worked in insurers who have direct to business offerings, referred me on to a trusted broker. Why? Because they can offer me a personalised service. They can give me their time and risk understanding, and educate and talk me through what we risks we have and what we can do to mitigate them. Until the digital journey can offer something similar, I can’t see this approach changing.

Whilst there are other considerations, the above are the ones that immediately sprung to mind, and in the next post I will pose the second question I outlined earlier and look at how technology can help solve some of these risk-based challenges faced by small business.

 

Written by Alex Hammick

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