Mixing it up

Mixing it up

SMEs are increasingly buying some insurance direct and some through brokers, Vero’s latest Index report shows. Here’s why

By Wendy Pugh

The percentage of SMEs buying almost all of their insurance through brokers is falling. So what’s driving businesses to mix up their purchasing? And should advisers see the trend as a worrying challenge?

Vero’s SME Insurance Index has revealed many changes in the relationship between brokers and their clients over its 11-year history, and the latest edition is no different.

Key findings from this year’s Index, which involved an extensive nationwide survey of 1500 SMEs, show only 14% of the companies surveyed bought “almost all” of their insurance through a broker. That’s down from 27% last year.

The drop mainly reflects an increase in those using a mix of channels, rather than a surge in SME owners and managers not using a broker at all.

Vero says the mixed usage growth can be seen across all types of businesses, and is particularly high among those where at least five people work at a firm.

“Mixed purchasing appears to be the norm for these small and medium-sized businesses, which raises the question: are brokers comfortable with this mix, and does this decline in brokers’ share of overall insurance coverage matter?” the report says.

SMEs tend to nominate ease as the main reason for buying direct, while price is also important. The reasons for businesses choosing a particular channel, the services they value and their levels of satisfaction are explored throughout the survey.

“You don’t generally wake up in the morning, saying to yourself, today is a good day to buy insurance,” Vero Head of Commercial Intermediaries Anthony Pagano tells Insurance News. “We had to ask ourselves, why are SMEs purchasing differently at different points of their business lifecycle?”

The answer is simple enough. Businesses are buying direct in areas they see as more straightforward, with technology smoothing the process.

Fair enough, but Mr Pagano notes SMEs are often unaware of exposure gaps or pitfalls that may impact an enterprise, no matter how simple it may seem.

Policies less likely to be purchased through a broker compared to two years ago include commercial property, machinery and equipment breakdown, workers’ compensation and commercial motor.

The Vero SME Index, for the first time this year, also separately reports findings from a smaller sample of companies employing at least 200 people. They show cyber, a fast-changing product, is among cover being increasingly bought direct.

Other classes include professional indemnity and business interruption.

The Index suggests some brokerages may be comfortable with the trend to mixed usage, allowing them to focus on more complex risks.

But it cautions that having a holistic view of a client’s insurance allows brokers to identify a wider range of risks and thereby demonstrate their expertise.

Interestingly, 93% of SMEs who have moved part of their insurance to the direct market say they remain highly satisfied with their broker.

Despite the mixed buying trend, satisfaction levels with brokers are high. Some 84% of SMEs score their broker eight or more out of 10. That compares to 60% last year, and satisfaction levels ranging up to 70% during the past four surveys.

Vero says the jump in satisfaction may reflect the unique global circumstances of the past year, amid the pandemic, while the hard market has provided opportunities for brokers to show their value.

Mr Pagano says with so much pandemic-induced uncertainty, SMEs have welcomed the support and reassurance of brokers looking out for their interests – particularly when claims added to covid disruption pressures.

“When things were quite tough, getting that local personal service went a long way,” he tells Insurance News.

The survey highlights the value of brokers at claims time, but also shows annual renewals – an obvious time for contacting clients – are often a missed opportunity for demonstrating expertise and building relationships.

Just 48% of clients say their broker reviewed their insurance during their last renewal process. A further 14% made changes based on their own research and analysis, and 38% simply renewed “as is” without any review or advice.

The report identifies some gaps between services SMEs rate as important and what they say their broker actually provides, including in advocating on their behalf to insurers and providing information on emerging risks.

It also delves into perceptions of “good service”.

Some 23% of broker clients say it’s all about “knowledge and experience”, 23% identify “understanding my needs”, and 17% say it is about competitive premiums. In the case of direct buyers, 30% say good service comes through competitive premiums.

Vero says the data suggests price might be a good initial conversation point with direct buyers. But more is required to build and sustain longer-term client relationships and to convince mixed users to purchase more policies through a broker.

Mr Pagano says having a deep understanding of an insured’s operations provides opportunities to address risks and to find cost-effective ways to protect the business.

And with covid-related uncertainties persisting, now is also a good time for re-connecting, re-positioning or reinforcing the strength of client relationships.

“Brokers can initiate conversations with SMEs about value,cost-effective insurance, how they can make the process easier, and helpthem feel more supported end-to-end,” he says.