SME Aggregators: Digital commercial futures

Opinion remains divided about the impact that aggregators will have in the distribution of small and medium-sized enterprise commercial lines insurance over the coming years. For some, the way aggregators have established themselves in the personal lines market offers a blueprint of how distribution in the SME commercial lines sector will develop. For others, the lessons that have been learned from the personal lines market and the difference in the nature of the products sold in commercial lines point to a slightly different future.

What is not up for debate is the size of the prize involved. In its commercial insurance report published earlier this year, 'The Future is Online', researcher Defaqto outlined just what is at stake. The report cited figures putting the value of the SME insurance market at £5.4bn and, despite the hardships SMEs have faced, Defaqto contends that they have ultimately been resilient in the face of the recession.

It comments: "The SME sector accounts for 99.9% of all enterprises, 59.4% of private sector employment and 50.1% of private sector turnover. Employment within the SME sector is estimated to be at 13.7 million, which was 287,000 more than in 2007."

Highly complex
Given the gross written premium at stake and the dominance of SMEs in the commercial landscape, it is little wonder that the battle to control distribution is going to be keenly contested as the online market develops. At the moment, aggregators have been unable to aggregate across the SME commercial lines market because there have not been enough products and insurers operating in the online environment to offer the capacity to compare products effectively. This, however, is changing as the internet becomes increasingly utilised for the delivery of SME quotes and policies.

John Miles, business development director at GoCompare, comments: "There are a lot of brokers and insurers talking about moving online. One of the problems we have had is that personal lines products are obviously a lot more commoditised and we have been waiting for this to happen at the micro end of the SME market.

"There has certainly been a wave of enthusiasm for this at the moment and I think it will be in the very near future that we will have the broader products at this end of the market, where insurers are happy to quote online."

This is a view backed by Defaqto, which stated in its report: "Aggregators as yet do not control the distribution of SME insurance in the way that they control the personal lines market. Most of the main sites act as introducers and provide access to online providers. However, as businesses continue to feel increasingly comfortable with purchasing cover online, it will be inevitable that they will develop new aggregation tools for SME insurance."

If this is how things turn out then aggregators will be able to provide effective product search and comparisons from across the market for themselves and stop referring all of their SME commercial insurance enquiries to online brokers as they are doing now.

Chris Slater, head of insurance for online broker Simply Business, accepts that there will come a time when aggregators can do this, although he believes it is still some way off: "If you look at car insurance, where you only need to ask a couple of questions, then compare it to a sector such as tradesmen where there are thousands of trades and thousands of different macerations of those trades, it is very much more difficult to aggregate."

As such, Slater believes that just being able to ask a couple of questions before quoting from across the market will not be possible in the immediate future.

Where products become commoditised and where buyers prioritise price, Slater is in no doubt that some brokers might have to sacrifice a portion of their business to direct writers and aggregators.

He does not necessarily believe, though, that this should be to the detriment of their books and says that the broking model bears up well to scrutiny in the online landscape.

Side by side
In particular, Slater believes that a move online does not have to come at the cost of the service or advice that a broker can bring. He explains: "What brokers have done on the personal lines side is to specialise; they have found areas in which they can compete and they have complemented the aggregators in terms of the service they can offer and the value in the personalisation they can offer."

Slater believes that exactly the same will take place in the commercial space: "There is always going to be a place for human interaction and so, while we are acquiring business online, there is a large proportion of our customers with which we have had a conversation to give them advice and reassurance."

What will be interesting about the distribution evolution for the SME commercial market is the insurers' input. When things took off in personal lines, the internet was a new channel and not everybody had fully come to terms with its potential. This, perhaps, led to things evolving out of the control of the insurers that were supplying the products.

As Richard Crocker, divisional director (distribution) at IT specialists SSP, describes: "Insurers will probably want much tighter control over how the data is captured, stored and reported. [SME] is slightly different from personal lines, where things really took off around them."

It seems as if insurers are not keen for aggregators to wield the same power in the commercial market as they do in personal. Malcolm Smith, commercial lines director at Groupama, says: "Our view of aggregators as businesses is that they have been one of the contributors to the extremely unprofitable private car market of the last few years. This is not a scenario we are keen to encourage for commercial business."

Smith also questions if there is enough money in the SME commercial market to support an aggregated model: citing premiums as low as £150 for many policies, Smith says that a 20% commission would not even cover what most aggregators charge for completed policies in the personal lines market. While they might look to change their models, Smith wonders if it will ever be economically viable for them to really fight for the lion's share of distribution.

Over the last five years, there have been significant developments in the number of SME commercial products available online and it seems that we are coming close to a tipping point at which the internet will begin to really throw its weight around. This, though, does not necessarily mean an aggregated model will come to the fore, although it does mean that brokers will have to ready themselves for operating in the new environment.

As the Defaqto report states: "There is a real challenge from the aggregators, banks and direct providers to the dominance of the intermediary market in SME."

For brokers, therefore, the challenge will be to prove their worth and to back up online quote-and-buy facilities with the specialist advice and services they have built their businesses on.


Meeting the online challenge
Research firm Defaqto's top tips for mastering the digital future in SME
• Invest in technology and develop an online quotation and purchase tool
• Pressure the intermediary-only insurers to provide better online solutions
• Provide customers with detailed information about business products with tips and documentation
• Don't be afraid of providing sample policy literature online, even for scheme business
• Highlight unique selling points and covers that are available only through the intermediary market
• For the smaller end of the market, develop products with single-policy wording
• If necessary, consider using one insurance provider