This article was written by Coterie Insurance CEO David McFarland and originally published in PropertyCasualty 360.
Small businesses weathered the brunt of the COVID-19 pandemic. At the height of the pandemic, forecasts predicted that more than a quarter of small businesses would shutter permanently due to closures, decreased demand, health concerns and other issues.
These issues left 30 million small business jobs vulnerable.
Small businesses take a huge risk to get up and running to serve their communities. In fact, 40% of small businesses fail after a disaster. Though small business insurance helps build resilience to mitigate that risk, insurance coverage isn’t always foolproof as evidenced by the fact that 75% of businesses in the U.S. are underinsured by 40% or more.
Bridging this coverage gap is a challenge, but one that may be overcome by entering marketplaces where small businesses are already conducting business, thereby embracing embedded insurance.
Embedded insurance provides a solution
There are two primary causes for why a business remains uninsured: choice and risk paralysis. What coverage does my business need? How much coverage should my business have? Is this policy enough or do I need more? How do I even buy business insurance?
The technological innovation occurring in the insurance industry helps small businesses clear away the clutter.
With the help of technology and an agent network, insurance companies are meeting small businesses where they want to go to access small business insurance.
For example, at Coterie we’re focused on reaching agents and brokers as they are relied on for trusted counsel by small businesses across the U.S. Early on, Coterie supported agents and brokers to develop strong relationships with small businesses, and help ensure they have adequate protection.
Secondly, we’re meeting small businesses in places they already go. For example, through our partnership with Intuit, we’re providing small business coverage directly to small businesses already on the Intuit platform.
Embedded insurance isn’t an entirely new concept. For years, customers have had opportunities to bundle insurance with another product or service, such as travel insurance or rental car insurance. However, technology has expanded the ability to embed insurance across larger swathes of the market, meeting small businesses in places they already go to offer them insurance coverage.
As a result, businesses have more opportunities to avoid insurance shortcomings and the coverage gap. At the same time, the burden of financial decision-making is diminished. This reduces the likelihood a business objects to or forgets to purchase needed insurance coverage.
Rather than eliminating the need for agents and brokers, the data provided by embedded insurance solutions helps agents and brokers better understand the insured’s needs. For example, when embedded into SaaS services that track revenue, embedded insurance solutions can help agents better assess and counsel the insured on more accurate coverage needs as revenue — and risk exposure — change.
In 10 years, embedded insurance could represent over $3 trillion in market value. By embracing embedded insurance, technology-driven companies tap into the ability to deliver a robust and seamless product experience to their small business customers.
How embedded insurance works
Embedded insurance is offered in one of two ways: as a value-add at the time a business purchases some other product, or as a native and “invisible” addition.
Whether through Amazon’s protection plans that present an opportunity to purchase optional coverage, or Uber’s rideshare insurance, in which drivers are automatically covered by a policy, insurance is now both more ubiquitous and easier to embed than ever.
Embedded insurance is able to pull data to provide personalized coverage options based on information the small business has already provided. This mitigates any concerns the business owner or authorized employee may have in regards to purchasing the correct (or correct amount of) insurance coverage.
It’s a win/win scenario for all involved. The insurer expands its market, potentially even to those businesses unfamiliar with or overwhelmed by purchasing insurance. Its partner creates better value for its new customer, and the customer gets covered by an insurance policy without worrying if the policy is right for them or provides adequate coverage.
Innovation paves the way for overcoming the coverage gap
Business insurance is a safety net that’s necessary to protect the livelihood and longevity of small businesses. Because it’s impossible to completely alleviate most risks, businesses need coverage to build resilience and protect their hard work from a potential loss.
Only 3 in 10 small business owners carry a business owners policy. Worse, only:
- 21% carry professional liability (errors & omissions) insurance
- 17% carry workers compensation insurance
- 6% carry business interruption insurance
It shouldn’t take a pandemic to reveal the massive coverage gap that exists for small businesses. Embedded insurance, used alone or presented by a trusted agent or broker, focuses on making the insurance process less onerous for the busy small business owners of today.
As an industry, our imperative is to continue educating regulators, customers and stakeholders not only on the value and importance of insurance, but on the innovative benefits of embedded insurance and financial products.
David McFarland is CEO of Coterie Insurance.
