Small Business Insurance: Tipping Point’s Modest Proposal

Small Business Insurance: Service Before Product

I love the insurance world.

We work in an industry that enables entrepreneurs and larger companies to take risk; rebuilds homes and cities after devastating catastrophes; and assures the financial security of millions and millions of families.  We are privileged to work with so many great professionals whose motivation is to do good for others.   The relationships we build with customers and each other are at the heart of what makes the insurance industry great.  We celebrate each other’s success and are there for each other in times of unspeakable tragedy.

But I am worried that we have lost our edge.  We are no longer in a “Zero to One” world as Peter Thiel’s great book would tell us.  For too long we have depended upon the vicissitudes of market cycles to create growth potential.  We have been slow to embrace the role of technology.  Our fixation over squeezing out marginal improvements in quarterly profits has significantly impaired our ability to invest in the next generation of great talent to populate and transform our industry.  We are the equivalent of a professional baseball team whose aging roster and bloated payroll is now seriously challenged by teams whose models and views of insurance are different.  Ours is a paradoxical world where we perform tremendous service in helping clients address risk every day and yet we take very little ourselves.  The barbarians who want to replace the personal touch of client service with a “few clicks and you’re done” model for selling insurance are at the gate and we have allowed them to get there.

We need to change the game.  Where do we start?  I offer the view that in order to create a future of sustainable top-line growth we need to accomplish four things:

  1. Recast insurance as services that come with a product rather than a product than comes with service.
  2. Make a meaningful commitment to invest in the next generation of talent.
  3. Rethink our approach to creativity and innovation.
  4. Behave courageously as leaders.

It is beyond my ability to keep your attention long enough in a single post to address all four initiatives, so I will tackle the first one here and only within the context of small business insurance.  I select small business insurance because I think it is the area where a movement is already afoot to change the perception of insurance as a product to one that is of considerable service value and because millions of small businesses struggle everyday with basic risk management issues.

Let’s start with how we sell insurance.  Essentially, it’s an appeal to human fear.  “What if you have a serious claim? Who will pay the loss if you incur significant legal and related expenses?  What if you have to pay a major settlement or judgment?  Think about the impact to your earnings per share.” We can debate the degree to which that approach is effective in a larger commercial setting, but it is mostly ineffective in dealing with small businesses.

There are two principal reasons for this.  The first is that selling a discretionary product, such as D&O or EPL insurance, with a promise to pay future claims that may or may not occur , to a capital-constrained business will usually rank low on the priority list for a young business using its limited capital to stay afloat.  The other reason is a much deeper, psychological one.  Small business owners live with fear everyday.  In fact, they have made a conscious choice to live with it.  They breathe it, inhale it and often get an adrenaline rush from it.  I know.  It’s the same thing that motivates thrill seekers and roller coaster enthusiasts to pursue bigger and bigger challenges.  Let’s face it: there is something a little “off” with us as entrepreneurs.  So selling to us because we might not have an insurance policy to cover the future, uncertain claim event doesn’t resonate very well.  Small businesses buy insurance because they either have to or because the perceived service value of the purchase elevates it on our list of priorities.

That begs the question as to what causes a possible insurance purchase to become more important to us.  The good news is that small businesses have lots of needs.  It’s just that those needs are more service-oriented.  For small businesses in the gestation or “friends and family” financing stage, we need advice on the right type of business formation and governance structure.  If we have two or more employees, we need EPL advice.  If we perform services for others, we need contract review advice.  Do we offer products or services on-line?  If so, there are IT and Cyber Liability issues to address.  The list is seemingly endless.  Now we can attend seminar after seminar, on-line or in person, to learn about how to deal with these risk management challenges or we can find partners who work with us to keep us out of trouble.

Once the life cycle of the small business moves to the next phase, where there has been some proof of concept and the business needs to raise more capital to support growth, we will look to SBA or community bank loans, angel investors, private equity and other sources of capital.  Maybe a privileged few make it on Shark Tank for the visibility it provides to customers from a marketing perspective.  At this point, the small business has to check a lot of boxes from a compliance and governance perspective to get the capital commitment it seeks.  Again, all of this points to an increased need  a growing business has for advisory services support across a wide range of risk management issues.

Now for the very good news.  Some insurance companies and brokers are already well-positioned to play an increased role in this advisory field.  In the Management and Professional Liability arena, many of the products already come with some modest amount of legal, consulting and other professional level services support.  If we spend more time enhancing and scaling these service offerings, I submit that the penetration rate for D&O, EPL, E&O and the related Management Liability lines of coverage will increase.  As an underwriter or broker, you won’t have to sell the insurance policy as a product so hard and you won’t have to sell to fear.  The package of risk management services accompanying the purchase of the insurance policy will sell the product, not the other way around.    Plus, as an underwriter or broker, you will partner with the small business owner at an earlier point in time and start a relationship that will grow to be of increasing mutual benefit.

Change the approach and you will change the game.