If heavy competition breeds consolidation, then property/casualty small business insurance is ripe for it in the coming years.
Here’s why: Both large and small insurers devote lots of attention to the space, but no single company carries more than a tiny portion of the overall market, Conning pointed out in a new study.
Importantly, a winning insurer will have high levels of automation and efficient customer service in its arsenal to help achieve this goal, Conning said, terming the winning ingredient “insurers with scale and robust technology.” (At the same time, newly consolidated insurers and brokers will drive clients to favored insurers, the report concluded.)
That shift will only grow faster over the next five years and could, in fact, disrupt the market if insurers using automation advances such as “digital distribution” grow large enough and grab substantial market presence, Conning noted.
Plenty is at stake.
Consider that overall small business market premium hit $81 billion in 2013, according to Conning estimates included in the report. If you take out specialty and high-hazard business, the principal small business market premium is at $58 billion. That comes down to 20 percent of the U.S. property/casualty commercial market premium, study author and Conning consultant Clint Harris said in a prepared statement.
But here’s the thing: No insurer currently has more than 6 percent of the market, Harris said.
That could change pretty quickly, as rivals vie for a greater share over the next five years. The Conning report projects 8.4 percent growth over the next five years for the principal small business market, from $58 billion premium potential in 2013 to $63 billion in 2018. Of course, that is fairly robust, but it is a bit lower than the 10.1 percent growth rate project for the remaining commercial business market. Why the difference? It “reflects the long-term trend of relatively less employment growth in the small business market compared to the rest of the business communities,” Conning said.
To gain a bigger piece of the property/casualty small business insurance market, small insurers may have some catching up to do, and could lose ground against large-sized rivals, considering that the bigger insurers in the space seem to be making quicker strides.
“Large insurers in small commercial have made significant market share gains in the last five years,” Conning said. “Leading companies are positioning themselves for further market share gains by investing heavily in technology and analytics to meet the evolving needs of an increasingly sophisticated customer,” Steve Webersen, director of research at Conning, said in a prepared statement.
Conning’s full 2014 report is called “The Small Business Sector for Property Casualty Insurance: Market Shift Coming.”