How can insurance protect the small businesses that need it most?

EY’s Global Insurance Small Business Owner Survey reveals how insurers can innovate to support the needs of those impacted by the COVID-19 pandemic.

In brief

• The COVID-19 pandemic’s impact on small businesses calls for product innovation aligned to the industry’s purpose and new market needs.
• Small business owners are looking for insurers to be partners, providing easily understood products with flexible features.
• Usage-based products and those that promote financial stability are most likely to gain traction post-pandemic. 

Small businesses have been hit especially hard by the COVID-19 pandemic. In late 2020, EY Insurance conducted a global survey of small business owners and consumers to understand how the pandemic impacted their lives and insurance needs. In this article, we share the small business owner survey results and highlight the implications for insurers.

Clearly, the pandemic has been a major stress test of confidence for small business owners: 65% of overall respondents experienced a complete or partial shutdown of their operations during the pandemic and 73% experienced a decrease in revenue from the previous year. Comparing results across markets demonstrates how government responses to the pandemic have played a significant role in the overall impact on small businesses within different countries.

These impacts, along with the ongoing economic uncertainty, reveal opportunities for insurers to take urgent and purposeful action, especially relative to enhanced value propositions and new products. Because small businesses face new risks, unanticipated threats and stricter regulations, insurers should move quickly to design and launch new products and services aligned to these evolving needs.

The survey results confirm that small business owners are increasingly ready to embrace such offerings, especially solutions that offer financial stability. They represent an invitation to innovate with new products and reorient customer relationships around long-term partnerships, rather than annual transactions and generic products. The time is now for insurers to take action, guided both by changing customer needs and their purpose to provide the protection businesses need.

Lower revenues and higher stress

Our survey methodology allowed us to identify the extent of the pandemic’s financial impact across respondents in each county. Based on answers to a question about lost revenue compared to the previous year, we grouped respondents into thirds:

• Individuals in the top third — or the “most impacted” — saw a 31%+ drop in revenue
• Those in the middle third saw a 1-30% drop in revenue
• Those in the bottom third — or the “least impacted” — experienced no drop in or increased revenue

Concerns focus on financial security and overall well-being

In response to the pandemic, those most financially impacted are experiencing especially high levels of anxiety and stress: 69% are concerned about the loss of business income or cash flow, and 42% are concerned about themselves and their employees’ stress and mental health.

The most and least financially impacted respondent segments share similar concerns for the future and a comparable appetite for insurance products. The primary concerns for small business owners globally include loss of business income/cashflow and mental health and stress (both their own and their employees’). Other key concerns include successfully complying with new safety regulations and additional expenses for cleaning and sanitizing. The pandemic had a broad range of impacts, from financial hardship and increased costs to physical safety and mental health.

There is an interesting variation in the intensity of concern across markets. For instance, there is notably less concern about losing incomes and financial well-being in France and Italy than in the US. The gap could be attributed to the more substantial social safety nets in place throughout the European nations, including support for small business owners. 

Confidence wavers in coverage

Those most impacted demonstrate an even greater lack of confidence in their coverage: just 41% said they are very confident in understanding their insurance coverage, and only 40% said they are very confident they will receive benefits consistent with their understanding of their coverage. These numbers are alarmingly low, especially in a time of crisis, when customers expect their carriers to be there for them and when they are open to new solutions.

Looking at respondents overall, only 50% are very confident in the coverage they’ve purchased. Insurers have critical tactical and strategic work to do. In the near term, they must better clarify what their policies cover. Over the longer term, they must better articulate the value of the products they offer. For an industry built on trust, these are critical steps.

Demonstrating that value and offering cost-effective solutions will require pricing innovation from insurers. For example, policies could be designed to offer a fixed reimbursement if a business is forced to shut down, rather than a payout linked to actual losses. That would be easier for insurers to model and price attractively, while still providing security to small businesses.

Changing priorities and insurance needs for small businesses

Despite the regional differences, the consensus about top concerns suggest a widespread feeling of financial anxiety and a sense of vulnerability. The implication is clear: few businesses were spared and the ongoing effects of COVID-19 remain top of mind for business owners of all kinds.

The survey results identified that the sharpest demand for new coverage fills gaps in current commercial policies. The focus is very much on business interruption. For example, 75% of overall respondents showed interest in a product that pays them three months of fixed business expenses if their business is closed due to a pandemic. 

In the US and Canada, 68% said they would be interested in a product that covers against liability incurred from employees and consumers catching a disease in their place of business. This level of interest is not surprising. Insurers must recognize the likelihood of future pandemic-like scenarios and begin incorporating such coverages to take advantage of the demand.

While these findings are no surprise in the wake of global economic turmoil, they represent a future growth opportunity for insurers who can quickly and efficiently design, develop and launch such products. Their willingness to buy signals clear demand and small business owners are asking insurers to step in with new coverage. Again, the key will be to design affordable products and market them in a way that clearly demonstrates value.

Proactively connecting with small business owners and delivering the protection they need are the first steps in strengthening customer relationships and seizing long-term opportunities.

Driving growth with client-centric product innovation

So what sorts of products and services will small business owners be seeking? The priority is financial viability and protection against future shutdowns and revenue losses. Products that offer a clear value proposition, easily understood language about coverage and more closely link usage and cost will likely win market share, too. The same is true of products that are tailored to specific types of businesses, since the needs of restaurants, hair salons and small professional services firms vary considerably.

Tomorrow’s buyers will be looking for flexible protections and the ability to add and subtract specific coverages and features as they continuously refine their strategies and operations. To meet this new demand and differentiate themselves, insurers must reimagine their products starting with close alignment to the needs and preferences of small business owners.

With solutions that help businesses through vulnerable situations and provide value beyond downside risk protections, insurers can reposition themselves as true business partners and strengthen customer relationships over the long term. 

The pandemic has been historically disruptive for all types of companies, but small businesses bore the brunt. Our survey results confirm the extent of the impact and how insurers can adapt moving forward.  The business community has never needed the insurance industry to live its purpose of providing relevant, holistic protection more than it does now.

Developing leading solutions requires an integrated approach that applies innovation discipline to highly regulated products. It also requires the ability to leverage external ecosystems and collaborate with others outside of the industry. Finally, insurers need an adequate technology architecture and supporting platforms.

But everything relies on first identifying the customer and their unmet needs. EY Insurance can help you understand what our survey findings mean to your company’s product strategy and how you can use these insights to strengthen existing customer relationships and develop new ones.

To learn more about the survey and what it means for your insurance business, please reach out to the author of this piece, Bernhard Klein Wassink.

Methodology

In late 2020, EY Global Insurance and EY QUEST surveyed over 1,200 small business owners and 2,700 consumers and throughout North America and Europe. The objective was to gather insights about how the COVID-19 pandemic has impacted their lives and insurance needs.

To better understand their concerns and preferences, participants were presented with a question about how much revenue they have lost compared the same time period last year. Answers to this question were used to divide survey respondents into thirds based on revenue decline they experienced: individuals in the top third — or the “most impacted” — saw a 31%+ drop in revenue; those in the bottom third — or the “least impacted” — saw no drop or increase in revenue; and those in the middle third saw a 1-30% drop in revenue.