Small businesses learned a lot during the pandemic. Whether it was accelerating existing digitization efforts, stepping into the eCommerce space for the first time, or overhauling business models entirely, the small to medium-sized business (SMB) ecosystem was forced to be flexible in order to remain resilient.
The implications of such changes are far-reaching, and many have yet to come to light. However, the small business insurance space is discovering that the old ways of operating are no longer suited to a new breed of SMB.
For some firms, said Alex Maffeo, CEO and founder of Boost Insurance, the small business insurance market became a matter of trying to fit a square peg into a round hole.
“All of a sudden, you’re running a business where people worked in an office and now they’re working in their living rooms,” he told PYMNTS in a recent interview. “How does that work with workers’ compensation, or general liability? The world completely shifted, so the insurance products that were built for it just do not apply.”
That’s not the only factor disrupting the small business insurance arena. As Maffeo explained, a new effort to fill in market gaps and connect smaller firms to more affordable products has opened up opportunities for the insurance market to take an embedded, X-as-a-Service approach to the market.
SMB Insurance Headaches
The ongoing health crisis and its subsequent economic impacts may have thrown a wrench in the small business insurance market, but Maffeo noted there have always been key points of friction for the space.
For one, commercial insurance rarely differentiates between small businesses and large corporate policyholders, creating blurred lines that can end up creating higher prices for SMBs.
Maffeo pointed to commercial cyber insurance as an example of this phenomenon.
“The severity of the claims for SMBs is obviously much, much lower,” he said. “But the frequency [of claims] is similar, so SMBs are being overpriced because of the fact that large enterprise[s] are being hacked, creating tens of billions of dollars worth of claims, and that trickles down.”
Other cost increases can be attributed to the struggle of the insurance space to verify policyholders’ financial information on applications. At the same time, complexities and a lack of transparency can not only make costs higher for SMBs but can lead to nasty surprises come claims time.
Maffeo said he expects a surge of denied claims and legal disputes on the horizon as small businesses seek payouts from their business interruption coverage. Due to the unprecedented nature of the COVID-19 crisis, however,…
Read More: Boost Discusses Embedded Small Biz Insurance