Author: FSB Insurance Service
FSB Insurance Service MD David Perry and Travelers Distrubution Director Jonathon Forster have been on the IBUK Talk Podcast, the insurance business UK podcast dicusssing the changing needs of SMEs in todays market and how insurers can respond to them. They discuss everything from Covid to cashflow. Check out the podcast above or read the transcript below to learn more.
Mia Wallace: Hello everyone. And welcome to the latest edition of IBUK Talk, the insurance industry podcast brought to you by Insurance Business. My name is Mia Wallace, senior news editor of Insurance Business, UK. And I will be your host today for discussion on the changing expectations of SMEs, how insurers need to cater for these and how brokers need to communicate them.
I am delighted to be joined by David Perry, managing director of FSB Insurance Service and Jonathan Forster, SME distribution director for Travelers Europe. Many thanks to you both for joining me today.
David Perry: That's a pleasure. Good to be here.
Mia Wallace: Thank you. And the SME space occupies broad and frequently changing landscape. I wondered if you both mind introducing yourselves and your work within the SME sector? Starting with you there, David, if I may.
David Perry: Of course, I'm the Managing Director of FSB Insurance Services, as you said. That is an insurance advisory business that was set up four years ago by the Federation of Small Businesses.
The FSB is Britain's largest business organization with a voice at Westminster and at all of the devolved parliaments and with 165,000 members all over the country, ranging from architects to zookeepers. So really does represent the SME community in the whole of the UK.
Mia Wallace: Fantastic. I can imagine that's a role that keeps you extremely busy, David.
David Perry: Very busy and yes, indeed it does. No day is the same.
Mia Wallace: Oh, that sounds great. And how about yourself, Jonathan? What are your key duties of your role as SME distribution director?
Jonathan Forster: Hi, yes. So essentially responsible for the strategy and distribution for a much misused word actually, which is SME, which I'm sure David will agree, but essentially for the growth strategy and distribution for Travelers' products in the UK and Ireland that could either be traded electronically or manually still into our Small Business Center of Excellent or via arrangements that we call schemes and MGAs.
So, that's a strategy that Travelers has set about probably two to three years ago now. So relatively newcomer in this space.
Mia Wallace: Well, it sounds like it's a great time to be speaking about the SME space. And David, I understand that FSB recently carried out a survey of the SME market. And I wondered if you could tell me a little bit about the scope of the survey and some of its key findings.
David Perry: We did. We were concerned that we were getting a lot of members who were struggling to get the advice that they needed. So we took a bit of a straw poll and we had around 500 members responded which is a decent segment.
Three quarters of them said that they'd been seeing price increases. That's no surprise because we're in the middle of a hard market. But we're seeing a lot of that. But more worryingly, a quarter of them said that they'd seen cover reductions and a third said that they had experienced restrictions and additional terms on their policies.
We obviously feel advice is very important. So the one stat that came out of it that we were quite pleased to see was that 75% of SMEs, according to our polls, still use an insurance broker. So they're still going somewhere to find out what they should be doing and where they should be spending their money.
Mia Wallace: No. Fantastic. Thank you very much for that, David. And Jonathan, in your role, are you seeing that increased focus on advice over price reflected in the expectations and requirements of SME businesses?
Jonathan Forster: I think so, particularly since COVID and has been a great focus in terms of what exactly am I covered for? And sometimes a misconception in terms of what these SME clients think they're buying and what they actually are buying.
So we're getting more increased calls from insurance brokers, which is predominantly who we operate through, coverages in terms of the covers that clients are buying and particularly new areas, such as cyber, which is really topical at the moment. So definitely is changing and SMEs realizing it isn't such a simple purchase as say, buying household insurance.
There are lots of insured Techs out there and they're doing a great, great job, but still at its heart, the SME product, even if it's aimed at the micro end of the market, it's still quite a complex product and businesses are complex and brokers add in our view, a significant value in that distribution.
Mia Wallace: Well, I'm very grateful that you brought up COVID before I did, Jonathan, because of course it's absolutely impossible to ignore and there's no doubt that it has impacted every business to some degree.
And David, I was just wondering, maybe you first, if you could outline some of the key ways that you're seeing SMEs adapting post-COVID, if we can call it post-COVID?
David Perry: Yeah. The majority of SMEs, particularly the ones that have been around for a while and will continue to survive and, and prosper, they probably do so through diversification.
They change their model to adapt to circumstances. And so we are seeing lots of businesses who are doing things differently. Perhaps they were premises-based and they're now delivering or installing. They used to acquire their product from certain places and they've started to acquire them from other places or even make things themselves.
This talks a little bit to the cyber risk as well. There are lots of people who perhaps were selling to a local audience from premises who suddenly discovered a huge worldwide market for their product through internet sales.
That leads to even more complexities around things like territorial limits and jurisdiction and things that perhaps when you're trying to keep your business going and keep trading, you wouldn't even think of. But they're things that, again, SMEs need advice on to make sure that they're properly covered.
Mia Wallace: Fantastic. It's interesting to hear how SMEs are doing things differently. And is that something that you are seeing in the market as well, Jonathan, post-COVID?
David Perry: Yeah, definitely. There's much more of an interest in terms of coverage, but both from clients and from brokers as well. Brokers have always been interested in cover, but I think now more than ever, we've seen more of a shift, in our opinion, towards the quality end of the market.
We're seeing brokers much more interested in coverage and value. Prices [inaudible 00:07:56]... Let's not get it wrong. Price is vitally important and as David said, SMEs sometimes are more interested in keeping the lights on rather than what coverage they've got, but that is changing.
And in particularly areas like how they export businesses, where they're importing from, the changes of Brexit. And of course in the last 18 months, we've seen a massive shift to hybrid working or working from home which is now turning into hybrid working.
And what does that mean for the modern business going forward when workers will be potentially working from home a hundred percent of the time to two to three days a week?
What does that mean in terms of the risk profile? And not just that, but all also, the health and safety of workers who are working from home, the mental health, new risks will start to emerge. And in particular, the one thing that we have seen is cyber really coming to the fore, both in claims, unfortunately, but also clients' and customers' interest in cyber cover.
Mia Wallace: And it's really interesting that you mentioned that obviously SME clients are looking to keep the lights on, very understandably. And David, with all the challenges that face SMEs, even at the best of times, do you think it's fair to say that insurance is maybe not at the top of an SME agenda?
David Perry: It's very interesting because most of the colleagues that we speak to are still saying that businesses, that SMEs are continuing to renew their policies, they're continuing to buy policies. I think that SMEs in particular have spent a long time building and developing their own business. They're very connected to it and they want to protect it.
So there's a very sensible approach to continuing to buy insurance. The piece of advice that we are really trying to get out there over and above everything else following the last 18 months is that your insurer, your underwriter, bases their assessment of your risk on what you do. And if the last time you told them about that was 18 months ago, and now you're doing all sorts of different things, remember his passport photograph of what you do is 18 months old.
So it's really important to talk to your advisor and get it to the top of the agenda, just to make sure you are properly covered and that your insurers know exactly what you're doing now.
Mia Wallace: No, that's fantastic advice. Thanks very much for that, David. And given the current state of affairs, Jonathan, and given the need for SMEs to find the right insurance solutions, how do you think insurers can react to make insurance more palatable to SMEs?
Jonathan Forster: I think they can make a number of things, actually. I'm sure David will agree to this. They can make it easy to understand in terms of what they're covered and importantly, what they're not covered. The insurance contract is a fairly complex piece of law to understand. I'm sure you agreed to that, David.
David Perry: Yeah. Absolutely, yeah.
Jonathan Forster: So, again, transparency, easy to understand, easy to explain what you're covered for, what you're not covered for, but also your duty and what you have to do to ensure that you are covered as well is a really important thing to understand that you have cover, but there certainly are obligations on you to ensure that should the worst happen, you are fulfilling your side of the contract.
It's not just a one side to the contract, and that's really important to understand. But clients are buying a relatively complex product with lots of detail, hence the need to go to an insurance broker, in my view.
David Perry: I think if I can add, never was that truer but in respect to the cyber insurance, because it is a new class of insurance and the market has been developing for a couple of years.
But there are issues around terminology and clarity that we could all do with getting our heads around a little bit, really. And then sometimes I think SMEs understand the need to be looking at protecting against their cyber risk, but find it quite difficult to wade through the various products which don't necessarily seem to be consistent insurer to insurer so can cause a bit of confusion and a bit of mubble when the SME is looking to buy.
Jonathan Forster: I completely agree, David. As you know, cyber coverage can pop up in a number of different sections within an insurance contract, without even realizing that it is covered. And that's, again, the value of an intermediary to explain to their clients and to give that service that intermediaries and insurance brokers do give.
Technology has changed and is changing the way that insurance is being purchased with the rise of the InsureTech. But it's really important when those products are developed, they are developed with the small end of the SME customer in mind and their level of understanding about what they're buying and what they're being sold.
David Perry: And also, I just called cyber insurance a class, and really, it's not a class of insurance. It's more akin to a commercial combined because developing what Jonathan said there, there are elements that cover property damage, business interruption, liabilities and not all policies, standalone policies, cover all aspects. So, it's a complex product, even at the SME end where perhaps the risk is deemed not quite so high as with a multinational or a public body.
Mia Wallace: Thanks very much for that. And it's quite interesting cause a lot of the conversation around brokers and broker communication is how they need to talk to their end-insureds and communicate what's going on adequately to them.
And I just wondered, maybe starting with you here, Jonathan, do you find that communication needs to start with the insurer that brokers need to avail of the leadership and of the communication channels that are open to them?
Jonathan Forster: Yeah, I think definitely insurers and insurance brokers working far more closely together about the combination of skills that both the broker has in terms of being the client end and the distributor of the product, but also what insurers can bring in terms of their knowledge, what they're seeing across their portfolios, trends they're seeing. So for instance, with the mood of remote working, we're starting to think for some of our new products, our office product, what does that mean for the hybrid office going forward?
Not just in terms of the physical risk, but also of the liabilities. The employer's liability. What does that mean in terms of health and safety, in terms of mental health going forward and by working more closely with companies like David's FSB, their deep understanding about what customers really think and behave in the real world, plus some of the intellectual knowledge that the insurers can bring from a technical standpoint.
David Perry: Yeah. Can I chip in as well there? Because I think the other important thing, and this is where it is so key. The companies like insurers, like Travelers are having these conversations, it's around the delivery of the product as well, because quite widely, insurers are looking to streamline and make the delivery of product as efficient as they possibly can.
But as we alluded to at the start of the conversation, some SMEs can be complex, even though they're not very big and trying to find the right mechanisms to get the information and present the information in an efficient format, but without taking away the opportunity to discuss relevant complexities, it is really, really important. And I think that's quite key as we go forward because so many insurers are looking at ways of speeding up processes.
Jonathan Forster: Yeah. The flight for cost reduction has got to be balanced with the base loss ratios, David, but I agree, and the exposures. So there's a fine balance between trying to cut cost out of the industry and not losing sight of claims and premium. I completely agree.
David Perry: Yeah. To use that awful expression, the unsophisticated buyer, which basically in our sense means someone that doesn't really understand insurance, could go and buy a nice slick product having answered six questions and got a standard vanilla policy that's totally inappropriate to them. And that, as time goes by, can cause as many problems as taking a bit of time to get it right in the first place. So just getting that balance right is important.
Jonathan Forster: Absolutely. Yeah. And there was a fantastic post from somebody on LinkedIn yesterday that a client had come to them and their business description was wrong. They were listed as self-employed when actually they were a limited company, they were listed that their business activities were in haulage and they were in a far wider [sic] trading environment. So when the insurance broker looked at it, yes, they couldn't get to the 200 pound premium, but they ended up advising the customer on exactly what risks that business faced.
Mia Wallace: Fantastic. And that's where the real value of the broker does come to its fore, I suppose.
Jonathan Forster: Yeah. Completely agree. But against that backdrop, products do need to simplify in terms of how they're presented. Customers don't always think how David and I think. There's property insurance, there's business interruption, there's loss of profits. They think about terms as their business, that I've got things to ensure.
Mia Wallace: You both work with a variety of SMEs of varying complexities. And I just wondered, are you confident about the future of the SMEs sector? Maybe be starting with you there, David?
David Perry: Yeah. I'm very confident. They really are a resilient bunch and they know how to adapt their business models to survive.
Obviously, as we record this podcast, various little safety nets that have been in place over the last 18 months or so are disappearing with things like the end of the furlough scheme and VAT going back up again in the restaurant businesses and what have you, loans now needing to be repaid, rent freeze is finishing, all of that sort of thing.
So cashflow, which is a really, really important part of the SMEs daily concerns is going to be tough for a while, but I'm really confident that the majority of SMEs who are well established will have adapted their business to survive and thrive.
Mia Wallace: Fantastic. Nice to hear an optimistic approach there, David. And how about yourself, Jonathan?
Jonathan Forster: No, I completely agree. SMEs are very entrepreneurial. They're very fleet of foot. They will adapt, they will change. As David said, some of his clients now moving from traditional retailing to e-tailing and selling products literally all over the world. And sadly, there will be some losers, but the world evolves and changes.
The next few months are, as David said, going to be quite stressful and there's going to be some stresses and strain on certain sectors of the SME industry. But it will survive and it has to survive because from those SMEs, they are the lifeblood of the UK.
Mia Wallace: As you mentioned, there will be stresses and strains for the SME market going forward. And I just wondered for those who are looking to find out a little bit more about the work that Travelers and FSB are doing to work with and for SME clients, what's the best way to get in contact with you?
Jonathan Forster: They can log on on travelers.co.uk, where it's plenty of information available about the products. But they can also put an inquiry in on that website and one of the Travelers team or one of my team will make contact with them.
Mia Wallace: Fantastic. And for you, David?
David Perry: From our point of view, if there are smaller firms who are listening to the podcast who want broader, more general help, support, advice, I'd recommend that they go straight to the Federation of Small Businesses website to have a look at all of the things that can be done there.
For general information around all of the different aspects of insurance that might affect your business, our website which is www.fsv-insurance-service.com provides a lot of blogs and information that's useful.
It never ceases to amaze me how interested people are in things like electrical certification and what the EL, Employer's Liability Tracing Office is. Honestly, you wouldn't believe how many hits those parts of the website get. But for general information, by all means go and have a look there.
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