Technological developments are increasingly enabling large re/insurance companies to overcome challenges that had previously prevented them from making more inroads into the small commercial market (SME) space, according to Goldman Sachs.
Analysts noted that the SME insurance marketplace is seen as an attractive segment for larger companies due to its more stable loss trends and pricing, as well as stronger premium growth profile.
However, previous attempts to tap this under-penetrated market have often run into the hurdles of high acquisition costs and the need to form distribution and underwriting capabilities that can handle large volumes of small premium policies.
But with new advances in tech allowing insurers to utilise digital distribution channels and machine learning based underwriting, many insurers are starting to believe that these hurdles can be overcome.
Goldman Sachs estimates that the US small commercial market represents roughly $90-120 billion in direct premium written as of year-end 2018, equating to about 34% of the $312 billion broader commercial lines insurance industry.
The US SME market is also more fragmented and less concentrated than broader commercial lines, with no carrier commanding more than 4% market share.
Analysts see an opportunity for above average growth in US SME premiums due to the 40% of US small businesses that are uninsured and the 75% of all US businesses that are under-insured by at least 40%.
Goldman Sachs also pointed to industry surveys that consistently show the challenges business owners face in navigating the SME insurance landscape, with many owners having trouble getting policies that are tailored to their needs.
By utilising more targeted digital marketing, insurers may be able to capitalise on changing customer preference, and help decrease the uninsured/underinsured population.
Given the expectation of above average premium growth and margins, Goldman Sachs expects to see new entrants from both large traditional insurers and insurtech companies.
But this increasingly competitive environment has further fragmented the industry in recent periods and is likely to continue to do so unless companies can distinguish significant competitive advantages, analysts warned.
