McKinsey shows how insurers can rethink SME segment

By Zainab Iwayemi

• COVID-19‭ ‬gives different perception to SMEs
• SMEs questioning relevance of some products
• SMEs learnt not covered during pandemic
• Study points to innovative product offerings

Small and medium scale enterprises (SMEs) play a major role in shaping the economies of developed nations as they contribute to employment, economic and export growth. In fact, it is estimated that the largest segment in the United Kingdom is small and

medium-sized enterprises (SMEs), which account for more than 99 per cent of all companies and 77 per cent of the workforce. What’s even more interesting is the fact that insurance premiums written for SMEs surpass those of large corporations, and represent more than 60 per cent of the gross premiums written for commercial property and casualty lines.

A recent study by McKinsey, a global strategy and management consulting company, reveals that Covid-19 outbreak has given a different perception to many SME businesses thus, enabling small business operators understand the various products they are prioritizing and how they prefer to engage with insurance carriers. In the report, SMEs learned they were not covered on certain areas during the pandemic and this has led SMEs to question the relevance of some products, which in particular, are business interruption policies. This has provided insurers with an opportunity to capture more of the SME market by focusing on thriving segments, developing new products, and rethinking customer journeys.

The recent wave of the Covid-19 has clearly taken a toll on the small business sector, most especially affecting the small and medium scale, the report by McKinsey reveals, and it notes that since March this year, 71 per cent of SMEs have experienced declining revenues, with 30 per cent reporting a massive reduction in sales. The effect was even more on the side of sole traders and micro SMEs’ profits, which fell by 34 and 33 per cents, respectively, compared with 23 per cent for medium SMEs.

In one way or the other, all industries had a taste of the bitter experience brought about by the pandemic but some were more severely hit than others. Despite the big blow suffered in the hands of the global health crisis, over 45 per cent of sole traders and micro SMEs believe that they will be able to endure another year of the pandemic, compared with around 35 per cent in their larger SME counterparts.

The pandemic and Nigerian atmosphere for MSMEs

Since Nigeria recorded her index case of the virus in February 2020, the country has had to pass through rough paths – from having to endure the seemingly never-ending lockdown due to the pandemic, to being constrained to buy commodities at increased prices, coupled with looting resulting from the hijacked peaceful protest. In fact, a report by FATE foundation opined that three out of ten Micro, Small and Medium-sized enterprises might not scale through the pandemic. This shows how the segment has been negatively affected.

On the other hand, the McKinsey study on rethinking the SME segment by insurers unveiled how the digital space has increased convenience and efficiency across the insurance value chain. However, the importance of digital interactions spanned all SME segments with more than 20 per cent of micro, small, and medium SMEs indicating that they intend to use digital interactions more in the future as there is still room for the adoption of digital channels, the study stated.

Readjusting insurance business model to win the SME market

Meanwhile, for insurers to rethink the SME segment, the report highlighted a few lessons from the United Kingdom as take-homes in a bid to increase domination of the SME territory as well as spurring growth and development in the space through interactions between the parties involved – MSMEs and the insurance company.

• The need for flexibility in financial plans and product coverage that can help businesses cut costs and conserve cash with an eye toward riding out of the pandemic;

• Creating trust and transparent environment resulting from financial challenges that have emerged during the pandemic; and

• Rendering a user-friendly experience to the micro and small businesses who seek retail-like experience with simple, intuitive interfaces, journeys and language.

From the foregoing, the current environment gives insurance companies in Nigeria the incentive to refresh their legacy business as well as providing new players with a timely chance to enter and disrupt the market. However, insurance companies, noted the research paper, are therefore implored to observe certain adjustment as a means to winning the SME market share.

It is recommended that the insurers focus on the identification of markets that will account for the new wave of growth and then also develop the products and capabilities to these markets that can help the SME segment thrive.

Also, since many SMEs are unchartered territory, there is a need to invent a new and innovative product that can cover emerging risks in the aftermath of the pandemic in new ways. As a result of the pandemic, the needs of SMEs have changed so dramatically, hence, insurers should collectively design products that directly address this new reality in a reflection of the evolving nature of the workforce, which aims to provide “big company” benefits to sole traders and gig workers.

Insurers can seek to adopt new technology in harnessing data to rethink the improvement offerings to customers. Basically, many SMEs don’t have staffs that are designated to manage insurance and benefits, hence, insurers that create a user-friendly experience and gain advantage. This could be achieved by making the overall journey and its specific interactions simple and intuitive – start with communicating the products value transparently.

Conclusively, an upshot from the foregoing is that basically, insurers have the chance to renew and refresh their business models to include the SMEs in their plans. However, the existing ones can remodel their operating strategy to be more user-centric, direct and agile while the new entrants can capture the market through the attacker strategy.

Nevertheless, regardless of which alleyway insurers take, the current gap in the market presents a valuable opportunity to be capitalised upon. First movers will have an enviable advantage in winning over this valuable segment of businesses globally.