A Lot of Room to Grow

SEM International exemplifies today’s modern small business. Although its headquarters is in Irvine, California, the marketing agency serves the search engine optimization needs of American advertising agencies at more than two dozen international regional offices.

Setting up these facilities in South Korea, China, Russia, Brazil and other faraway regions took time, patience and diligence. Yet these efforts paled in comparison to the uphill climb the agency endured buying business insurance. As Michael Bonfils, SEM International’s founder and managing director, quickly learned, small, complex businesses are second-class citizens to many large insurers.

“Once the insurance company learns you’re small, they quickly drop the ‘BFF’ lingo,” Bonfils says. “Then, they send you a novel of confusing legal paperwork to fill out, only to come back with a premium as high as the salary of your entire staff combined.”

Not only did Bonfils find the experience “insulting and a waste of time,” he decided to forego commercial insurance in the early years of SEM International and take on most risks internally. “It was just too much trouble at a time when we were growing fast,” he says. “Just too many hoops to jump through.”

SEM International is not alone in small global companies feeding at the insurance trough for the first time and coming away with a bad taste. While many traditional Main Street businesses such as lumberyards and law firms enjoy longstanding relationships with independent insurance agencies, new companies leveraging technology tools to provide unique services don’t easily fit into the customary underwriting box. Like SEM International, they are having trouble finding affordable insurance.

Small businesses have always been the economic engine of the nation, but the difference today is the hundreds of different types of small companies. The new economy brims with at-home businesses, single-person consulting firms, independent contractors, and other novel ventures like food trucks and the start-ups participating in today’s sharing economy, each with a different risk profile and insurance needs. These differences cause significant carrier processing headaches for relatively low-margin business.

“Insurers and agents often struggle to find the right balance between carrier profitability and a process that is acceptable to customers,” says Greg Morris, senior vice president at San Francisco-based broker Woodruff-Sawyer & Co. “Consequently, these small and micro businesses often feel underserved, which results in a sour experience.”

Business Is Business

Customers today have sophisticated expectations of service. They’re accustomed to rapidly and effortlessly acquiring information online to buy products and services with a few keystrokes or at the touch of a button.

While several insurers are responding to these needs by upgrading their carrier service centers, others are either sitting with the status quo or focusing their technology expenditures elsewhere. Recognizing this malaise, Morris formed BizInsure three years ago as an online portal to buy business insurance directly from one of four participating insurance carriers, each providing a range of coverage terms, conditions and a price quote. Bizinsure is a partnership between Woodruff-Sawyer, Australian brokerage BizCover, and an unnamed third-party investor. The company’s novel data-driven technology streamlines the insurance application process to purchase three types of business insurance—errors and omissions liability insurance, general liability and a business owners policy.

It’s a revolutionary concept whose time has long been due.

“Insurance is among the largest and most established industries in the U.S. but is still in its infancy as far as technological advancement,” says Morris, who until recently was BizInsure’s CEO (he’s now at work building another new company involving the same three partners). “Small businesses were having difficulties getting affordable insurance from insurance carriers, which were having their own problems administering these policies in an efficient, profitable way. We realized a streamlined technology platform was the solution.”

Morris is not alone in taking the bull by the horns. John Prichard developed SelectSolutions Insurance Services to achieve many of the same goals as BizInsure, albeit with a different model. “We’re extremely familiar with the small-business dilemma on the carrier side and the business owner side,” Prichard says. “Small-business owners want to go online to look for insurance and get a feel for the costs. Then they want to talk with a trusted advisor before buying the insurance online.”

The problem, he says, is that many brokers with access to a broad spectrum of insurance markets to assist the small-business owner don’t want to spend valuable time dealing with them. SelectSolutions was developed to bridge this impasse. Retail brokers that are the firm’s strategic partners essentially outsource the consultative part of the equation to SelectSolutions. “We provide a way for the small-business customer to go to a broker’s website, click on our microsite, and then ask for a quote,” Prichard explains. “They go through the online application process to get a real-time quote from the broker, and at that point we offer to help them address any questions they may have. Our fulfillment specialists then talk them through their needs.”

Since launching in 2013, the firm, based in Walnut Creek, California, is binding more than 200 policies a month, accounting for an expected $70 million in premiums in 2015.

Simple Solutions

Contrast both solutions’ ease of purchasing and high level of customer satisfaction with Bonfils’ grueling commercial insurance buying experience. “Starting a small company has never been easier,” Morris says. “Someone has a business concept, they get a small-business loan, incorporate, and set up a website that includes payments. They have a digital advertising and email marketing budget. They run the business using leased accounting and HR software in the cloud. It’s all so efficient and affordable and transparent—everything but the insurance.”

Small wonder that in the three years since it launched, BizInsure has grown nearly 100% annually. While neither Morris nor new CEO Daniel Scott will divulge the number of current customers, policies bound or annual premium volume, Scott nonetheless makes a bold prediction. “Within three to five years,” he says, “we want to have 250,000 customers.”

Asked how this will happen, he responds that BizInsure is an early mover in a space that desperately needs reinvigoration. Not that the company is alone in this emerging infrastructure. “We’ve got competitors like Insureon and Bolt, but their products are slightly different, as is their approach,” Scott says. “Still, this is a $70 billion market, of which the three of us are writing probably less than $1 billion at present. There’s a lot of room to grow.”

BizInsure began by offering a single line of insurance—E&O. The reason, Morris explains, is E&O and related professional liability lines produce low loss ratios, due to low claims frequency. He and his investor partners also wanted to prove the value of their concept before moving into more mainstream business insurance products.

This concept is not new. It derives from BizCover, the Australian broker partner, which had developed the transactional platform—for example, a single user input receiving a multiple carrier output.

“They’d been operating for about three or four years and having good success in the Australian market,” Morris says. “So we coupled up, I quit my day job, and then took to the road negotiating with insurance companies to create E&O rating structures that would be conducive to our business model.”

What he means is an arrangement whereby carriers would reduce their rates in return for vastly simpler administrative processing and hoped-for higher volume business. “I said we will take care of everything, leveraging our technology to handle the underwriting and the policy issuance,” Morris says. “All they would have to do is handle the compliance and audits and pay the claims.”

It was a “wild idea,” he concedes but one that fell on open ears. “They were a little concerned about losing underwriting control, but I told them that was a good thing—that the future was small businesses buying online and direct,” he adds. “My parting comment was, ‘You don’t want to be the Kodak of insurance companies.’”

Four carriers signed on—Liberty International Underwriting, Hiscox Insurance Company, Philadelphia Insurance Companies and CNA Financial. All four remain with BizInsure today, competing for E&O business based on their specific market objectives. “Multiple quotes were important to the model, although some carriers don’t like to be compared,” Morris says. “Nevertheless, they could see the merits of extending their brands online.”

They could also see compelling administrative expense reductions, since BizInsure would handle the customer transaction processing through its automation technology. The company initially relied on the four carriers’ data for underwriting purposes. But, after three years in business, it has amassed its own internal and external data to sharpen its underwriting.

How It Works

Initially, customers found BizInsure through digital searches and by clicking on the company’s paid online advertisements. It was a good start, but not a very profitable one. “Paid advertising drives a lot of traffic, but the economics can be challenging,” Morris says.

Today, the company generates 70% of its new customers through channel marketing, via partnerships with trade associations, affinity groups and even automobile insurers like Geico and Progressive. “They’ll bid on keywords for business insurance even though they don’t write it, then send us this traffic,” Morris explains. “We pay them on a scale.” 

Once a potential customer arrives at the website, he or she completes a short application involving a handful of questions. Depending on the answers, other questions may arise. The entire process takes just minutes, if that. Once the application is submitted, the product offerings are provided. The applicant can compare coverage terms, conditions and pricing from the participating carriers, and click on the one to purchase. Seconds later, the policy arrives via email.

For Bonfils at SEM International, this frictionless experience was a far cry from his previous searches for coverage. “It was simple, straightforward paperwork, with a premium that was fair to the size of my business and what I could afford,” he says. SEM International is no longer self-insured.

At any time during the application process, the interested party can request a live conversation with a licensed salesperson at BizInsure’s call center. “What was an extremely complex process is now handled by technology that characterizes them into the right class codes by profession,” Morris says. “If they want the human touch, that too is there for them.”

He adds, “This is all about creating an elegance for the customer, a seamless interaction where they don’t have to think too hard about how to input information and be classified.”

Scott echoes this. “We’ve done a lot of work matching the question sets to the product market, extracting as much underwriting information as possible without making it overly complex or asking an excessive number of questions,” he says. “What we’re doing couldn’t have been done 10 years ago. You need heavy data analytics to underwrite properly. That’s where our technology is really unique.”

More to Follow

The E&O concept proved a winner, guiding BizInsure to add general liability insurance and a BOP to its product lineup in 2013. “Many of our E&O customers also needed GL or BOP policies,” says Morris. “That was the early market. We’ve since rolled out both policies to a much wider audience, as not all small companies need E&O insurance. Today, the bulk of business is GL and BOP.”

Four carriers support the general liability product—Hiscox, CNA, W.R. Berkley, and USLI. As for the BOP product, only one carrier, CNA, supports it. Doesn’t this rub up against the company’s pledge of providing multiple quotes? “Well, most of what we do is when someone chooses the GL, we share the BOP as a stand-alone GL on steroids,” Morris says.

“We are working on broadening our BOP product offering.” Scott says. “The details of that strategy have not been finalized yet.”

Even without multiple BOP quotes for the time being, Morris anticipates BizInsure gradually will take market share away from independent agents, although he acknowledges this will take some time. He says it’s possible retail agents will establish similar online and direct transacting models, particularly as the ranks of agencies slim through consolidation.

For now, the focus is not on traditional Main Street businesses, but on start-ups and other new-economy businesses.

“The crazy lion’s share of our customers is first-time buyers, which will likely be the case for awhile,” Morris says. “Nevertheless, we see massive potential ahead.”