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Navigating Economic Headwinds: The Strategic Move for Insurers to Add Commercial Business

Changing economic conditions creates new facts. Consumers are spending less. Insurance cover cancellations are rising.

Insurers confront a crucial decision – stay within familiar territories, compete over a shrinking pool of premiums, or venture into new domains. This article serves as a practical primer, showing insurance company decision-makers the terrain they would navigate if they considered expanding into InsurTech.

We’ll examine the factors underpinning businesses’ commitment to insurance, even during economic turbulence. We’ll also dive into some recent insights and data that show where the smart money is going and what it tells up about what industry insiders think the advantage of a strategic shift toward a B2B model might be.

Our focus sharpens on Managing General Agents (MGAs) – specialists in insurance precision. We explore the practical benefits for insurers considering carrier-owned MGAs, outlining a future where specialized knowledge combines with agility to turn commercial insurance from a challenge into a strategic opportunity.

The goal isn’t simply more premiums collected. It’s a forward-looking assessment of resilience, growth, and strategic planning designed for insurers considering expanding into commercial insurance.

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The Current Economic Scenario: Navigating Business Realities

Economic news often isn’t the thing that is front and center of popular culture or our news updates. If it is, it’s usually a sign of tough times. That’s been the story of 2022 and 2023. Inflation has squeezed the consumer. Higher prices across the board have meant less cash left over after essential bills are paid.

As the Wall Street Journal explains, a typical early coping strategy is ‘trading down,’ where consumers swap higher-priced options for everything from insurance to pantry staples for budget alternatives. However, this strategy eventually runs out of road as cash reserves are depleted. That’s when ‘trading out’ happens.

This is when consumers tap out and stop buying certain goods and services. That might mean that they forgo the family holiday for that year. Or it might mean skipping visits to the dentist or not renewing their insurance. That is a problem for insurers, but the data reveals a pocket of resilience.

Recent studies and expert insights illuminate a discernible trend. Unlike individual consumers, businesses exhibit a remarkable resilience in their commitment to insurance, even amidst economic headwinds. Recent deep dives into this phenomenon explore the robust nature of B2B models, contrasting them with the challenges faced by B2C counterparts in the current economic climate.

As inflationary pressures cast a shadow over financial decisions, the impact on insurance purchase choices manifests differently in the B2B and B2C segments. Compelled by the tightening grip of economic strains, families might prioritize essential expenses over insurance. As the TechCrunch article succinctly puts it, for families, if the choice is “either food or insurance,” it’s a straightforward decision.

The B2B InsurTech Difference

However, a distinctive narrative emerges on the business side of the economy. Even in an environment of cost-cutting measures and layoffs, there remains a clear recognition of the importance of mitigating risks that, if unmanaged, could threaten a company’s survival. This is the role of B2B InsurTech.

This divergence in response underscores a crucial insight: the commercial sector maintains a resilient demand for insurance. This should make it a strategic focal point for insurers looking to weather economic storms like the one buffeting us today and thrive amidst them.

That’s the ‘why’. Now for the ‘how.’

In the subsequent sections, we’ll delve into the strategic advantages and considerations that insurers should weigh as they contemplate the pivotal move of expanding into commercial business. Brace yourself for exploring a realm where strategic foresight meets economic resilience.

The Advantage of B2B InsurTech: Tapping into Growth Potential

We shouldn’t assume that investors monopolize business knowledge and insight. They don’t. However, the flow of funds by people incentivized to deeply understand an industry and only allocate capital to the most likely to earn a substantial rate of return is a valuable signal to watch for.

So, what is occurring in the world of insurance startups? Specifically, InsurTech startups.

In this landscape, a noticeable bifurcation is happening. Those startups and service providers homed in on B2B applications and business models are receiving more favorable attention when compared to their B2C counterparts.

This is likely because investors perceive a compelling ‘whitespace’ or unexplored part of the InsurTech sector that Metromile and Lemonade do not address. An unaddressed need is a good indicator of potential for untapped growth potential.

Florian Graillot, the founding partner at Astorya.VC, draws attention to this strategic transition, emphasizing the opportunities inherent in B2B InsurTech. The investment landscape was once tilted towards B2C ventures. Startups in this space raised tens of millions of dollars and had the luxury of choosing which investor money to take because demand for a small allocation of their shares was higher than what they were willing to sell.

This has changed. The sector is now recalibrating its focus, recognizing the untapped potential for innovation and growth in the B2B domain. David Wechsler, OMERS Ventures’ principal and a significant capital allocator to early-stage startups, supports this view.

Part of making smart business decisions is taking insight from other areas to help you make better choices about where to allocate your precious human and financial resources. B2B InsurTech seems to be a strong option for insurers making those choices for 2024 and beyond.

The Strategic Move: Unlocking Growth with Carrier-Owned MGAs

Gaining leverage and speed from partnering with a Managing General Agent (MGA) is the play. But what does it mean? This strategic move emerges as a potent entry point for insurers eyeing commercial business.

The advantage is clear: an existing insurance business doesn’t have to invest significant resources in ‘startup’ operations and building this new business line from the ground up. It’s a little like what Amazon Web Services offers businesses – the ability to tap into existing infrastructure to benefit your business. This approach is a calculated leap that gives insurers a nuanced strategy to write commercial business while concurrently honing their expertise in less familiar lines.

Understanding Managing General Agents (MGAs): Navigating B2B InsurTech Specialization with Expertise

MGAs play a pivotal role in the commercial insurance ecosystem, acting as specialized intermediaries that bridge the gap between insurance carriers and the intricacies of specific markets. Imagine them as expert navigators, charting courses through specialized domains with a precision that goes beyond the scope of traditional insurance practices. Some quick explainers:

What is an MGA?

At its core, an MGA is an entity that possesses underwriting authority from insurance carriers. This authority empowers MGAs to manage and underwrite policies on behalf of carriers specializing in niche markets or unique lines of business.

The Expertise Advantage

One of the defining characteristics of MGAs is their specialized knowledge. Unlike traditional insurers, MGAs are not bound by the need to cover a broad spectrum of risks. Instead, they dive deep into specific areas, allowing them to develop domain expertise. This expertise enables MGAs to underwrite risks with precision and insight that generalists might find challenging.

Agility and Market Responsiveness

What sets MGAs apart is their agility. Operating with a focused portfolio enables them to respond swiftly to market shifts, emerging risks, and changing client needs. This flexibility is a distinct advantage, especially in fast-paced industries where adaptability is critical.

The MGA B2B InsurTech Relationship

MGAs often form a symbiotic relationship with insurance carriers. While carriers benefit from the specialized knowledge and market responsiveness of MGAs, MGAs gain underwriting authority and access to the carrier’s infrastructure. This partnership allows for a dynamic exchange of resources and capabilities.

The benefit to insurers is that they gain a strategic foothold in the commercial sector while tapping into the specialized knowledge and agility that MGAs bring to the table. This partnership offers insurers a twin advantage: the ability to diversify their portfolio and the flexibility to respond swiftly to evolving market needs and emerging risks.

Consider this move not just as a strategic pivot but as a deliberate alignment with the growth areas of the market. It’s an acknowledgement that the future of InsurTech is diverse and comprises many more niches that have sprung up alongside the increased complexity and dynamism of the global economy.

Conclusion

Economic uncertainties and cost pressures are a reality. The consumer is being squeezed. More and more are trading down or choosing not to renew their insurance. The same dynamic is not present in B2B insurance.

Increased business complexity, cross-border trade, remote employees, and new risks like cyber security and climate risk all raise the stakes of operating a business in today’s world. Unmanaged risks can cost significant amounts of money. Unmitigated, those costs can threaten the future survival of a firm. That makes B2B insurance an attractive playing field in which to compete.

The strategic move for insurers to embrace B2B target markets and commercial business reveals itself as more than a response; it’s an intelligent resource allocation decision for the future. Businesses recognize the indispensable nature of insurance. And today, more niche areas of insurance need to be served.

Investors and experts acknowledge the shift towards B2B as offering opportunities for innovation and sustainable growth. Leveraging carrier-owned MGAs may be a strategic cornerstone in this journey.

These expert navigators bring specialized knowledge to the table and embody agility, enabling insurers to respond dynamically to market needs. The symbiotic relationship between carriers and MGAs propels insurers into a realm where expertise meets flexibility, transforming challenges into strategic advantages.

There will likely be a group of insurers who power ahead of more flat-footed rivals who continue executing the ‘standard playbook’ to capture premiums in a shrinking B2B InsurTech market. They will be the ones who:

  • blend data and an understanding of the critical strengths of their people and organization,
  • choose the correct B2B fields to enter, and,
  • who couple that with a focus on delivering B2B end users’ high-quality service.

Opportunities abound for brave, diligent teams who research and understand the markets they should serve.

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