Michael Clack, Business Development Manager, Renasa, sets out the importance of the SME market.
Tony: The SME market is quite a different market but probably one of the most important markets for the South African economy at the moment. The opportunities are great, not just to start a small business, but also to grow small businesses into bigger ones. Please give us your feel for this part of the market and what your experience has been in the segment.
Michael: This segment is, in my experience, showing massive growth. People have lost jobs because of the economy, the pandemic and various other reasons. People are looking for other options and needing to earn an income. The SME segment of our economy is obviously the fastest growing and the need to insure this segment is increasing dramatically.
Big businesses are also looking to cut costs in a lot of areas and dealing with smaller, more nimble and flexible companies, is really a way to cut back on costs, increased turnaround times in delivering supplies or service for that matter. Certainly, the need to insure this industry, in my experience, is becoming a greater need every day.
Tony: When economic times are tough, people try and save everywhere, so that may lead to neglecting insurance. But in general, what do you see as the reasons why SMEs are slow in the uptake of insurance?
Michael: The biggest factor is that these businesses operate on very small margins, they are volatile to change, and they have limited funding. So, I think a lot of the time the biggest need is education that insurance is a necessity as it is not always front of mind, if you’re running a business on very small margins. When you start a business, you are really just trying to survive, so the risk of not insuring and the damage it can do to your business is overlooked.
The nature of the SME business is that it is flexible, and therefore, a flexible insurance product is required. We can’t be sticking to the traditional way of placing commercial business. So, we need to have that flexibility to match the flexibility of SMEs.
Tony: Are we as an industry, spending enough time promoting this with brokers and encouraging them to get their SME clients insured?
Michael: I think, to be brutally honest, unfortunately, and disappointingly, not. It is not happening the way that I believe it should be happening. The focus is not there. One of the reasons is that the main focus is still on the traditional commercial business. There is a need for education and getting the message out there. But the change in our industry is unfortunately not always embraced. It needs to be a constant focus, which is not happening now.
But I’m quite confident that it will eventually take its place where it should be.
Tony: Our discussion is a general discussion about SME insurance, and one of the challenges for brokers is that the SME segment is so varied, so they won’t necessarily always have the knowledge to provide the specific advice needed. This market needs low premium products that is easy to implement and flexible and I know you’ve positioned your product as a “low advice” product. What do you mean by that?
Michael: Just to give a bit of background, I don’t think there is any real growth in our industry, which can be attributed to the tough economic times and resultant unemployment.
So, a low advice product is what is needed, because it offers that flexibility, in that you have a standard product that offers you the cover that you need for a start-up business. It is not going to get too involved and bogged down with traditional types of covers that are not appropriate for the type of business that these SMEs are entering into.
We have seen it as a big opportunity to grow this market, and to offer a much-needed product. Greater focus needs to be given to this segment without a doubt. And hopefully, we can get our product out there and grow the interest in it. It is a quick turnaround product. Not something that takes a lot of time with quoting and surveying, etc. Those needs are not there anymore.
We need to consider that a lot of these SMEs don’t even own premises and there is not a lot of stock that they need to carry. It is, for example, very much based on IT with a cyber risk portion that needs to be added. So, I think that the industry needs to specifically guard against trying to make an inflexible commercial product to fit the requirements of a very nimble and flexible business segment. This is what our LiquidSure product aims to do, with various cover options, not limited to just one aspect.
Tony: With this type of approach, it would also give brokers a bit more ammunition against the encroaching direct insurers into this market, because they go for the lower advice segment as well.
Michael: Yes, they do. I think the direct insurers haven’t really had the opportunity to capitalise on this type of business. I believe that a lot of businesses still see the value of advice, and intermediated advice needs to be there, not only from the on-take of a new policy but also when it comes to claims. It gives you greater options and choice for the insured out there and it is not a type of insurance that you can put into a box, as it needs to be flexible.
I think, as a broker, if you are looking for growth opportunities, this segment of the market is there for that. We are sitting here focusing on the traditional thing, and I think it’s because, traditionally, the bigger is better and there is more income in it for you. But the fact is that those companies are also going to be looking to branch out into the smaller types. They might have a subsidiary that is a tech-based company, and they need to get into that insurance. So, they don’t simply just bolt it on to a very inflexible product, like a commercial product, which gives you Fire, Business Interruption and so on, it doesn’t really work. We need to start thinking more untraditional as an industry, which we are not really doing, while SMEs are.
They have moved on to simpler, better, faster, so to speak. It is what they are doing. Now service is a big thing and people are used to sitting in the office clicking the button, and poof, there’s your insurance product. We, and our supporting brokers, need to be there as well.
Tony: As the client’s business grows over time, are you able to go into the more complicated products from there then?
Michael: Absolutely, I think that is the ultimate goal. We created this product to grow with the clients’ businesses. I don’t think anybody enters a business or starts a business to not grow the business and open other branches, other avenues, other products.
So yes, there is definitely scope that you could firstly, within that limited advice LiquidSure type product, grow it as the business grows, to eventually move on to the traditional top commercial policy.