The Truth about selling insurance to Small Businesses

Selling anything to small businesses is not easy, but selling insurance to small businesses is a whole other ballgame.

There are harsh truths about this field that need to be said, especially for people looking into this space for the first time, having no idea how selling business insurance works.

Before I start, I am not a licensed insurance agent or broker, but in my past, my startup was heavy in the insurtech space in Singapore and the Philippines. We launched the first online platform in Asia for businesses to get both trade financing and trade credit insurance.

During that time, these were things I realized about selling insurance products to Small and Medium-sized businesses or SMBs. The products in this article are the specialized ones like liability, cyber risk, business impact, etc. These are not really your typical business insurance products. So here we go…

1. SMBs don’t budget for it

SMBs do not budget for insurance, unless they need it to operate (i.e. required by the government). And like any other expense, they will buy it if it gives more benefit than the cost. SMBs tend to prioritize the basic expenses they need to run, and to be honest, “fancy” insurance products are not one of them.

Buying liability, trade credit, cyber risk insurance and other types of business insurance is not top of mind for SMBs at all.

SMBs run on a tight budget and usually tight margins, and to convince them to break that budget to buy insurance is going to be a hard sell, so you need to work hard for it.

2. SMBs that want insurance are usually a Moral Hazard

SMBs that do have the budget and seek insurance are usually those that have had bad experiences and losses already.

You wish you had insurance at the time when you lost a lot of money. So now you’ve been traumatized, you seek insurance for a peace of mind.

But these SMBs are usually considered a moral hazard, and underwriters are wary of them.

3. Tuck the insurance cost under other costs

One way to sell insurance to SMBs successfully is to be a bit sneaky. Tuck the insurance cost in other costs (i.e. funding, delivery, supplies) that they are more willing to spend on.

But again, if the cost is still too expensive, then they might feel the impact and end up negotiating to remove the insurance cost tucked in.

Which gets us to the next section…

4. Make underwriting cost cheaper

Business insurance is generally expensive for SMBs. It is a “nice to have” rather than a “must have”.

The key here is to make underwriting costs cheaper.

I don’t have a detailed, straight-forward solution to this, but what I can say is that insurance companies need to be more creative and they have to face the reality that insurance does not add a lot of value for SMBs.

SMBs need to survive first so they can get to the next level, and they don’t necessarily see insurance as something that will get them there for now.

All this is not to say that it is impossible or that insurance has no value for SMBs. But it’s no cake walk, and a lot of things to consider before jumping into this endeavor.