Regardless of size, shape, location, or industry, all businesses have one thing in common: they need insurance. From employee mishaps to cybercrime to lawsuits, running a business carries a lot of risk, and insurance is a vital tool in preventing potentially ruinous financial loss.
While all businesses need insurance protection, there’s no single product that will work for every company. Even within the same industry, SMBs and large enterprises will likely need different insurance products to best meet their needs. For businesses that offer B2B insurance, this means that serving both enterprise and SMB customers will most likely require offering multiple products of the same type.
In this blog, we’ll discuss how insurance needs differ between enterprise and SMB companies, and why SMBs need insurance products designed specifically for them.
Coverage Needs
A large corporation faces very different risks than an SMB, across nearly all risk categories. This can make it difficult for a single insurance product to effectively protect both an enterprise and an SMB.
For an example, let’s look at two hypothetical companies, and their risk factors. One is a fully-remote software startup with 20 employees, the other is an established SaaS provider with 3000 employees split across six office locations (including two offices outside the U.S.).
Both companies share some of the same general risks. For instance, both could be targeted by cyberattacks, or by lawsuits alleging mismanagement by their leadership teams. However, the specifics of those risks can vary quite a bit.
The startup likely has a much smaller leadership team than the enterprise, with a much narrower focus. It has no physical offices, and likely relies on cloud providers rather than owning its own servers. With a relatively small footprint, its cyberattack risk is more likely to come from general phishing attempts than specific targeting by determined, well-resourced attackers.
The enterprise, on the other hand, likely has a large and multi-layered executive team, across multiple countries with different financial and employment laws. Its IT infrastructure will be significantly more complex than the startup, and its position as a well-known business software provider is more likely to attract unwanted attention from cybercriminals hoping for a big payday.
While both the startup and the enterprise will need cyber insurance and management liability insurance, it would be difficult for the same products to work well for both companies. A product that fit the needs of the enterprise would require the startup to pay for extra coverage it doesn’t need, while a product that fit the needs of the startup would leave the enterprise dangerously underprotected.
Risk Assessment
The differing risks between SMBs and enterprise affect more than the kinds of coverage they need: it can also affect how much they need to pay for it.
The underwriting guidelines for traditional business insurance products usually consider factors like how long a company has been in business, how many employees they have, and their revenue numbers to determine the pricing for a policy (or whether they will offer a policy at all). While these are reasonable factors to use for assessing an enterprise business, they can cause problems for SMBs.
Going back to our example: these traditional metrics of how many employees, how much revenue, etc. can paint a good picture of the risk of providing insurance coverage to our enterprise SaaS company. The hypothetical business is large, very profitable, and is a mature player in its space. With a significant track record to consult, an underwriter could reasonably determine which policy rate accurately reflects the risks of providing the enterprise with insurance.
For SMBs on the other hand, these metrics can be very challenging. Our example startup has only 20 employees and just two years in business. As a venture-backed company focused on building its product offering, the startup also has almost no revenue. While these are very common conditions for startup businesses, they would be alarming at a large enterprise - and so the traditional underwriting guidelines view them as red flags. The startup may be a well-run, reasonably stable business, but if it attempts to buy traditional business insurance it will likely be quoted a very high rate - or refused coverage altogether.
For the startup to get fairly-priced business insurance coverage, its risk needs to be assessed by guidelines designed specifically for SMBs and startup companies. SMB-specific insurance products will evaluate risk based on the business realities for smaller companies, and come to a more accurate decision about how much risk a small company actually represents to the insurer’s portfolio.
Cost
The third big difference between insurance protection for enterprises and SMBs? How much they can afford to pay for it.
For most SMBs, the reality is that they simply do not have the budgetary resources of a large enterprise company. If an insurance product is too expensive, then it doesn’t matter how crucial it is for protecting the business. The SMB can’t afford to buy it.
This is related to the coverage issue - after all, the more coverage an insurance policy includes, the more it will cost the buyer. The extensive coverages included in enterprise-oriented business insurance, while valuable for their intended buyer, also drive up the cost of those insurance products. For SMBs, this means unnecessary insurance protection can actually be a negative, in that it makes it harder to afford insurance at all.
Insurance products designed for SMBs take these budgetary concerns into account, and are built around how to provide cost-effective protection. Sometimes this involves SMB-centric risk assessments like we discussed above, which enable insurers to offer lower prices through a clearer understanding of the SMB’s risk. Other times this may mean prioritizing protections that would be most valuable to SMB customers, and removing coverages that aren’t as important.
While business insurance is critical for both enterprises and SMBs, the two company categories are different enough that one product rarely fits all. Insurtechs that want to serve a range of business sizes should consider offering separate enterprise and SMB products for insurance types like cyber or management liability, to ensure their customers can get the best protection for their money.
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