Authors: Joseph Lam and Jessica Dias
The economic disruption caused by COVID-19 has left millions of people unemployed—at what many say is the highest rate since the Great Depression. In considering the future, those who've lost their jobs may think about starting a home-based business as the crisis eases or perhaps working more independently. This could create an expansion of the micro-business market—businesses with few or no employees that often operate out of homes or shared spaces.
Agents and insurers are already eager to tap into this space because it's rife with potential profit and attractive for many reasons. There are often no sites to visit and inspect; and many micro-businessowners prefer online service, letting agents pass-through sales to insurers quickly. Owners may have insurance needs they're unaware of, providing agents with the potential to cross-sell coverages as the business grows. They can start with a businessowners package and expand into auto and life. Once trust is established, agents can help contribute to the business's growth with tailored insurance solutions to ensure that insurance needs keep up with business expansion. This has been a proven way for agents to develop relationships and increase sales.
All of this adds to the potential of the micro-business market. But because the segment is unique, traditional coverages and approaches often don't work. Agents and insurers need to develop a deeper understanding of the market and find new ways to properly penetrate it—today and especially as it grows in the future.
Market overview: The expanding micro-business universe
Micro-businesses dominate the small business space in the sheer number of their operations:
- 80% of all U.S. businesses have no employees.1
- 69% of entrepreneurs start their business in their home.2
- About 50% of all firms are home-based.3
As more entrepreneurs eschew traditional jobs to work in micro-businesses, they're providing a widening variety of popular services that generally fall into three models:
Home-based businesses: These operations are primarily conducted out of the home but can take place at other locations, like a home baker selling products in a farmers' market.
Shared-space businesses: These are businesses that rotate to share space and include pop-up vendors, mobile shops, automated vending, and offices with coworking members.
Gig economy workers: The gig economy generally refers to workers who hold temporary positions, organizations that contract with independent workers for short-term engagements, and other part-time models.
All these segments are expanding rapidly, as indicated by research:
- Through shared kitchens, the food delivery market could grow from $35 billion to $365 billion by 2030.4
- According to a 2017 Cake & Arrow analysis,5 in 2014, 34 percent of the U.S. labor force—54 million to 68 million people—was composed of independent workers in the gig economy; that is anticipated to increase to 40 percent by 2020.
Not just your typical small commercial market
The factors that make micro-businesses work are what make them different from traditional commercial businesses. Without structure coverages, there are often limited property exposures. One of the challenges in insuring micro-businesses is also the mindset that often comes with an entrepreneur. Home-based businessowners may believe personal insurance policies cover the activity or the cost of coverage is too high. Pricing may be a barrier for insurers trying to enter the market. Also, new micro-businessowners can find insurance policies difficult to comprehend and purchasing insurance overwhelming. Many simply don't understand the need for insurance. All this contributes to a reluctance to seek coverage.
It also creates a vast untapped market for agents and insurers: Verisk research reveals that 43 percent of small businesses with under 100 employees are uninsured.6 Many more are extremely underinsured for the risks they face.
The solution? The right tools
To arm agents and insurers with the proper tools to handle micro-businesses, ISO, a Verisk business, created the Micro-Businessowners Program. Designed for micro-businesses of four employees or fewer, it offers basic coverages without the extras that traditional brick-and-mortar businesses may need. This keeps costs low, provides property and liability coverage subject to the policy that was procured, and considers the unique needs of micro-businesses:
1. Micro-businesses are on the go: Since the potential customer's business is often not tied to a defined location, this product considers the “on the go" aspect and is typically a better fit for coverage over a traditional home business endorsement on a homeowners policy.
2. Preference for low-touch options: The Micro-Businessowners Program is designed to limit the number of questions required during the application, enhancing the buying experience for insureds. The customer simply picks the type of business and decides whether to purchase the tailored upgraded enhancements, both of which provide blanket additional insured status. Additionally, the insured may choose to select the optional errors and omissions coverage.
3. Simple to understand: Because some new micro-businessowners can find insurance provisions difficult to follow, ISO provides an explanatory policy summary for a policyholder's ease of reference to certain highlighted coverages and exclusions within the micro-businessowners' policy.
4. Wide breadth of micro-business models: The Micro-Businessowners Program addresses more than 80 classifications, with many more to follow. Examples include artisan makers, dog walkers, online retailers, coaches, stylists, yoga instructors, coffee roasters, graphic artists, and DJs.
The Micro-Businessowners Program helps agents working with new customers from the all-important incubation period onward, helping build a customer relationship for life—no matter where the business moves. For more information on Verisk's micro-business solution, visit our website.
Article ©2020 Insurance Services Office, Inc. All rights reserved.
1. U.S. Small Business Administration Office of Advocacy, “Frequently Asked Questions About Small Business," August 2018, https://www.sba.gov/sites/default/files/advocacy/Frequently-Asked-Questions-Small-Business-2018.pdf
2. Jana Kasperkevic, “Study: Most U.S. Entrepreneurs Start Their Business at Home," Inc., June 2013, https://www.inc.com/jana-kasperkevic/us-entrepreneurs-keep-businesses-close-to-home.html
3. Ben Gran, “2018 U.S. Home-Based Business Statistics," incfile, April 2018, https://www.incfile.com/blog/post/2018-u-s-home-based-business-statistics/
4. Jonathon Shieber, “The Next Big Restaurant Chain May Not Own Any Kitchens," TechCrunch, October 2018, https://techcrunch.com/2018/10/07/the-next-big-restaurant-chain-may-not-own-any-kitchens/
5. Christina GoldSchmidt and Emily Smith, Insurance in the Age of the Gig Economy, Cake & Arrow white paper, December 2017, http://go.cakeandarrow.com/insurance-in-the-age-of-the-gig-economy
6. Eric Price-Glynn, “Re: MicroBOP article for Visualize," e-mail on ISO MarketStance data, addressed to John Luciano et al., February 12, 2020.
Joseph Lam is director of commercial casualty product development and can be reached at Joseph.Lam@verisk.com
Jessica Dias is a Lead II for ISO Commercial Lines products and can be reached at Jessica.Dias@verisk.com
Link: Micro-business website: https://www.verisk.com/insurance/products/small-commercial-micro-businessowners-program/
Last Updated: May 15, 2020
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