Italian SMEs and the insurance gap with Europe

by Sauro Mostarda, CEO of Lokky

There are 1 million and 653 thousand small and medium-sized Italian businesses under insured; the same SMEs that today make up more than 99% of the country’s socioeconomic fabric. According to the recent study “Next level for insurance – SME segment”, created by CRIF, IIA and Nomisma, almost 40% of Italian SMEs are currently without insurance coverage. We are talking about 1 company in 3. This is not very comforting when compared to the current very uncertain macroeconomic scenario. Although the insurance culture of Italian SMEs has been increasing in recent years, so much so that 32% of Italian SMEs have increased their propensity to purchase policies after the health emergency, the annual expenditure (€14,000) for coverage remains significantly lower than the international average (€22,600) and underestimating this situation could have an impact on the profitability and business continuity of companies.

In parallel with the low perception of risks, the «company size» factor also affects the propensity to take out insurance coverage. The data shows that larger companies (with more than 200 employees) tend to subscribe to policies more frequently than smaller organizations with fewer than 50 people. In fact, more than 14% of SMEs choose not to insure themselves, also for economic reasons. According to a survey of industrial and service companies (INVIND) conducted by Bank of Italy, one of the main reasons for not having insurance is the perception of high premiums compared to the expected damage (56%): for 38% of Italian SMEs, cost is the second most important aspect in choosing the policy.

Accomplice to this situation is theabsence of an insurance culture, lack of exhaustive information on insurance products and lack of trust in companies. 38% of those interviewed say they do not have adequate knowledge of insurance, types of policies and digital tools. And this is certainly a limit, especially given the profound changes that the Italian market has seen in recent years.

The new risks

The unprecedented digital transformation and evolution of consumption patterns has exposed SMEs to new risks, in particular those relating to cybersecurity, such as hacking, phishing and malware.

From January to June 2022, 1,572 attacks, incidents and privacy violations were recorded in Italy, compared to 1,356 total cases last year. This was revealed by the Exprivia Cybersecurity Observatory report on cyber threats. Yet, the phenomenon of underinsurance continues to be particularly intense for cyber risk coverage. The data shows us that only 21% of the sample took out a cyber risk policy in the last 12 months. Other reports show how much SMEs have decreased the budget allocated to cybersecurity and employee training in the area.

THE most widespread insurance coverage instead, they are those for damages due to fire and theft (94%) and for Civil Liability towards third parties and employees (93%). Furthermore, 68% of companies have taken out a policy against natural and climate risks, although this figure is relatively low considering that Italy presents a high environmental risk.

In recent years we have therefore witnessed a changing coverage needs by SMEs, with a consequent evolution of the offer by insurance players – and the way of offering it – but the road is still long. Today small entrepreneurs, professionals and freelancers are covered by the commercial activity of agents and small brokers. For larger businesses, the agents fully carry out their function by supporting the customer with the consultancy necessary to understand the needs and personalize the insurance solutions. However, for smaller businesses this does not happen: for agents, it is not always easy to dedicate time and resources to customizing policies, especially due to time and profitability limits; often the prizes involved are reduced, the potential remuneration of the intermediary is low and therefore it is uneconomical for the agent to allocate the time necessary for consultancy.

In most cases, there is a tendency to fall back on standard solutions that include unnecessary coverage, with a consequent increase in costs for the recipient, thus generating strong discontent among customers who find themselves with products that are not consistent with their specific operational needs, of which they often complain about the lack of transparency and comprehensibility.

Although there are no official data on the size of the insurance market in Italy generated by small businesses, professionals and freelancers, operators in the sector converge towards a value of around 5 billion euros per year. The component currently covered by the digital channel is almost zero, even considering that the market’s offering is truly limited. Furthermore, according to data from the Fintech & Insurtech Observatory of the Polytechnic of Milan in Research “Fintech & Insurtech in microbusinesses” over 30% of customers are ready to embrace the digital channel.

This data highlights the big growth potential of the insurtech segment in our country. One of the strong points of this sector is, undoubtedly, the possibility of offering SMEs a better insurance consultancy service that they would be unlikely to receive in the traditional market for the reasons mentioned previously. Furthermore, the advantages of the totally digital approach are notable: the speed of proposal, the effectiveness, the scalability of the solutions offered, the completely paperless management of the procedures (the estimate, the digital signature of the contract, the replacement storage in the cloud), the transparency and traceability of consents.

Insurtech is the answer to an unmet market need and much more: on the one hand it is working to improve the management and quality of data to identify, even more effectively, the risks of each individual customer in order to offer accessible, sustainable, modular products and, on the other, it is contributing to a real cultural transformation of Italian companies which historically have always had a defensive culture with respect to risk management and are now evolving towards an approach to risk management as a strategic business lever.