Leveraging Public Records for Micro-Business Underwriting

Public records bring clarity to risk against the micro-business boom.

Micro-business is booming.
Today, there are more than 33.2¹ million small businesses in the U.S. that drive roughly 44 percent of the economic activity across the country².

In fact, 543,000 new ventures launch each month², and since 2020, we have seen an explosion in ‘micro-businesses.’ These startups have fewer than nine employees, and today, 80 percent of businesses are operated by the sole owner and without employees¹.

With the number of micro-businesses growing rapidly, there is an opportunity for commercial carriers to better capitalize on this market segment by providing coverage that is tailored to the needs of these businesses; however there is also risk.

Micro-businesses are a potentially lucrative market for commercial insurers.
One of the key challenges in writing micro-business policies is potential gaps in available data that’s critical to risk segmentation and underwriting. Often, these micro-businesses are too new or too small to have established firm-level performance data as they may have launched last month, last week or yesterday. Even an LLC filing with a secretary of state may not offer enough information for commercial insurers to confidently understand the risks involved.

Winning insurers will leverage the right predictive data to inform decisions and fuel predictive models, which will result in the effective and profitable underwriting of these ventures. The question is, which ratable criteria and analytics should commercial insurers use to underwrite the micro-business market? 

Public records are an insight-rich data source.
Public records represent a rich data source that can help commercial insurers get a more complete picture of a new micro-business.

Public records data on the micro-business owner, such as personal property ownership, identity verification, prior business affiliations and even driving history are useful data elements that can accurately inform key business decisions. 

Consider the following from a LexisNexis Risk Solutions internal data analysis from 2023³.

    • 124 million U.S. consumers have high address stability.
    • 100 million U.S. consumers have homeownership indicators.
    • 20 million U.S. consumers have associations with one or more active businesses.
    • 5 million U.S. consumers have one or more records of bankruptcies.

In fact, there’s an abundance of data available to commercial carriers to help them segment micro-business risk through predictive modeling. Our experience indicates a significant increase in match/hit-rates (carriers could see +90 percent) when combining business owner public records data with business owner policy data4. We have also found a strong statistical correlation between business-owner public record attributes and micro-business loss ratios. 

Carriers can use public records within the digital transformation. 
And what better time to leverage largely untapped data sources like these than during the digital transformation?

In a 2022 report by Strategy Meets Action (SMA), 89 percent of small commercial carriers are planning or applying automated workflow technologies to their small business operations⁵. This is a tremendous opportunity for carriers to begin leveraging attributes from public records data to assist in optimizing and accelerating workflow and customer experience enhancements.

“We’re in an extremely exciting time within the commercial insurance space, and big change is on the horizon,” said Deb Smallwood, senior partner of SMA, a ReSource Pro company. “As more carriers are transforming their operations, they’re looking to data and automation to drive this change.”

Bringing it all together.
As we see it, there’s an exciting opportunity to participate in the growth associated with micro-business formation. Small businesses drive change, create jobs and are essential to the economic health of our economy. Insurers play an important role in enabling this activity to flourish.

However, the business models we use to serve them must be intentional. The size of these risks means lower average premiums, so automation and the effective use of data and technology to facilitate speed and ease of processing for producers and underwriters is essential. And the size and maturity (length of time in business) of these accounts also has implications for how to best identify and assess the risks that we’re insuring.

Public records data can be used to the advantage of both process automation and risk segmentation. And, for those reasons, they’re worthy of consideration for insurers seeking to help micro-business formation thrive and prosper.

1. Main, K., Bottoroff, C. (2022, Dec 7). Small Business Statistics of 2023. Forbes Advisor. Small Business Statistics Of 2023 – Forbes Advisor
2. 2023, Jan 30. Small Business Statistics. The Zebra. Small Business Statistics in 2023 | The Zebra
3. LexisNexis Risk Solutions Internal Data Study, February 2023
4. Data sourced from LexisNexis Risk Solutions Business Owner Models
5. Smallwood, D. (2022, Dec 11). Automation Accelerates in Underwriting. Insurance Thought Leadership.
   Automation Accelerates in Underwriting | Insurance Thought Leadership