Insurance agents and brokers think that their insurance carriers may be out of touch with what the small business segment needs. For one, carriers have been busy coming out with new products and coverage enhancements for small businesses, but agents say that is not what small businesses need right now.

Also, insurance carriers are a bit more optimistic in their assessment of what is happening in the economy than what agents say is occurring for small businesses.

Agents and brokers are witnessing firsthand the struggles of small business clients. Of course, they are also small business owners themselves.

From their perspective, the economy still has a long way to go before small businesses will start growing again, or caring about new insurance products.

"At audit time we are not seeing sales or payroll increase," says Ryan Parry, treasurer of William B. Parry & Son, Ltd., an agency in Langhorn, Pa. "If a business's growth is flat then you are OK. New business and new clients are not really occurring and pricing for existing business is slightly lower than where we want it to be. No one is really setting the world on fire."

Small businesses are apprehensive about where the country is headed, and the recent U.S. debt crisis will definitely have an impact on what they can do going forward.

"They don't want to reinvest in their businesses, they don't want to put money in for growth because they are very unsure about what is going to happen with future of the company because of our debt, tax increases and the value of the dollar," says Jack Bennett, president of Bennett & Porter Insurance Services in Scottsdale, Ariz. "They are not creating more jobs because they are not hiring more people."

Obtaining credit so small businesses can improve or just keep going is also an issue.

"They are going from using a factory line to having to go to straight cash or having to turn to friends and family to keep businesses afloat," says Bennett.

Agents say there does appear to be a slight improvement over what things were two to three years ago, but a full recovery is definitely not happening.

"What we are seeing and what I'm hearing is that one month things are looking up and the next month that's backwards. It's not consistent where the line is on a steady incline. We are not there yet, things are still up and down," says Chester Butler, president of The Butler Co., in Nashville, Tenn.

Carriers appear to be more optimistic about what is happening than the agents and brokers.

"If you go back to 2008, we saw a lot more cancellations and people going out of business. That is trending down. We are not seeing as many cancellations from people going out of business, that is starting to trend favorably," says Carl Hackling, president of Zurich Small Business.

Hackling says that another thing the carrier saw in 2008 and 2009 were audit return premiums and now it is seeing additional premium audits. However, he knows the country isn't out of the woods yet.

"We don't see some of the desperation we saw in 2008, that has definitely slowed down as the economy has improved," he says. "But the other thing to watch out for is what impact the spring storms have on rate levels."

Zurich isn't the only insurer looking on the brighter side.

"We are seeing an uptick in new small businesses around the country," says Greg Dasher, CNA's director of the small business Connect product. "In addition, we are noticing that audits are flattening out. I'm not sure if we are just about to turn it around completely or in a gray area where we are waiting to see."

Fireman's Fund says it is seeing more small business accounts but that may not mean the economy is improving for small business.

"The number of submissions and applications is going up and the number of quotes we are giving out is up," says Bruce Petersen, senior vice president of Fireman Fund's Small Business Division. "[But] some of that is just our focus on small business and the team we have put around small business."

New Small Business Products Hit the Market

Carriers have been introducing new products for small businesses in anticipation of an economic turnaround. In the last six months alone, CNA, Liberty Mutual Agency Corp., Hiscox, C.V. Starr, Fireman's Fund and Zurich have all launched new business owner policy (BOP) features and other products, entered new states, or expanded into niche areas of the small business segment.

Some of these new products and enhancements include:

• CNA added nine endorsements to its insurance products for small business clients in business services, healthcare, manufacturing, professional services, real estate, retail, technology, and wholesale distributors. The endorsements help round out CNA's BOP policies. Coverage is available in 25 states with nine additional states to be available in mid-September and the remaining as they are approved. The company also designed a new green coverage called Eco Care Property Extension for insureds looking to upgrade their property or equipment to green after a loss.
• Fireman's Fund launched a hotel product in California in May that can be for name brand hotels as well as small boutique and bed and breakfasts. It is also currently working on a cyber liability product.
• Liberty Mutual Agency Corp., which consists of eight regional companies around the country, has added 60 classes of business to its Commercial Protector BOP product. The emphasis of the expansion is on wholesale/retail, office and medical offices but there were also six new internet classes introduced to accommodate retailers with on-premises inventories. The companies also now have a limited cyber liability endorsement available at no additional charge to all qualified protector business classes.
• Hiscox expanded its small business offering to professional services businesses with 10 employees or less in New York and Florida. The coverage is aimed at information technology, management consulting, business consulting and marketing firms. The coverage was launched in November, 2010 and is now available in 21 states.
• C.V. Starr's Starr Aviation Agency developed a small business unit within its workers' compensation division. The unit offers coverage through Chubb and works with a team of aviation workers' compensation underwriters. Target accounts include small airports, charter operations, fixed based operators, agricultural operations and industrial aid. Claims management is handled by Gallagher Bassett Services Inc.
• Zurich said it has plans to double its market share in the small business space in the next few years. It recently introduced programs for the restaurant and habitational segments and plans to expand into more small business niches over the next three years.

What Small Businesses Really Need from Insurance Community

Carriers see more opportunity in the small businesses segment and say they will continue to introduce new small business products, particularly ones that deal with technology risks such as cyber liability.

However, agents say new products are not what small business customers need.

"A lot of the bells and whistles [carriers] have added, clients don't really use," says Bennett. "Insurance carriers are doing what they can to provide a wonderful product but they are really pushing us to do cross selling and, frankly, insureds just need help managing their business."

Butler agrees that now is not the time for "flashy" new programs.

"The last thing we need is another insurance product. We have plenty of products for every niche out there," he says. "[Small businesses] don't want to spend the money until they are sure they have the sales to justify it."

Agents say they have become more involved with their small business clients to help them get through the current economic climate.

"[Small businesses] are struggling. We are turning from insurance agents to consultants," says Bennett. "We are working with clients to manage cash flow better, establish policies and procedures, implement technology, and work in the environment they are in right now."

Bennett says carriers that have the experience of running a successful business could be a great asset to struggling small businesses right now.

"[They could] help [insureds] with the experience they have such as seminars once a month addressing things from a big company perspective," he says. "It would be wonderful if insurance companies could pull their weight and come out with proprietary systems for these segments and give a discount to those who use management systems. That would bring added value rather than throwing on more bells and whistles that don't really add any value."

Alan A. Smith, Jr., president and CEO of the Western Insurance Agents Association (WIAA), and Jodi Wimmer, executive vice president of WIAA Insurance Services, the agency arm of the association, agree that new products are not what small business customers currently need.

"Clients are looking at the bottom line, not coverage, or bells and whistles products. It's that bottom line number," says Wimmer.

Smith says carriers are enhancing their products because competition has changed and they have to keep up with their competitors, but he doesn't believe that small businesses are buying those enhancements, or in some cases any coverage at all.

"In normal times, 10 percent of small businesses go uncovered and I bet that has at least doubled," he says. "There is also a significant increase in the underreporting of payrolls. Insureds are doing everything they can to get their workers' comp premium down."

Parry says he hasn't had inquiries from carriers on how they can help agents, but he thinks there are ways they could, such as helping them understand how policies are rated. He has had to spend a lot of time educating clients about what is going on with pricing.

The industry might also help small businesses with networking, according to Parry.

"One thing I personally seem to be doing is spreading the word about what some of my clients do," he says. "I feel like I'm doing a lot more of that because I want all my clients to succeed."

'Agents Are Small Businesses Too'

Smith and Wimmer say that carriers might want to focus on how they can help their agents get through the rough patches.

"Many agents are small business members themselves," says Smith. "They have had to merge with someone else because the economy is affecting clients and their premium volume. Agencies that are growing are at the expense of an agency that has gone out of business."

Wimmer says the WIAA agency writes insurance agents errors and omissions coverage and has seen a huge change in that space during the last few years. "A significant number of agents are having to finance their premium when they used to pay it up front."

Insureds are also shopping around more now than they ever have, says Smith.

"Many agents tell us they have to scrape and claw now for every account. Renewals are not automatic anymore," he says. "The homeowners' crisis has been devastating to some agents in some areas."

According to Smith, this is particularly true for agencies that used to have a lot of contractor business and agencies that specialize in workers' comp. Learning to deal in the current market is key to making it through.

"From where we sit, it is not pessimistic, just realistic," Smith says. "We don't call it a hard or soft market – we just call it the market. We have just accepted the fact that this is the way the market is and you just learn to deal with it."

So how have agents survived so far? Not all of them have, but Wimmer says successful ones have had to work harder on every account.

"Meeting with insureds more often, working with them to repackage coverage, cross selling; that has all being going on for two years really strong," she says. "[Agents] are looking at all their accounts on renewals – even the small ones – that they never looked at before. You can't just write it one time and forget it. You have to be active on all your accounts regardless of size because of the competition."

Tom Troy, executive vice president of the regional companies group within the Liberty Mutual Agency Corp., says agents are also extremely busy business people and have had to become more efficient and effective during the economic downturn so they can manage more accounts.

"One of the challenges they face is working with a lot of customers and prospecting a lot of customers – a small commercial customer could potentially take a backseat," he says. "One of the dangers there for agents is to take the time make sure they really understand the small commercial customer as well as they understand the need of larger customers."

Carriers: Increasing Small Business Agents Effectiveness Increases Profits

Troy believes successful agents are emphasizing the value-added services they can offer clients, such as loss prevention services.

"One problem is when we think about a small business, we perhaps sometimes think they don't need any attention and I wouldn't say that is the case," he says. "Each customer that is going to entrust the agent with their insurance placement and consultation – that agents are so capable of providing – that is a meaningful transaction to that small business owner. We have a responsibility to that customer to make sure their coverage is appropriate."

Dasher says agents who have patience and perseverance with small businesses could benefit later on.

"Every large account started as a small business," says Dasher, who says he was with the original agency that wrote the insurance for Outback Steakhouses before they expanded. "If you want to partner with these small businesses, one day you are going to be the lucky agent."

Meanwhile, carriers are hoping some of their technology will help make agents more efficient for handling of small business accounts.

CNA recently enhanced its real time quoting system for small business accounts. The new system allows agents to obtain bindable quotes and proposal letters for CNA Connect, workers' compensation and commercial auto without having to leave their own agency management systems.

"What we are trying to help with is making the [small business] unit more cost effective," says Dasher. "There are several different business models agents use but one is to work with several different carriers and agents want to be able to get info quickly and easily. Some of the small business premiums are only $500 and $600 and agents can't survive on small premiums like that. The process needs to be quick and cost effective."

Fireman's Fund is also trying to simplify the business process for agents and brokers.

"We are connecting with agents and brokers and expanding capabilities in terms of what states and rate filings we are getting out there," says Petersen. "Our focus has been to generate additional activity and ease technology to do all that."

Liberty Mutual is designing coverages and ways to make doing business easier so agents can spend their time with their customers rather than interfacing with the company. "That's one of the advantages we want to promote," Troy says. "Bring the information to us so we can turn it into a proposal and quote."