There is a shift happening in the small business segment and the insurance industry is aware and ready for it. The small businesses that survived the recession are different now, say underwriters. They have had to invest in new technology, learn new areas of business and find new ways to stay competitive.

The toughest times of the recession seem to be gone – but not forgotten. Agents and brokers who focus on this segment say today's small businesses are much better than they were five years ago.

“The businesses that survived the last economic cycle are lean and mean and are survivors,” says Andrew J. Valdivia, president and CEO of White & Company Insurance, Inc. in Santa Monica, Calif. “The discipline they learned during that cycle – they are not forgetting those lessons.”

The insurance industry also learned some important lessons about this class during the tough times, as many in the industry suffered right along with their small business clients. This small business market is not a small one for the industry. It accounted for $81 billion in premium, or 20 percent of the U.S. property/casualty commercial market in 2013, according to a study by Conning Research & Consulting.

For many smaller agencies, the main street market is their bread-and-butter and when it suffered, so did they. Many small businesses cut back on coverage, limits or eliminated insurance altogether to make it through the recession. This was not only a detriment to their business but to the agents and brokers who worked with them.

“From a budget standpoint – and small businesses are all focused on budget – I think insurance is an intangible,” says Valdivia. “Technically, they should never change what they are buying from an insurance standpoint because if they are struggling and one of these perils hits them… but that’s how people were operating.”

Agencies focused on the segment had to find ways to prove their value. It meant working harder for less premium, but it is paying off now.

“Back when the economy really hit hard we were reaching out to clients to review what would normally be found on audits – payrolls, gross receipts, subcontractor work, fleet use – and making adjustments midterm to liability coverages, etc., to keep them in a position to make their budget and reduce expenses,” says Doug Wiles, president of Herbie Wiles Agency in St. Augustine, Fla.

Today, Wiles says the company is seeing audits on the positive side as clients’ businesses have improved and they have more money for insurance.

Ben Sloop, president of AmWINS new small business division AmWINS Access in Charlotte, N.C., says that has been the wholesale broker’s experience as well.

“Looking at our overall submission flow, premium trend, combined with our segment data in terms of what we are seeing, there definitely does seem to be some rejuvenation,” he says.

Small Businesses and Cyber

The topic of adding coverages or addressing “emerging exposures” was off limits for small businesses four or five years ago, but that sentiment also seems to have changed, says Wiles.

“We weren’t talking about cyber liability, we weren’t talking EPL very much, and now these products are part of the discussions. The products still aren’t cheap but price has come down and the availability is there more today than in the past,” he says.

Carriers have been trying to tap the small business cyber liability market for some time, and capacity is available if insureds choose to pursue it. The problem has always been that small businesses don’t perceive themselves as being a target for data breach or having a serious technology exposure and selling the coverage is still a challenge, says Valdivia.

“The whole issue of security surrounding what we are using in our daily lives has scared everybody. We have smaller business owners asking for quotes but the conversion ratio has been very nominal,” he says. “There is not a lot of information in the news about small, main street businesses being hit by cyber attacks.”

But according to Paul Bi, consultant for Liberty Mutual Insurance Product Management, small businesses are a target.

“All businesses struggle to keep pace with the changing environment but the challenge is ever more prevalent with small businesses. Whereas large multi-national companies may have dedicated units to protect against data breaches and cyber attacks, small businesses often lack the risk management and resources to adequately protect their systems and data,” he says. “This makes their business more susceptible to an attack and cyber criminals know this.”

Valdivia says there is more willingness to look at the coverage now on the part of insureds versus a few years ago when it was just a “checklist item” for an agent. But, he says, small businesses are confused about what the coverage does.

“The problem too is this market. There are a number of insurance companies and brokers selling breach coverage but there is a whole patchwork of types of coverages and how they operate and pricing is very irrational – it’s all over the map,” he says. “There is a lot of confusion with the products. A simplified approach to the segment is a more rational approach.”

Liberty Mutual has tackled this issue with the launch of a data security endorsement specifically for small- to mid-sized businesses. The cyber coverages are available on the company’s commercial package product and monoline general liability policies with four optional coverages, each with separate and varying aggregate limits, sub-limits and deductibles.

Bi says the carrier launched this option because small businesses are increasingly recognizing the threat to their business from a cyber attack and the challenges of dealing with the aftermath.

He says in their experience, demand for cyber products from the small business segment has certainly changed since a few years ago, and the company is seeing growth in policy count and written premium.

“A few years ago small businesses weren’t purchasing cyber products because they felt that they did not need it. However, that mindset is changing – what was a ‘nice to have’ has now become a ‘must have,’” says Bi.

He says businesses now also face compliance challenges with state notification and data protection laws – and potentially federal laws – as well as contractual obligations as more and more contracts now require that data breach and cyber liability insurance be carried.

Bi says the company is evaluating ways to make enhancements to the product set and adapt to new market conditions.

Agents: Small Business Technology is Essential

Starr Cos., which launched its small business division in 2013, is also looking at launching a cyber product for the small business segment.

Jennifer Ronan, general practice leader for Starr’s General Middle Market Small Business practice, says they are rolling out products based on the feedback they get from their distribution partners about what the needs of the segment are. Recently, the company launched an umbrella product as an add-on to its businessowners policy (BOP) with up to $5 million in limits.

Ronan says they are constantly evaluating the needs of this marketplace.

“What we are hearing is what was traditionally known as small business has evolved. There are now more home-based businesses and more technology-driven businesses,” she says. “This segment is changing and everyone needs to be conscious to watch that and provide coverages that match those needs.”

For agents, that need is an ease of doing business. While working with small business clients does require a good agent-client relationship, oftentimes offering simple technology options to customers or being able to quickly provide a quote and/or policy is a big part of that relationship.

Ronan says part of Starr’s business model is to provide technology to distribution partners so they can quote and bind in the one system and offer “less hoops” for agents to go through.

“When a small business calls their broker they expect a quick response – they don’t want to wait around for days to get a quote,” she says. “Agencies want to service the small business sector as efficiently as possible and the less interaction with carriers the better too.”

Small business insurance agents are increasingly turning towards technology to be able to respond quickly and efficiently to their busy clients. Valdivia says clients actually really appreciate this aspect of service from their agent.

“Main street businesses and small, middle-market businesses don’t have time or patience to go through a lot of hoops – they get their information on the products they want,” says Valdivia. “They just don’t have the infrastructure or individuals in the organization to spend a great deal of time on any area, including insurance.”

AmWINS’ created their small business division just for this reason, says Sloop, as well as to help agents and brokers with being able to provide quick quotes for multiple products.

“We had brokers who wrote small business accounts the same way as bigger ones and we wanted to excel that and still provide the best product for small business. We needed to build a delivery model that exclusively focused on small business and focused on speed of response,” he says.

 

Sloop says AmWINS Access decided for now not to use a portal because its retail agents all currently have to go through portals with the standard markets. Instead it uses a standard Acord application designed for AmWINS Access and agents can take what they have already put in their agency management system and email it to AmWINS.

“There is less effort for agent that way and for the micro small business space where the cost gets to be challenging,” he says. “Agents want to provide efficiency but also the right product and coverage.”

CNA also just added a new, quicker platform for quoting small business BOPs.

Wiles says technology is absolutely important, but there is no substitute for maintaining a relationship with the client. Back when the economy was especially tough, his agency measured its success by the number of accounts they retained and “if we were able to upsell then we rang the bell and said we did an extra good job.”

He says the segment can be a challenge, particularly when the accounts don’t have a high premium. Being flexible and accommodating in dealing with small business clients is key.

“Small businesses are vulnerable to changes in the economic cycle and we have little control over what direction the wind is blowing,” says Wiles. “We have to do what we can and set our sails appropriately.”