When Small Business Needs Specialty Insurance

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by Bryan Salvatore

Small business used to be associated with small exposures — simple business risks addressed with simple insurance products. However, changing customer needs and expectations, technology advancements, new regulations and evolving legal environment issues have dramatically changed the way small business owners run their companies. Small business is no longer simple.

Small-business owners say employment-related issues, crime risks and professional liability risks are their top three exposures, according to the 2018 Small Business Risk Report by Forbes Insights and The Hanover. In the face of increasingly complex exposures, many small-business owners often require insurance coverage that goes beyond a standard policy. This creates an opportunity for insurance carriers and specialized independent agents to expand their businesses by moving downstream and offering specialty solutions that better align with the needs of small businesses.

Mutually Inclusive

Servicing small-business accounts with complex needs has been difficult for agents in the past. The industry focused on providing specialty insurance lines for businesses that are large or difficult to place. Most insurance carriers selling to small businesses have concentrated their efforts on more predictable business owner policies (BOP), leaving business owners with complex risks without an effective solution.

In turn, agents have had limited options when it comes to serving smaller clients. Those limited options were:

  • Avoiding the small business market to focus on mid to larger-sized complex accounts;
  • Sending all small accounts to wholesale partners for placement and servicing; or
  • Bringing these smaller, complex clients into the agency service structure but then struggling to serve them easily and efficiently.

Agents have repeatedly said they need more alternatives.

The good news is carriers are evolving to provide better coverage and servicing options for these small businesses’ complex needs, making it easier for specialty agents to capitalize on the opportunity.

Waves of Change

Carriers invested in the specialty space are already implementing distinctive changes. First, they’re staying on top of the various specialty risks customers face. Because risks evolve over time, the best carriers are closely monitoring the many trends that drive exposures for small businesses.

In addition, these carriers are providing standard and specialty coverage from different underwriting disciplines in a way that is seamless for the customer. For example, a carrier’s small commercial practice can provide a BOP, while its management liability operation can provide directors and officers liability coverage, enhanced employment practices liability limits and a broader crime policy in a seamless fashion, all behind the scenes.

To the customer, it appears as though they have one comprehensive insurance program from a single carrier.

Finally, these carriers are working to solve coverage needs as efficiently as possible for both customers and agents. Implementing specialty lines capabilities within their customer service centers is a highly effective way to give small businesses all the insurance coverages they need, while providing them with high-quality service. This also saves insurance agencies valuable staff time.

Our industry has made good progress in recognizing that small businesses can have complex exposures. By building a broad portfolio of efficient, small specialty solutions, carriers will ultimately help agents grow their small commercial business and continue to make great strides in developing specialty lines solutions that serve the needs of small businesses with complex risks.

In turn, agents are able to better serve their small-business clients with more comprehensive solutions and streamlined service.

About the Author

Salvatore is an executive vice president and president of specialty for The Hanover. In this capacity, he leads the company’s U.S. domestic specialty business

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  • September 17, 2018 at 5:35 pm
    Joseph S. Harrington, CPCU says:

    The specialization of small business insurance is arguably the most important trend in today’s P&C insurance market.

    There’s a lot of attention to the impact insurtech applications will have on the personal lines market. That impact will certainly be profound, but most consumers will still purchase coverage for their homes and auto, and attendant liability, in two policies designed for those purposes (plus umbrellas).

    Large businesses will continue to negotiate complex, customized protection packages that will increasingly cover intangible economic losses as well as traditional property and liability losses.

    Small businesses, in contrast, now have to select among a range of new and traditional coverages, and consciously decide which exposures to retain and which to transfer. Given the emerging exposures for cyber loss, product recalls, environmental liability, and claims for discrimination and/or harassment, traditional property and “prem/ops” exposures may be the least of one’s concern.

    This arises, in part, from the fact that almost all work today is specialized enough to have a “professional”-type liability exposure, even if the work does not require a university degree. If you’re of a certain age, did you remember doing your own tune-ups and oil changes? Could you do that today on a new model car?

    I’m convinced that small business insurance will be where we see most innovation in the near future.

  • September 21, 2018 at 3:10 am
    John Rogers says:

    Agree: the small business market will require effective marketing, agency procedures, agency education, and strong company partners to serve our small businesses. For agencies committed to the small business market it’s an exciting future.

  • September 24, 2018 at 5:20 pm
    Jack Straw says:

    A bit absurd…. the size of the Compony is not as relevant as the exposure and probability of a claim being made for the hazard(s) insured. Commpare loss ratios’s of a small law form E&O program to the larger firms as an example.

  • October 31, 2018 at 5:22 pm
    Beth Hendry-Jones says:

    Agree, agents need to look at other markets other than standard policies for small businesses.

    SouthEast Personnel Leasing, Inc. a PEO model has been specializing in small businesses in the high-risk codes and high experience modifiers for over 3o years. A strong small business will grow and become larger and more profitable. At SouthEast we invest in these businesses by offering a proven successful and effective workers’ compensation coverage through payroll services.
    Allowing small businesses to have access to A rated (Excellent) carrier, Lion Insurance Company and the TPA Packard Claims Administration, Inc. both owned by SouthEast, these small businesses have the advantages of much larger companies.
    SouthEast sees and knows the future of small businesses is always growing.

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