Small Accounts Can Create Big Opportunities

Insurers see these risks as profitable. They recognize that most small-business people are hands on, with owners working alongside their employees and making sure they deliver the products or service in the best way possible. These businessowners often take pride in the appearance of the business and the building they own, or work out of, as it is a direct reflection on them.

Insurers have streamlined their very comprehensive businessowner-type policies to include outstanding coverage at a competitive price. This offers the small-business owner great protection and enables them to have the peace of mind they need to operate their business successfully.

Package policies continue to offer property and liability coverage, as well as a long list of other protection–including business income. Insurance carriers also want to write the other coverages small businesses need, such as workers' compensation, commercial auto, inland marine and commercial umbrella.

Many carriers have, or are working toward, fully automating their products for small businesses. Many offer online quoting and issuance of policies, which are then downloaded to an agency management system as early as the next day. For the small-business client, quoting, issuing and receiving policies is now done in a couple of days. Gone is the age when binders were needed for more than two-to-three weeks or more.

In addition, the policies have been expanded to include a larger than ever list of businesses. They include retail, service, wholesale, office, apartments, contractors and light manufacturing, which are all eligible types of industries now targeted by insurers. Some new areas carriers are looking to include technology businesses and not-for-profit organizations.

Looking at these industries, insurers are focusing on the larger end and including companies with sales of up to $10 million with employee levels of up to 30 or more in their small-business owners policy (better known as "BOP"). Insurers like these risks because they are often run like their smaller counterparts.

Although the list of eligibility seems endless, one factor that has remained prevalent over the last several years is tight underwriting standards.

Carriers are looking for small businesses that are not involved in heavy exposures. They are seeking generic types of risks that fit a very tight mold. The insurers expect the properties to be maintained well and renovations kept up-to-date to keep the risk hazard low.

For those customers involved in service, such as light manufacturing or technology-type businesses, they must have low product exposures. The list of eligible exposures, although lengthy, is very specific in what does and doesn't fit.

While insurers seem to be tripping over themselves to reach the small-business segment with competitive pricing, there are still risks out there that do not fit into the conventional vanilla placements the standard line carriers are looking to get into.

In some places, as in upstate New York, where the economy is not as hot as elsewhere, the small-business entrepreneur is trying to make a living by establishing firms that can be seen as out of the ordinary by a carrier. These might include security guard services, rental business programs or extermination services.

From a liability standpoint, they are considered higher risks by the standard market. Insurers do not have an appetite for these higher-risk businesses, which are not easily serviced.

For these risks, the place to turn is the excess and surplus lines market. An agent will find that going in this direction can be difficult for their clients. Considering there are usually one or two people working in a startup company, businessowners may not be prepared for some of the surprises that await them in terms of increased price for the insurance and tighter underwriting guidelines.

Despite the experience of softening prices in the standard market, they will pay more. The agent has to prepare the customer for this.

An agent's first strategy should be to get to their customer early in the insurance process. Often, when the small-business owner is preparing their business plan, insurance is the last item they think about. If the business needs to go to the E&S market, the entrepreneur's first reaction will be shock when they find out how much the insurance costs and how little the businessowner planned for it.

The customer has to realize that the cost of having a small business has to include planning and budgeting for the cost of insurance.

As agents, we also have to do our best to keep premiums as low as possible but still get the best coverage.

The E&S market can produce policies that are not as strong as those found on a typical Insurance Services Office form. There could be specific exclusions that have to be pointed out to the customer–such as a policy offering coverage for the premises but excluding product and completed operations.

This coverage can be important, for instance, for an exterminator. In one scenario, after exterminating a residence, the businessowner could leave the home and forget to air out the building. After the homeowners return, they become sick from the chemicals. With product and completed operations excluded from the policy, the client has no coverage.

The bottom line is that agents need to read and understand the policy the customer is getting through the E&S market. Our job is easy if it is a shoe repair business and the insurance is obtained in the standard market. Everything but the kitchen sink will be thrown in there.

However, when it comes to the E&S market, the coverage can be hit and miss.

Agents sometimes have to work hard to find coverage. For smaller agencies, it may not be easy, but when an agent meets early with a customer and works to make sure the client understands the market and its pricing, the producer is fulfilling an essential service.

Insurance plays an important part in the well-being of our economy and gives people the opportunity to take risks and start businesses. The small-business entrepreneur works hard and puts their heart and soul into their firm. They need the protection insurance offers.

As an independent insurance agent, it's a good feeling when we can protect our clients' interests and give them peace of mind. After all, independent agents are about doing what is right for our clients and communities.

Steve Zogby is executive vice president at Scalzo, Zogby & Wittig Inc., based in New Hartford, N.Y., as well as secretary/treasurer of the Independent Insurance Agents and Brokers of New York.

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"When an agent meets early with a customer and works to make sure the client understands the market and its pricing, the producer is fulfilling an essential service."

Steve Zogby

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Agents must come up big for their small-business clients to make sure insurers recognize the value of dealing with insureds who are hands-on managers.

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What Agents Must Do

To make sure small-business accounts are handled properly, independent agents should consider the following:

o An agent's first strategy should be to get to their client early in the insurance process.

o Customer must be made aware that the cost of having a small business must include planning and budgeting for the cost of insurance.

o Insurers expect properties to be maintained well and renovations kept up-to-date to keep the risk hazard low.

o For risks that do not fit into conventional vanilla placements, agents may have to turn to the excess and surplus lines market.