Customization Is Key in Writing Small-Business Policies

To successfully underwrite this class of business, insurers need to keep up with constantly evolving perils. And they also have to find ways to work well with clients who don't have dedicated insurance buyers, as in-house risk managers are extremely rare at companies with revenues under $10 million.

NU speaks with several of the major players in the small-business space to hear about current market conditions and the latest policy developments.

CNA: CUSTOM COVER FOR SMALL ACCOUNTS

Scott Greico, chief underwriting officer for CNA's small-business unit, says for many years a BOP was a generic, simple form for low-hazard risks.

But in recent years, the BOP form has grown in scope. For instance, many basic policies now include terms for a measure of Business Interruption protection.

CNA's Business Continuity policies for small-business owners now include specialized extensions, such as an add-on for employees to be paid for 12 months during a business interruption (rather than the standard 60 days). The carrier has also added small-business coverage for data breaches.

And even though the accounts don't deliver a huge amount of premium, clients still receive bespoke service.

Even when writing basic policies, "our expertise in underwriting this class, and the use of [predictive] modeling, allows us to take an account-by-account, coverage-by-coverage" approach, says Grieco.

This ability to offer custom attention is a big attraction point for "small businesses that do not have an army of risk managers," says CNA's Coyne. "We want to make sure we offer expert guidance—and that we have independent agents who are experts in small business to help transfer risk."

Coyne says the small-business marketplace remains competitive, with some single-digit hardening in rate—but after years of low premiums, policyholders appear willing to accept some increase. What's more, retentions are up.

"We have teams of people meeting twice a year to determine what is challenging to our small-business clients," he adds. "This is important to us—to make sure these businesses get back up and running" when impairment becomes an issue.

HANOVER: "RATIONAL" APPROACH TO PRICING

Michael Keane, president of small- commercial business at The Hanover, says his carrier favors a "risk-by-risk approach to pricing," which he says has resulted in price increases of lower percentage than its competitors.

"Pricing is going up—for some, dramatically," he says of other carriers' behavior in the market. Hanover has chosen to "make sure we're rational at renewal."

Payrolls and exposures are up in the small-business sector, says Keane, and he's seeing more complexity in coverage—such as Cyber Liability protections and Employment Practices Liability insurance (EPLI).

"Large corporations have a host of people to take care of all the considerations after a [data] breach," explains Keane. "But a small-business owner can wear many hats and probably doesn't have the time."

In May, Hanover launched SmallComm Solutions—a Web portal designed to help agencies better understand and market Hanover's small-commercial offerings. The carrier also has stationed local underwriters in the markets where specialized agents are located, to improve service and underwriting performance.

"We think our results will be better with this strategy," Keane says.

TRAVELERS: BUSINESS INTERRUPTION IS EXISTENTIAL ESSENTIAL

Hundreds of thousands of businesses are launched each year, says John O'Connor, vice president of strategic product and platform development for small commercial at Travelers Insurance. But not all of them take their insurance needs into consideration as early or as seriously as they should.

"These people are good at what they do, but they don't think about insurance before they begin to operate," he says. "Some think their homeowners' policy will protect them, but that's not the case."

For starters, Travelers recommends a policy with Property and General Liability to protect against slips and falls with limits of no less than $1 million.

In O'Connor's opinion, one of the most important components of a policy is Business Interruption coverage. "The fact is, if a fire or weather causes a business to stop operations, in a lot of cases they never open their doors again," he says.

O'Connor says Travelers and its independent agents strive to become trusted advisors with the knowledge to suggest policy endorsements that reflect an individual business' unique risk profile, such as Professional Liability, EPLI and Errors & Omissions.

These policy endorsements offer a cost-effective means of making sure small businesses are covered. "Margins are thin. Lapses in coverage can mean the end of your business," he adds.

Travelers also provides Internet resources for businesses-owners to learn how to employ business-continuity plans, so they can retain customers and re-open as quickly as possible following a disaster.

HARTFORD: EDUCATED AGENTS MAKE FOR BETTER CLIENTS

Educating agents is a key part of The Hartford's small-business strategy.

The carrier publishes industry guides, offers continuing education and produces webinars for agents in order to "make them experts, giving them the ability to, in turn, inform the customer," says Holly Moriarty, director of marketing for The Hartford's small-commercial unit.

"We have a broad appetite, so we need our agents informed so that they seek the right information to help clients," she says. "Customers rely on our agents. They know they need insurance, but they don't know what kind or type."

As part of its portfolio of online services for small-business policyholders, Hartford lets them pay bills and get a certificate of insurance or an auto-insurance identification card via the Web.

"The recurring theme we hear from our customers is 'time,'" says Moriarty. "From a service standpoint, we are always looking at ways to save clients time and money, because many have limited cash flow."

Endorsements include coverage for off-site utility outages and equipment breakdown—the latter being an add-on that helped one policyholder highlighted in a series of short videos on Hartford's Web site. Buck Buchanan, owner of Lumpy's Ice Cream, discovered his inventory had melted when the freezer adjacent to his home stopped working. Since he had coverage for equipment breakdown, Hartford paid for the repairs—and for all 187 of his lost flavors.

NATIONWIDE: PREDICTIVE MODELING REDUCES LOSS, INCREASES PRICING ACCURACY

Predictive modeling and analytics have allowed Nationwide to reduce its probability of loss and more accurately price its small-business insurance products, says Doug Pearson, vice president of commercial product and pricing.

Rate increases are driven by specific risks associated with the account, determined with the help of analytics and modeling, he says, rather than simply calculated by an automated underwriting system.

Overall, "price is a real bargain" for business-owners these days, Pearson adds, especially for a basic BOP that includes much more coverage than in years past.

After a sizable drop-off in exposure since 2009, Pearson adds, "we've seen a rebound. The average size of accounts is larger.

"There's a lot of business available, competitive niche," he adds.

Last year Nationwide rolled out a data-breach endorsement as well as a free data-breach risk-management service to protect small-business owners against loss. EPLI coverage has also become a popular add-on in the last couple of years due to trends in litigation and the fact no EPLI-related coverage exists in a standard contract, he adds.

In addition, the insurer provides at no extra cost to EPLI clients a law firm to call to ask any hiring or employee questions and gauge liability exposure.