It is, in short, a buyer's market, and that translates into a special message for small-business owners: This is an excellent time to reassess your company's insurance needs and the kinds of added coverage that may be worth buying. It's also a good time to shop around, insurance experts say. Independent agents and carriers across the country stand ready to help you evaluate your insurable risks and go over the latest packages of property-casualty protection for small and midsize businesses.
"We're in a unique time," says Charles D. McCabe, president of McCabe Insurance, a small, independent agency in Columbia, Md. "The commercial-insurance business is typically in a soft market and then a hard market in cycles of seven to 10 years. Bu: we've been in a soft cycle for close to 20 years now."
Much of that appears to be a function of the nation's unusually strong economy. McCabe observes that many insurance companies, with good results from their own investments, can show respectable profits "even if they are losing money on the underwriting side." "It causes them to be very competitive in pricing commercial insurance because they want to get the dollars in so they can invest them," he says.
At the same time, McCabe sees some of the pricing as irresponsible. He tells of an instance in which a major insurer was able to "steal" a competitor's customer by offering a premium that was less than half what the business had been paying—even though the account had recently sustained losses amounting to nearly twice the price of the new policy. "How could they do this?" McCabe asks with a tinge of anger. Presumably, he says, the newly chosen carrier was counting on minimizing new losses and offsetting the premium reduction with investment gains.
Change May Be Coming
If it all sounds like an opportunity for small businesses to obtain maximum coverage at low prices—and many experts say that is exactly what it is—businesses also need to be on guard. Insurance representatives acknowledge a growing sense within the industry that prices have been too low for too long, and that they could well move up again soon. If the economic boom begins to wane, insurance coverage is almost certain to become more expensive. (Hint: If you delay, that new policy or rider you've been thinking about may no longer be the bargain it is today.) But for the moment, at least, it's no wonder that property-casualty insurers remain in a highly competitive mode. For one thing, their net income fell by nearly onesixth in 1998, according to the National Association of Independent Insurers in Des Plaines, HI., and in the first quarter of 1999 they were rocked by huge disaster claims.
Perhaps more significantly, a recent study for the Independent Insurance Agents of America (IIAA) found what the Alexandria, Va.-based organization termed a "remarkably high" willingness among small businesses to desert their insurers for a lower premium. Jeff Yates, the group's CEO for industry and state relations, says that means agents will need to keep scrambling—with an emphasis on broader service. "Agents who think they need to only sell traditional property-casualty products are running a very big risk of losing these customers to a competitor," says Yates. A.M. Best, a company based in Oldwick, N.J., that rates insurers and publishes insurance data, forecasts an enormous consolidation in the industry over the next several years. Best says that as many as one-third of the nation's 1,100 propertycasualty groups will bite the dust or be absorbed by stronger companies.
Watching For Danger Signs
But small businesses may need to pay attention to some red flags, too. The same prosperity that has spurred price competition in commercial insurance has tended to put more and more small businesses at risk for losses they haven't anticipated, says Patricia Borowski, vice president for research and technical affairs at the National Association of Professional Insurance Agents, also in Alexandria.
For many small firms, she explains, good times have meant growth and expansion into new areas without adequate attention to insurance needs. "Because the economy is going well, people are getting involved in more and more things—and forgetting more and more" about insurance, Borowski says. But business owners "really need to be conscious that every time they take that step [toward expansion], they need to go back to their insurance agent and say, 'Do we need an endorsement?'"
Instead, Borowski says, with companies' activities "running way ahead of their original policies," by the time they discover the gap it may be too late. A case in point is the growing practice of sending employees abroad for international conferences and on other missions. What are the implications for workers' compensation and product-liability claims? Borowski says that if you aren't sure whether your company is adequately covered for such losses outside the United States, or even outside your own state, you should ask your insurance agent.
Additional Risks
Many small businesses also are increasingly vulnerable to lawsuits over alleged race or age discrimination, sexual harassment, or wrongful termination. Defense costs alone in these cases can be devastating—not to mention adverse judgments, which can put a company out of business. "Legal fees will kill you just to prove you are innocent," says Sharon Emek, president of Metro Partners, Inc., an insuranceagency group in New York City.
Rob Schueler, employee-practices product manager at Travelers Property Casualty Corp. in Hartford, Conn., puts it this way: "If you're hiring or firing or promoting or not promoting employees, you have an exposure." Another problem stems from the rapid expansion of home-based businesses. Borowski says the insurance industry itself was slow to respond to the burgeoning growth of this sector of the economy, so it has often been difficult for home-based businesses to obtain appropriate coverage.
A new IIAA survey indicates that at least 60 percent of in-home business owners are not adequately insured for business risks. Suppose, for example, that a room in the business owner's house is being used as an office, and the family dog runs in and bites a client on the ankle. Who's the culprit? "Is it the homeowner's Fido or a home-based business pooch?" Borowski asks. The answer can be crucial. The bottom line: Check your policy before the dog bites.
A Cooperative Spirit
Insurance agents, meanwhile, are so hungry for small-business action that they typically are more than happy to respond to inquiries from prospective customers—and to provide guidance on how to improve safety, reduce risks, and supplement coverage. Agents also are looking aggressively for new ways to appeal to small-business owners. For example, they are trying to package different types of insurance, such as life and health coverage, qwedfhnmwith property-casualty policies.
And they are becoming more sensitive to the cash-flow concerns of small companies by offering to structure premium schedules according to when companies are in the best position to make payments, reports Madelyn Flannagan, the IIAA's director of research and information.
Much insurance advice remains available on a direct one-on-one basis, with individual agents and insurance advisers offering free, no-obligation consultations at your place of business. But at the same time, business owners also can tap an increasingly rich store of insurance information over the Internet.
In addition, advances in technology and computer software are improving insurers' ability to tailor commercial policies to the needs of particular segments of the smallbusiness community, says Ruth Gastel, vice president for issues analysis at the Insurance Information Institute, a national organization in New York City that is supported by about 275 property-casualty and reinsurance companies.
In the past, she says, property-casualty policies were written primarily for everyday Main Street companies. Now, however, technology is giving underwriters "greater ability to look at the parameters of the losses of different kinds of businesses" and thus to create policies that are appropriate for specific types of companies. Patrick J. Kinney, a sales-and-marketing vice president at Travelers Property Casualty, says insurance agents used to try to write distinct policies for each individual business—a demanding and expensive task.
"We were not recognizing the fact that a florist is a florist," he says, and that most florists have common characteristics, such as a store with a certain square footage, a refrigeration unit, and, of course, flowers. In other words, they all have "exposures that are pretty generic."
With the help of technology, that insight led to "groupable" insurance programs for different types of businesses. Says Kinney: "We write 500,000 accounts a year, and you t can't customize every one of them. You have to mass-produce them." Douglas C. Elliot, senior vice president for select accounts/commercial lines at Travelers, adds that technology has become "a huge part of the equation that has enabled us to provide a much more cost-effective process."
Previously, Elliot notes, the process included faxing a customer's application to an underwriter, who would respond with a quote. If the deal was accepted, the information would be sent to a service center, which eventually would generate a policy. Today, in contrast, a single agent can rate, quote, and issue a policy in 15 minutes from a desktop computer.
Use of the Internet is contributing to the perception of an industry in flux. Not only is there a deluge of information about insurance on the World Wide Web, but some insurers have begun to sell policies electronically. Customer service, meanwhile, is expected to improve markedly as more and more business owners begin tapping the Web for answers to queries about their coverage, claims, and risk management. Gastel of the Insurance Information Institute says the changes mean that customers will find themselves more and more "in control."
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