09 Jan Are Small Businesses Underinsured?
Several years ago (pre-pandemic), my inquisitive mind reached out to one of the Allianz Claims staff (Allianz was the E&O Plus E&O carrier before Swiss Re) with a question. The question essentially was, “When you look at the E&O claims that have occurred, what is the size of the policy that was the root cause of the claim?” This could have involved the policy that was never written or placed or where the policy limits were insufficient to cover the underlying loss.
The response was very interesting: “It’s the small accounts.” That response is probably not a big surprise when you stop and think about it. These accounts don’t generate much revenue (most agencies define small businesses as accounts under $5,000 in revenue), so agencies generally don’t feel they can afford to “touch” these accounts very often. This could be part of the issue or, better said, part of the problem.
When working with agencies that have a small business unit, two of my common questions are:
- How many of the accounts are a one-policy account? The response is typically 40%-50%.
- What type of coverage is that one policy? BOP or GL tend to dominate the response.
Recently, I ran across an article by Andrea Wells (Insurance Journal) that you may find surprising. Hopefully, you also may think of some approaches to address the issues cited.
The following includes excerpts from this November 6 Insurance Journal article, “Underinsured Small Biz.” I have taken liberty of highlighting some key statements:
“Small business owners are optimistic about their future with 71% expecting revenue increases in 2024, according to Q3 2023 MetLife & U.S. Chamber of Commerce Small Business Index. The survey found that 42% of small businesses say they plan to increase investment in the next year and two in five (40%) small businesses say they anticipate increasing staff in the next year.
While small businesses may be growing their revenue, the vast majority – 75% – are not adequately protecting themselves and their assets, according to a new report released by Hiscox.
Of the small businesses participating in the survey, 75% were underinsured, and over 70% did not understand what business insurance covers. The Hiscox survey found:
- 65% had general liability coverage
- 45% had property insurance
- 35% had worker’s compensation insurance
- 32% had professional liability insurance
- 47% have increased revenue since 2021
- 32% have had a decrease in revenue during the same period.
And small business owners need that expertise. Of those surveyed, 71% do not understand what a business owner’s policy covers, and 83% fail to describe a general liability policy’s coverage correctly. Of the U.S. small businesses operating for 10 years or more, 39% have never updated their general liability insurance.”
Viewing these statistics certainly conveys a greater potential for an E&O claim to occur, as typically, what is not covered causes an E&O claim.
It certainly appears that a focus on education of these accounts (both existing and prospects) might be a good idea. Isn’t your best customer an educated customer? For new accounts, how about providing them with a document that explains the coverage afforded by each of the various policies in some detail? Also, possibly a segment of your website explaining insurance and what it covers. For existing customers, when you reach out to them 90-120 days before renewal (you are doing this – right?), include this document along with some questions to identify any changes in their business.
Now might be a good time to determine the number of policies per account for your small business segment and design a cross-selling initiative that adds at least one more policy per account on average. What could your results look like by this time next year? More revenue and a reduced E&O exposure. Sounds like a good story to me.