Small businesses represent big opportunity for agents, brokers
With some careful planning and outreach, insurance agents can still find opportunity in the small business market.
Let’s face it: Today’s small-business insurance market can be a tough nut to crack for agents and brokers.
Technology, in the form of online self-service, is taking a sizeable bite out of the number of small-business accounts being sold by agents, says Frank Pennachio, partner and co-founder of Oceanus Partners, ReSource Pro Company.
“Most people — including small business owners — have become ‘Amazoned,’” he says. “In other words, they want to buy what they want, when they want it, and with full transparency.”
“Self-service online platforms are making it easier for consumers to buy online without the benefit of an agent, and the chatbots, on these sites can answer most questions in real time around the clock,” Pennachio points out. (Chatbots are computer programs or “bots” that conduct conversations that simulate how a human would behave and converse.)
In order to compete with these sites, both incumbent and start-up insurance companies are creating alternative distribution methods. “In addition to developing easy-to-use websites to service small businesses, insurance companies are developing ‘instant underwriting’ tools that allow a policy to be submitted, underwritten, priced and delivered in minutes,” Pennachio says.
For example, Berkshire Hathaway now sells directly to small businesses through its biBERK brand. The biBERK website distinguishes itself from other online sites by offering live consultations and enabling small businesses to “get a quote and buy a policy in five minutes” with no broker commission fees.
Travelers Insurance Company is also reaching small businesses via a company called Simply Business. Acquired by Travelers in 2017, Simply Business operates as a stand-alone business. Its insurance agents are Simply Business employees who are housed in the same building as the Travelers corporate office in Boston. Simply Business offers products online on behalf of a broad panel of carriers and provides quick, competitive quotes from Travelers and other top insurance providers, along with the ability to contact an agent with questions.
“Although the product form is online, the site encourages people who are filling out the online form to call and speak directly with a Simply Business agent if they have any questions. Chatbots are not used on the site, because the company believes that connecting with a human being is the best experience for customers,” explains Jake Perkins, senior manager, Customer Communities, for Simply Business.
Aside from developing digital tactics to compete with online self-service platforms, how can insurance agents and brokers achieve success and grow their small business accounts?
Success depends on facing the challenges head-on, becoming more attuned to clients’ needs, and offering a higher level of value than ever before, say industry experts.
Become informed
One of the best steps agents and brokers can take to grow their small-business accounts is to become super-savvy about clients’ and prospects’ industries. “Agents and brokers should familiarize themselves with the unique aspects of each industry they serve. This will allow them to ferret out the relevant information to adequately determine the coverages needed to best protect each client,” says Richard A. Savino, CIC, CPIA, managing partner, Broadfield Group LLC.
Keeping apprised of your clients’ assets is the best way to protect those assets over time. For example, if agents and brokers stay informed on what is happening in the client’s business as it evolves, they’ll be much better prepared to convince clients of the need to add coverage.
In most cases, adding coverage naturally evolves as the exposure changes, the business grows, or the clients are in better positions to afford the coverages that best protect them, Savino notes. “In the case of a contractor, it could be as simple as adding Contractors Professional or Contractors Pollution Liability Insurance.”
Stay engaged
Pennachio advises agents to actively engage with small businesses and perform a structured risk assessment for each client. “It is likely that there are numerous opportunities to provide additional protection for most small businesses,” he says.
Through this process and in-depth dialogue, clients will likely discover for themselves that they face risks for which they are not covered by their existing policies. Then clients can make informed and intentional decisions about whether to transfer the risks to the insurance company for an additional premium, or to knowingly assume the risks and pay for losses from their cash reserves, Pennachio points out.
An ideal time to conduct deep, risk-based conversations with clients is about six months prior to renewal, instead of at renewal. “Too many agents just ‘renew as is.’ They treat small-business clients like a kitchen cooker: ‘set it and forget it.’ Instead, engage in planned, ongoing, structured, risk-based conversations,” he advises.
Always upsell
According to Karen Landry, CIC, new business development specialist at SIAA, the largest national alliance of independent insurance agents in the United States, the best time to upsell is always.
“Whether reviewing a renewal, endorsing an existing policy, or writing new business, there is always additional coverage or increased limits that can be added to a policy. A coverage checklist should always be used at new business, renewal appointments or any time. This allows you to review the current coverage and see what other coverage may be needed for the account, or the client may have the need for higher limits,” she says.
Robert Klinger, LUTCF, CPIA, president, Klinger Insurance Group and president, AIMS Society, agrees.
“Whenever agents and brokers talk with small-business clients, they should do a thorough review of the client’s business, using a checklist and asking questions to make sure they have the proper insurance coverage.”
Klinger advises agents to give clients real-life examples of claims cases they have observed or handled in industries similar to the client’s (without giving away a business’ identity or other confidential information, of course). This can help agents illustrate why a client requires a certain type of coverage that they may not realize they need.
What don’t they know?
Knowing clients’ risks inside and out is only the first step. Agents and brokers also need to offer every coverage possible to address those risks. Many small-business owners don’t even realize what types of coverage would benefit them. Don’t stop at the basics. Help clients recognize the need to protect themselves against new and less-obvious risks.
“If we don’t offer all the coverages that are available to the small business account, we lose money,” says Stanley G. Logan, Jr., CIC, LLH a Shepherd Partner. “In our agency, we discuss with clients every type of coverage a small business needs: life insurance, retirement, personal lines and health insurance, in addition to package and workers’ comp. You’d be surprised at how many customers respond positively to this. It seems that when they’re ready to talk insurance, they prefer to look at their whole situation and get it all in order.”
Also make sure to address newer risks, such as cyber. “I recently had my first claim paid under a cyber endorsement on a small business account for ransomware. The customer couldn’t believe he had coverage for this, and was very relieved,” Logan says.
Cyber is probably on top of the list of newer coverage areas agents should be offering their small-business clients, Savino notes. “Cyber coverage is critical, as it covers personal and identifiable information. Cyber coverage went from something we strongly recommended, and received resistance on, to a coverage that more and more customers are inquiring about. Reports about breaches are constantly on the news and clients are concerned about that happening to their businesses.”
Landry points out that “Cyber is the latest discussion; all you have to do is turn on the local news for examples of why a business would need it. Cybercrimes are on the rise and the costs can be devastating.”
The cost of litigation alone can close a business, not to mention the added expense of covering costs for ransom, notification costs due to a breach of data, and public relations expenses, to name only a few. All small businesses need to protect their intellectual property with cyber liability coverage, Landry stresses. “Every business should have this coverage if they are working digitally or own a computer, cell phone, or other mobile device.”
Cyber Tech Liability Insurance covers liability and property loss that may result when a business engages in various electronic activities such as selling on the internet or collecting client data, Klinger explains.
“Most policies will cover damage from breach of customers’ personal information, such as Social Security numbers or credit card numbers that are exposed or stolen by a hacker. The key thing to this crucial policy is that it covers a variety of expenses associated with data breaches, including notification, notification cost, credit monitoring, cost to defend claims by state regulators, fines and penalties and loss resulting from identity theft,” Klinger says.
Educate clients about intellectual property
Small businesses need to protect their intellectual property (IP) and data from day one, Klinger stresses. “Some intellectual property may hold an estimated 80% of a company’s value.” Many small business owners may not even realize what constitutes intellectual property and all the various types they have that need to be protected with insurance. Intellectual property includes inventions, artistic works, symbols, patents, trademarks, designs, images and names.
“The businesses that especially need IP insurance are companies that hold patents, copyrights, trademarks, slogans, company names, symbols, packaging, trade secrets, strategies, formulas and customer data. The estimated average expense for this type of lawsuit is $3 million for each side, not including the damages,” Klinger notes.
Most Commercial General Liability policies are not able to cover risks pertaining to intellectual property. “If a company experiences an IP infringement, it may no longer be able to sell or market products that are accused of IP infringement. Most companies don’t survive an IP infringement lawsuit even if they are innocent,” Klinger says.
Don’t forget ancillary lines
“Cyber is huge, but most ancillary lines, such as Employment Practices Liability, Flood, Business Income, and Professional Liability, are undersold as well as under-purchased,” points out Andrew C. Harris, Jr., executive vice president, Liberty Insurance Associates Inc. “There’s a misconception by small business owners that they’re less susceptible to claims from ‘those types of policies.’ Unfortunately, it’s the exact opposite, because they generally don’t have the controls or fear of the claims.”
Employment Practices Liability is a huge area that agents and brokers should be addressing to grow their small-business accounts, Landry says. “This coverage has been out for a while but a lot of small business don’t think about it, and I still see so many businesses without it,” she observes.
Many small businesses don’t have a Human Resources department, and the owners are not fully in tune with the employment laws, Klinger notes. “Unfortunately, employees are often more informed on the employment laws than the small business owner, who is busy with day-to-day operations. If employees work over their scheduled time here and there, later they may come back and sue you for the hours they worked over. This is where an EPLI policy will help the small business owner.”
Employment practices protection is frequently not purchased, agrees Pennachio, as well as coverage for employee dishonesty. Employee theft, he notes, is a common risk many small businesses overlook.
“Small businesses tend to assume that their employees won’t steal from them or sue them for discrimination or harassment. It’s the ‘we are just like family’ mentality,” Pennachio points out. “Of course, a small specialty trade contractor is going to face very different risks than a small grocery store, so many of the risks remain off the radar screen and need a customized dialogue with an agent.”
“We see employee dishonesty claims all the time,” Klinger notes. “Employees steal time, money, supplies or client data. This is not something that a liability or property insurance policy will cover.”
It’s important for agents to discuss with clients the employee dishonesty bond, he says. “For example, you have a cleaning company and you send your employees into your customers’ homes to clean. What happens if an employee steals from a client? Without an employee dishonesty bond, you will be paying the customer for what your employee stole.”
Most small businesses trust their employees to do a job properly; it’s after an employee leaves that the small-business owner discovers all the things the employee did wrong while they were employed, Klinger notes.
Technology and social media
“The process of purchasing insurance has to be painless, quick and easy,” stresses Logan. “Automate processes where possible because clients care about time management.”
It is vital to keep up with the latest technology and trends in the industry, Landry notes. “Clients are looking for fast, knowledgeable, trustworthy service. To reach your goals, you may need to invest in innovative tools and technology that can streamline sales and data collection, an agency management and development system, and comparative raters. You may want to have a live chatbot on your website to answer frequent questions, or a mobile app to increase 24/7 access. Your agency should have an up-to-date agency management system for documentation, reports, and fast and easy processing for insured’s requests.”
Landry also advises maintaining a social media presence. “In this digital age, we need to utilize as many technological tools as we can to reach new prospects and keep in touch with our existing clients,” Landry says.
Make sure to streamline your questionnaires, advises Harris. “Most of the traditional questions we used to ask can be found online, and often the carriers will have a lot of the COPE [Construction, Occupancy, Protection, Exposure] data. Prospects will bail on long questionnaires after one or two pages.”
Pennachio says, “Clients are more time-starved, distracted, and overwhelmed than ever. Mobile phones are a major impediment to gaining their focus and attention. So, they fall into a state of complacency, and say, ‘We are all good, nothing bad has happened.’”
It’s personal
With more options for buying online, agents are likely to hear the objection, “I don’t need you. I can buy this online.” How can agents effectively counter such an objection? One way is by getting out there where customers are and building relationships, face to face. The effort put into networking is well worthwhile.
“I’m convinced that customers would prefer to buy locally if they have the option,” says Logan. “The agency has to make the effort to present itself as an option. We do this by partnering with local contractor trade associations and attending many functions where customers and prospective customers will be. Once they get to know us, they choose us instead of using an out-of-town option they can find online.”
It’s all about educating your small-business clients so they understand what coverages they really need.
“Teach these clients the value of what you offer and how it can protect the business that they have worked hard to build,” Landry advises.
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