6 Ways Insurers Must Evolve to Help Small Businesses Navigate Emerging Risks

Meeting the risk management needs of today’s small businesses requires just as much finesse and sophistication as carriers tend to offer to large enterprises.

By: Raquel Moreno | September 19, 2022

Insurance agencies and small businesses alike are facing a period of communication transition.

Long gone are the days of picking up a phone or popping something in the mail to keep business flowing. Today’s world of text and email is all about brevity and efficiency.

In the small business insurance space, the winners will be those who “don’t just digitize existing services, but who use digital engagement to provide value in new ways,” said Jeff Duncan, head of commercial lines, property liability at AmTrust Financial Services.

“More and more customers are expecting not to just communicate with their insurers digitally, but that the digital channels can provide additional value to them well beyond just calling for an auto ID card or using an app to report a claim,” Duncan said.

And a similar dynamic is required in the relationship between carriers and agencies. Today’s brokers and agents need to swiftly determine which carriers can offer the robust coverage their small business customers need.

From launching API integrations for seamless quoting and binding interactions with agencies to offering a solid cyber insurance solution for small businesses, AmTrust Financial Services has invested in resources to help small businesses anticipate threats and develop their risk management strategies.

“The future is not in reactive protection,” Duncan said.

There are six ways small business insurers can make sure they avoid dismissing the needs of today’s small businesses.

Provide Malleable Solutions to Policy Service

Jeffrey Duncan, head of commercial lines, property liability, AmTrust Financial Services

Meeting small business insurance needs begins with understanding the requirements of agents and brokers.

There is a common business model in the insurance industry among large carriers that relies upon agents using service centers operated by those carriers to manage their renewal book, Duncan explained.

“One of our hypotheses is that service centers are often band-aids for poor technology, especially at a time when some carriers are pursuing direct-to-consumer models,” he said. “Agents are going to be increasingly concerned about the service center model, and who they allow their clients to be managed by, and how they allow that management to take place.”

Seeing this trend, AmTrust is taking a malleable approach to policy service.

By using application programming interfaces (API) and microservices, AmTrust has focused on providing a low-touch and cost-effective mechanism for agents to build their own customer experience for their clients.

This allows agents to fully engage with AmTrust on their terms rather than being forced into a customer experience and process built by a carrier, Duncan said. “That said, we know that some agencies value the service center model, and we are exploring ways to meet that need,” he added.

Anticipate the Needs of Small Business

For Duncan, delivering value to customers begins with looking at how clients interact with a company, and then considering, “What is the need behind that request?”

“We’re investing in both technology and in product innovation in order to not only meet today’s small business needs, but to anticipate and watch for the needs that continue to change in the future,” he said.

As a well-known workers’ compensation insurance provider, AmTrust is aiming to broaden its known spectrum as a provider of comprehensive insurance solutions for small businesses — and in a holistic way, Duncan said.

A critical part of knowing what small businesses need comes down to understanding the issues they are facing. Regulatory risks in the realm of workplace safety and cybersecurity are top of mind for Duncan.

“The last two and a half years in the COVID-19 experience, we saw businesses caught between sometimes conflicting state and federal rules about, for example, vaccination and mask requirements.”

“Small businesses are trying to run a business, and they don’t have a lot of time or resources dedicated to managing a very volatile regulatory environment.”

“Another example is cybersecurity,” he continued. “As states and the federal government are starting to impose obligations on businesses with regard to how they hold customer data, or how secure their websites and other portals are, it’s not just good business to have an extremely secure portal or have confidence in your data retention capabilities, but now there’s regulatory risk, including potential financial fines around the failure to do that.”

Taking Care of Cyber Hygiene

AmTrust offers cyber insurance for major events, but sometimes it comes down to helping insureds manage their cybersecurity hygiene first.

“Where I think the future lies is not just reactive protection, but in using technology to anticipate areas of risk in small businesses or in agencies, digital assets or IT infrastructure, so that long before a phishing attack occurs, you’ve identified the ways that it’s most likely to occur.”

“Long before a denial-of-service attack occurs, you’ve identified the weaknesses in your architecture and ideally started to address them.”

One of the ways AmTrust is evolving its product suite beyond insurance coverage is to better enable small businesses to evaluate their websites and their systems, and to proactively protect themselves.

“Insurance is, by nature, a reactive product, but it need not be,” Duncan said. “Just like we engage in loss control for workers’ compensation and help small businesses understand how to better protect their employees so they avoid the claims in the first place, we’re looking at ways to do something very similar from a cyber risk perspective.”

Getting Ahead of Reputation Risk

Managing their online reputation is also top of mind for many small business operators. With vocal customers taking to the web to share their experiences with products and services of all types, businesses now face significant reputation risk, Duncan pointed out.

“Great small businesses as well as great agencies are going to not just [hope] for quality engagement on review sites, but actively seek to cultivate the image they want through those review sites,” he said.

“That means engaging on them as well. When somebody has a bad experience at your business, and inevitably that’s going to happen at the best of businesses, how you react to it … importantly, how you react to it on the review site can turn that into a powerful brand motivator, or conversely, it can harm your brand.”

Cultivating a Better Employee Experience

Labor shortages, wage growth and wage inflation have many small businesses looking more closely at the employee experience they provide. Organizations of all sizes are looking to foster opportunities for individual connection and cultivate a quality experience for employees.

“In an environment of massive labor shortages that’s leading to wage growth, wage inflation, and a really competitive market for labor,” Duncan said, “the best employers are going to be thinking not just about wages in isolation — even though that’s an important part — but about overall employee experience.”

“While very large organizations have the resources to invest heavily in the employee experience, small businesses probably do not have quite the same level of resources, but they do have the individual connection with their employees,” he said.

AmTrust is positioning itself to provide small businesses with insight toward cultivating improved employee experiences in tandem with cultivating quality customer experiences.

“A way to keep your employees for the long term, a way to attract them and keep them, is to make your workplace a lot more engaging to be in,” Duncan said. Ultimately, this translates to customer experiences.

Provide Service within Reach

As seamless as digital engagement with agencies handling small business insurance could become, times will arise when a situation is specific enough for a phone call. And carriers working with small businesses must be able to get someone on the phone to help an agency clear the roadblocks to coverage for their clients.

“Because we’re so focused on the small business space, and because we’re a relatively young and flat company, agents that do business with us have a high degree of access to all levels of the organization,” Duncan said.

“There’s a lot of small agencies that somebody goes out and hangs a shingle on a storefront and tries to make their way in the world,” he said. “We’re barely 25 years old ourselves and we can empathize with that entrepreneurial spirit.” &

Raquel Moreno is a staff writer with Risk & Insurance. She can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.

6 Ways Insurers Must Evolve to Help Small Businesses Navigate Emerging Risks