Canadian Underwriter

Size doesn’t matter

July 18, 2018   by Greg Dalgetty

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People start their own businesses for a variety of reasons. They could be chasing a dream. Perhaps they just want to be their own boss. Or maybe they’ve got that million-dollar idea no one else has thought of.

But it’s rare that people start their own businesses so they can immerse themselves in the world of insurance. In fact, commercial insurance often enters the mind of a small business owner only because it’s required by a bank loan application or lease agreement.

“When people are out on their first venture—they’ve never run a business before, they’ve never had to think about business insurance—they don’t understand what it is that they need to protect,” says Chris Sevdalis, senior vice-president, Ontario GTA, distribution, with Aviva.

Brokers therefore play a crucial role in educating small businesses on their insurance needs. But communicating with small businesses isn’t quite the same as dealing with larger clients.

“Larger commercial clients may have someone on staff who is dedicated to insurance itself, where with small businesses, the owner is typically the general manager, the HR person and they’re in charge of the insurance as well,” notes Glen Bates, national vice-president for SME at RSA Canada. “They probably do it at the side of their desk, or at night when they’re at home.”

“Some of them are going to grow very quickly, and as they do, their risk profile is going to change with that growth.”

Paul Martin, president and CEO of RRJ Insurance Group, notes that communication is key to a broker’s success with small business clients.

“In meeting with my business teams that write a lot of small business, they really see the value in being able to respond with personal service and advice-based business and be able to make sure that they fully understand what the client does,” Martin says. “Because if they don’t, that causes potential errors and omissions down the road.”

Overlooked coverages

Since commercial insurance can often come as an afterthought to small business owners, they may not have much of an insurance budget, tempting them to opt for the bare-bones coverage necessitated by a lease agreement.

“Any broker out there wants to look at what the exposures are, as opposed to what the contract asks for,” advises Vince Imbrogno, a client manager with Pearson Dunn Insurance Inc. who works with small businesses. “We need to make sure they know their exposures.”

While price can be a sticking point for small businesses, they may not be aware of how much it could cost them by being underinsured. They may also overlook certain types of coverage, such as professional liability insurance.

“If a consultant recommends a certain way of doing business and that way of business actually loses a company money, the consultant could get sued by that company,” Imbrogno notes. “Most people don’t think about that. They’ll think, ‘I’m providing the service and they don’t have to listen to my advice. I’m not doing them any harm—I’m just giving them my advice.’ But you’re presenting yourself as a professional.”

Business interruption coverage can also get overlooked, as well as cyber insurance, Sevdalis notes.

“That might be the most overlooked coverage, and it’s interesting because small businesses can be really easy targets for hackers,” Sevdalis says. “A lot of small businesses are retailers. They’re housing credit card and banking information. That’s the type of thing that the hackers want, because it’s great stuff that they can resell.”

A balancing act

Time can be at a premium for small business owners. Long hours often come with the territory, which can mean activities like researching insurance get relegated to the evening hours.

“Consumers are expecting on-demand service, and my view is that delivering it is no longer a competitive advantage— now it’s table stakes.”

“If you’re a broker in small business, I think your web presence is very important because that’s where your clients will probably go first,” Bates says. “The more a broker can have online to help their client do their own research, they better suited they’ll be as a trusted advisor to their client.”

Since it’s likely many small businesses won’t be doing their research during business hours, it’s all the more important for brokers to respond as quickly as possible to their queries.

“They want fairly immediate, good service,” Martin says. “Returning phone calls, competitive pricing, the ability to give advice, claims advocacy—I think they expect all of these things.”

But, with small businesses not being the most lucrative of commercial clients, going overboard to serve individual clients isn’t always a profitable use of a broker’s time.

“You may see brokers selecting not to be in that business at all because it’s too time-consuming,” Martin notes. “[Small business owners] can be needy and high-service, at least for the first year, and then sometimes they fall into a routine.”

The challenge, then, becomes making sure clients are served as efficiently as possible.

“It’s interesting, because the small business owner needs the advice, but time is money. You’ve got to be able to justify the amount of time you spend on a transaction,” Sevdalis says. “But there’s no reason why we can’t collectively find a better way to engage a customer and, quite frankly, save costs at the same time. That can get returned to the consumer, in a better user experience and a better price at the end of the transaction.”

This makes the digitization of the broker-client relationship increasingly important. When clients can fill out online applications with digital signatures, they’re not only served more quickly, but brokers can spend their time more wisely. But small business owners are also consumers who may expect to be able to purchase insurance online without the need for any human interaction.

“What does need to change is how brokers and small businesses interact. Consumers are expecting on-demand service, and my view is that delivering it is no longer a competitive advantage— now it’s table stakes,” Sevdalis says. “I think there’s a big prize for the insurers and the brokers who figure this out.”

Keeping in touch

Successful small businesses are apt to grow and possibly branch out into different types of business, so the onus is on brokers to maintain a constant line of contact with their clients to ensure they’re adequately covered.

“I’ve got to know if someone is in a unit making widgets and then they all of a sudden decide to switch to making brake pads,” Martin says. “If I don’t ask them that, years could go by before anyone realizes it.”

And as businesses branch out, they’ll find themselves exposed to new risks.

“You’ve got to be able to justify the amount of time you spend on a transaction.”

“Some of them are going to grow very quickly and, as they do, their risk profile is going to change with that growth,” Sevdalis says. “It’s not only the initial consultation that’s really important; it’s the ongoing touchpoints that are just as important.”

Some small businesses may be doing business around the globe, further complicating their risk profile.

“Small businesses, with technology, are having more of a global reach for sales,” Bates says. “These guys need a lot of advice about where their products are going around the world and where their reach is. You need a special expertise to make sure you’re getting the right advice for where your business is going.”

Business owners may also need to be reminded that their broker must be advised of any physical changes made to their place of business.

“One thing I see often enough is either underinsurance or omission,” Bates says. “That could be on the property side, where someone might put an extension on a building and not tell their broker, and then when a loss happens, they realize they didn’t update their insurance policy.”

Brokers who don’t dig deep into their clients’ businesses risk leaving them exposed—which can be bad news for both the broker and client.

“I love understanding people’s businesses and what they’re doing,” Martin says. “I love being able to dig down and make sure I’ve got all their exposures covered so I’m not just selling them something that’s cheap that really doesn’t cover it, because I’m not doing my job at that point in time.”

Copyright © 2017 Transcontinental Media G.P. This article first appeared in the October 2017 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.