Small Business Coverages: Cost Effective Delivery

There is no doubt about it – purchasing insurance can be a complicated task, particularly if you are a small to mid-sized business owner. Over the last few years, small business owners have contended with fluctuating prices and availability issues. Insurers must find ways to address these issues to be successful in this segment.

The small-to-mid-sized business segment is the largest in Canada, accounting for 45% of the country’s gross domestic product (GDP). About 95% of Canadian companies employ fewer than 100 employees, and with more than 2.3 million businesses in Canada, this is a market that as property and casualty insurers we simply can not ignore. The market has traditionally been a profitable one for the insurance industry, but according to the Canadian Federation of Independent Businesses (CFIB), four out of five small business owners recently identified insurance costs as being a major concern impacting their operating profitability.

Small business owners are also expecting more from their insurance companies – pricing stability, risk management and more innovative products and payment terms. And in this respect, I believe that insurers are striving to deliver stability, service and innovation. But, capitalizing on the success of the small business segment has meant finding the balance between providing localized service and optimizing the efficiencies technology can produce.

MARKET SEGMENTATION

While Royal & SunAlliance has been active in the small business market for more than 15 years, we have recently taken a different approach to underwriting risks in this segment. Two years ago we refocused our commercial business in three major areas:

* Small business;

* Middle market; and

* Specialty business.

By making small business a specific business segment and focusing on areas where we have a proven track record, we believe the company is better positioned to provide greater consistency through the market cycles. However, finding the balance between technology and service has lead to a number of modifications. In 1999, we opened a centralized call-center to serve our commercial brokers. But, as broker expectations have evolved, we have expanded our service capabilities by opening additional call-centers in both Atlantic Canada and Western Canada (Royal & SunAlliance also has established centers in Ontario and Quebec).

Having dedicated local small business underwriters gives us two distinct advantages: the opportunity to develop stronger relationships with brokers, as well as accessing local underwriting knowledge which helps provide better service to the end client. Because the underwriting centers are regionalized, brokers often deal with the same underwriter regularly (to date, feedback from brokers has been positive).

COST FACTOR

Looking forward, controlling the costs associated with writing small risks will continue to be a major issue for both insurers and brokers. The market that can find ways to control costs for brokers is the market that will be most successful. For us, this means marrying knowledge, expertise and service with technology.

Toward the end of last year, Royal & SunAlliance launched an online quoting tool which allows brokers to quote and bind small business policies in real time. This tool benefits brokers in that it helps them to improve their customer service – they can quote and bind a policy in minutes while their client waits. But, we are also cognizant of the fact that there must be a balance between using technology to gain efficiencies to the benefit of the insurer and finding efficiencies for brokers.

Internet-based quoting tools are only the first step in solving the efficiency and expense challenges facing brokers and insurers. The web-based quoting tools are a good start and help brokers to provide better service to customers. However, by integrating these tools with broker systems and other tools will allow brokers to access multiple quotes, and bind and issue policies more easily.

FUTURE INNOVATION

Insurers are becoming increasingly innovative in providing payment options to policyholders. In the near future, the industry can expect to see expanded billing options, credit card payments, combined auto and property policies and longer-term policies. These solutions will give policyholders greater ability to control their insurance premiums, and provide more flexibility in budgeting, all of which points to greater stability in pricing. Essentially, insurers will have to present customers with more flexible payment options in order to remain competitive.

I believe that insurers will look to provide tailored insurance solutions for specific customer needs and pricing for specific risks. For example, we specialize in providing insurance solutions for retail operations. A policy written for a clothing store may not look that different than a policy for a sports store.

However, the methods insurers use to determine price is also changing. While pricing has stabilized for the most part, insurers have developed tools and processes to ensure we are charging the correct technical price for the risk. We are working to ensure that our pricing remains stable over the long-term. We believe that by developing more knowledge of our customers, which we can do by analyzing specific customer segments, the company will be better able to avoid pricing fluctuations and avoid the kind of undesirable rate hikes that were the norm of the marketplace just two years ago. “Dynamic pricing” is another way insurers will achieve that. This method, which relies on the constant monitoring of pricing, provides both insurers and insureds with a truer price for each risk and enables us to pass on benefits to customers quicker.