The insurance buying habits of the typical small commercial customer haven’t changed much in 15 to 20 years, yet the small business owner may be in more need of the added protection given by the purchase of a commercial umbrella policy today than every before.
“The typical small commercial buyer will buy a primary policy with limits between $500,000 and $1 million,” says John Lyons, commercial umbrella assistant vice president for The Hanover Insurance Group. “That purchase of those limits hasn’t changed in 15 to 20 years.” So a business owner buying a small business owners policy 15 years ago was purchasing the same $1 million limit that today’s business owner is buying, Lyons added. “Yet jury awards have grown, medical inflation has grown, claims costs have risen, and yet the limit profile is the same.”
That trend of buying habits for small business owners today is exactly why Lyons says it’s even more important for commercial buyers, small and middle market alike, to “take a strong and serious look at the limits and coverages that are being offered by umbrellas.”
Small business umbrella
Lyons says what’s nice about a small commercial umbrella policy is that it provides a great deal of coverage, at a relatively inexpensive price. “Typically the market will offer a $1 million umbrella limit for a small commercial account anywhere from $300 to $750,” he said. “So you are getting $1 million of additional coverage over both your auto and general liability for a few hundred dollars.”
That added layer of protection is especially important for the small business owner who doesn’t have the resources to withstand larger third-party claims, says Timothy Hagen, vice president of umbrella underwriting for CNA Insurance.
“I think it is more important that small business clients understand that they operate in the same business environment as larger clients,” Hagen said. “We live in a litigious society; there’s many losses that come our way, both symptomatic and fortuitous, that lead to sizable claims in excess of the $1 million auto and the $1 million general liability policy.” That’s where an umbrella policy comes into play, which can be a useful risk management technique for the small business customer, he added.
Just about any small business owner needs a commercial umbrella policy, both Hagen and Lyons agreed.
“If you are a small business owner and you have an automobile exposure or product liability exposure, or have some contractors coming onto your premises to do work; those are areas that may give rise to litigation and ultimately (lead to) settlement of a large claim,” Lyons said.
“My feeling is that every client should have umbrella coverage,” Hagen added. “They are susceptible to the same exposures and lawsuits (as larger companies) whether auto or general liability loss.”
Both agreed there is opportunity for agents to grow their business by selling commercial umbrella coverage to small business clients.
“There definitely is an opportunity to sell more umbrella coverage, and that’s where it’s critical that the insurer and agent work together to make it as simple as possible to provide the client with an option to buy umbrella coverage,” Hagen said.
Agents have to educate their small business clients about potential catastrophic claims they might be susceptible to bearing without umbrella coverage, Hagen said. And from a carrier prospective, a focus on ease of doing business must be addressed when writing small business umbrella, he added.
“Carrier’s attitudes toward umbrella in small business are really a function of how much investment and dedication the carrier is willing to make, to make the process easy for the agent,” Hagen added. “Certainly that requires a lot of IT investment and also a dedicated sales force that helps identify the agents who have that business.”
Hagen noted that it’s a different way of doing business than it is for those insurers focusing on Fortune 500 business.
The Hanover’s Lyons agreed, noting that his company tries to make the umbrella product an integral part to the total product solution. “We have developed our system to include umbrella, so agents are able to quote not only the primary policies but are able to quote umbrella up to $5 million.”
Good time to buy
All in all it’s a good time for agents and brokers to identify their small business customers in need of commercial umbrella.
“The current state of the umbrella market is a healthy, competitive market with adequate capacity,” Hagen noted. “Certainly there’s ebb and flow in the excess casualty marketplace like there is in other lines of business, but right now we have a pretty competitive marketplace.”
The Hanover’s Lyons says many of his company’s successful agents and brokers will automatically quote an umbrella on most if not all of their small commercial accounts as part of their new and renewal process. “And the insured will have an opportunity to review the coverage and hopefully realize the affordability of it,” he added.
“The timing is right to purchase the coverage,” Hagen said, “not only from a market place perspective, but again because of the litigious environment” small businesses do business in everyday.
Topics Agencies Commercial Lines Excess Surplus Business Insurance
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