Increased competition by property and casualty insurers for the small to medium-sized business (SMB) market is leading to lower prices, more specialized packages and better service for SMB customers.
The cyclical nature of the insurance industry is one of the main contributors to lower prices, said Frank Maurer, vice president of commercial sales with Waukesha-based R&R Insurance Services Inc.
During the 1990s, property and causalty insurance prices fell steadily. Prices began rising in 2000, and skyrocketed after the terrorist attacks of Sept. 11, 2001, Maurer said.
“The correction began slightly before 9-11,” he said. “That threw it from a correction to a major correction.”
By 2004, most business customers were hit with 50 to 200 percent increases for their property and casualty insurance, Maurer said.
The price spike ended in 2005 when property and casualty insurers began to lower their rates in an attempt to gain market share.
At the same time, national insurance companies grew more interested in selling in Wisconsin, largely because of the state’s lack of natural disasters, and because of the many small to medium-sized businesses here. Small to medium-sized businesses are attractive to property and casualty insurers because those business owners are usually involved in day-to-day operations, said Jon Borgen, assistant vice president for commercial lines with Madison-based General Casualty Insurance Company of Wisconsin.
“There is less product liability and less hazardous operations (for most small to medium-sized businesses),” Borgen said. “The nature of smaller businesses and what they do means higher profitability for the industry.”
National insurance companies are also experiencing external pressures to compete in new markets, like Wisconsin, Maurer said.
“From a practical standpoint, it’s Wall Street (that is pressuring national insurers to come into Wisconsin),” he said. “They need a strategic plan to grow. Regardless of what state you’re in, you have a need to grow.”
The growing number of national insurers competing for SMB customers in Wisconsin is making the market more challenging for local insurance companies, said Rob Jacques, vice president of commercial underwriting for West Bend Mutual Insurance Co.
“We do see the national carriers, the big insurance carriers, they are now changing the marketplace,” he said. “They’re getting more aggressive and they’re making it harder for us.”
To better differentiate itself, West Bend Mutual is working now to revamp its business owners’ policies, Jacques said. The company will be expanding the numbers of classifications for different types of businesses, as well as the types of risks it will cover.
“We are a generalist when it comes to insurance, and we need to become more specialized in different areas,” he said. “We need more crisp pricing and more product-specific pricing.”
West Bend Mutual is also looking to create different niche areas of commercial business for itself, including retail stores such as kiosks in shopping malls, upscale men’s stores and coffee shops, Jacques said. New products could be offered as early as the second quarter of 2008.
The new products will also likely include options to include coverage for e-commerce for small businesses, Jacques said.
“We’re looking into some type of coverage in that arena,” he said.
Generally, when rates fall and more national insurance carriers enter the Midwestern marketplace, prices fall and new types of products for commercial clients are offered, said Roy Bubeck, president and CEO of Milwaukee-based Badger Mutual Insurance Co.
Some insurance carriers have started including equipment breakdown coverage for small to medium-sized business clients, for example. Badger Mutual has offered equipment breakdown coverage for five years, Bubeck said.
“One of the things a soft market does, other than (lower) price, is carriers begin throwing in extra coverages that aren’t necessarily demanded by the public to make their product look different,” Bubeck said.
Badger Mutual has lowered its prices somewhat, Bubeck said, but not as much as some of its competitors.
“We try to be consistent,” he said. “As rates go up we try not to follow, and we try not to come down as much when they go down. We try to provide quality service and products so that the customer realizes we’re in it for the long haul.”
Jim Stranberg, area manager of commercial lines for Sheboygan-based Acuity, said his company tries to send a similar message to its customers. National carriers typically are only interested in Midwestern SMB customers during a soft market, Stranberg said, and the company makes sure its customers know it.
“We work hard to make sure our underwriting stays consistent,” he said. “We were enthusiastic about the SMB market five years ago, we’re enthusiastic about it today, and we will be enthusiastic about it five years from now.”
Instead of developing many different products for small to medium-sized business customers, General Casualty has designed more inclusive policies, Borgen said.
“Business owners don’t want to spend a lot of time on insurance,” he said. “They can get a very comprehensive property and liability policy that will address, without a lot of modifications, most needs that a business owner will have. Agents and their customers don’t have to spend a lot of time thinking about what is covered and what is not.”
For example, most commercial insurance products offered by General Casualty now include equipment breakdown coverage that also covers computers.
Acuity has also created more customized insurance packages for general contractors, one of the main SMB categories it courts, Stranberg said. The company offers business interruption coverage for contractors, which maintains cash flow if a large piece of equipment is stolen or breaks down.
General Casualty and its competitors have changed what they think of as small businesses, Borgen said. The industry now considers hotels, restaurants and auto repair businesses, as well as retail, wholesalers, law practices, dental offices and more as small to medium sized businesses.
Prices for that category are also falling.
“Right now, (customers) are seeing modest price reduction in small commercial because of the improved profitability and competition,” Borgen said.
Competition for SMB customers will continue to be high through 2008 and into 2009 at least, Stramberg said, barring any major events.
“If we have massive terrorist attacks and the coasts see massive hurricane losses, it will take some of the capital in the insurance industry and reduce it dramatically,” he said. “Acuity writes business in the Midwest, where we are nowhere near as affected as these things as national (carriers). We’re not Traveler’s or Hartford, with $100 million exposures on the coasts.”
