Posts Tagged ‘Business Owners Policy’

Buying the Best Insurance for Your Business

Sunday, December 20th, 2009

New York TimesThe small business section of the New York Times published an article titled “Buying the Best Insurance for Your Business.” I was among the experts quoted in a piece focusing on business interruption insurance. Too often small business owners focus on property damage and overlook the need to protect against revenues lost when disaster strikes. The article reports that the owner of a beauty company whose business experience a fire learned this lesson the hard way. The article also provides helpful tips on purchasing general liability and workers compensation insurance.

Business Owners Policies and the Recession

Friday, June 5th, 2009
Not the Business to Be In Right Now

Not the Business to Be In Right Now

MarketStance, a research firm that provides analytics to the insurance industry, offered an unusual perspective on the significance of the recession for smaller businesses. They report that “the depth and duration of the current recession, when combined with the financial crisis and current soft market conditions, represents a perfect storm of unique proportions for the commercial lines industry.” In an earlier blog posting, I explained how the dual threats of poor underwriting results (due to high catastrophic insured losses in 2008) and poor investment performance signaled rising rates for insurance. Cash flow underwriting, a strategy for profitability in which returns on the investment portfolio compensate for underwriting losses, no longer works in this market.  Insurers have the choice between hunkering down and waiting for the cycle to turn or proactively managing their books of business to try to reposition for profitability. MarketStance believes that $600 million of business owner policy premiums will be lost through year-end 2010 as a consequence of the recession. These losses will result from both business failures and declines of surviving businesses in recession-sensitive segments of the small business sector, such as the construction industry. But over the same time frame, four times as much new premium potential will emerge from new business formation and growth, more than offsetting the losses due to the recession. The white paper published on MarketStance’s website, presenting an analysis of the business owners policy market, is really about the possibilities of entrepreneurship and creative destruction.

Their research found that 60% of the small business market, roughly $14 billion in written premiums, is experiencing significant stress due to the recession. Not surprisingly, this varies significantly by region, with states such as Arizona and Michigan faring worse than average. But states such as Nevada and Florida are doing much better than average, notwithstanding their experiences with the construction boom and subprime mortgage crisis. Other states, such as Texas, Alabama, North Carolina and Maryland, have more broadly diversified economies, with most of their small businesses working in either growth areas or at least areas that are not tied to the economic cycle, such as tourism. For policymakers, this report offers an instructive lesson on the benefits of economic diversification. For small business owners, it is a lesson on the importance of choosing a suitable business niche. But recession-sensitive or not, all small businesses must prepare for what will likely be a challenging insurance renewal season.