The insurance industry doesn’t always succeed in keeping pace with the changing exposures it faces every day.
Although BOP rates will remain flat and stable for the foreseeable future, expect BOP coverage to tighten in response to new risks like cyber liability—as well as emerging classes.
“The BOP today is not what it was many years ago,” says Brian Kearney, chief underwriting officer for select accounts and small businesses at Travelers. “It’s becoming much more complete and flexible—basically a commercial package policy for small businesses. It needs to have that flexibility to respond to these new emerging businesses.”
Emerging businesses in the BOP market span a variety of classes, including home health care and energy, says Dan Gaynor, vice president of commercial lines at The Main Street America Group. But in particular, agents will need to keep an eye on the small technology services area—and how these companies’ business needs complicate the BOP equation.
“It used to be that a small business was your retail guy down the street. You knew what it was, you knew what was going to go wrong, you offered them a BOP and you moved on your merry way because they produced half a million dollars in revenue or whatever the case may be,” recalls Angela Adams, head of casualty, senior vice president for Hiscox USA. “We don’t have that luxury anymore. Now, even at that level of premium, these are very sophisticated risks that need coverage outside of what the BOP provides them with.”
“As you think about emerging technology—how the economy has changed in that space and how new business models are emerging through mobile applications—that’s an area where we’re beginning to see new and different types of businesses that are either coming through with new technology or creating a new business based on a technological platform,” Kearney agrees.
It’s uncharted territory that often makes crafting the right insurance solutions tricky—especially in an industry that doesn’t have a reputation for proactivity.
“Unfortunately, we’re for the most part a reactionary industry—when we think we’re ahead of the curve, some new exposure emerges that you would have never fathomed or underwritten for in the first place,” Adams says. “And that’s what we’re seeing now, particularly with app creators that really aren’t technology companies.”
Whether it’s a true technology firm, a transportation network company like Uber or a food delivery company like Seamless, many new companies operate based on mobile apps—but some may not actually qualify as tech firms. “The classifications of these are very important,” Adams says.
Travelers requests that as agents come across these new businesses, they call the insurer first so that underwriters can “help them understand the exposures and how to best classify them,” Kearney says. “What we’re seeing is our agents are maybe not quite as comfortable understanding the technology. And it’s constantly changing, so how do we help them understand how to best protect these customers?”
“These are the kinds of things we’re truly going to struggle with as the industry starts to catch up with what we’re doing today,” Adams agrees. “As technology evolves, so will insurance, but unfortunately most of the exposures we are going to see are things we would have never predicted. Therein lies the issue: How do we get our arms around something not proven in the legal system yet?”
For example, employee classification will be an enormous roadblock for business insureds focused on home- and ride-sharing, Adams warns. “Whether you’re writing a BOP, a workers comp policy, D&O—who is the employee?” she points out. “Unfortunately, our insureds want it both ways. They want them to be a 1099 if it comes to workers comp, but if they get sued, they want them to be an employee under the GL.”
If you’re courting these types of companies with BOPs, you need to be well-versed in recent court cases that determine what policy language applies when. “Agents have to prepare the client for the fact that this could go the other way, because there is always that possibility,” Adams says. “They have to look holistically at the risk, incorporating the old-school mentality with the new mentality of being upfront with your client from day one.”
From product development all the way through to the end user, “who are all the people and what things in between could go wrong?” Adams points out. “If that’s not how you’re approaching your clients, you’re going to miss certain exposures, and then it’ll be an E&O issue.”
Don’t set your agency up for a failure to offer claim. Adams, who used to work for Johnson & Higgins in Silicon Valley, says these types of emerging business classes make it more important than ever for agents to not only carefully outline exactly which commercial coverages could be necessary and why, but also document all client decisions to refuse coverage.
“You need to make it clear that it was their decision not to purchase,” Adams says. “Then, you’ve done your job. Being able to openly communicate with and advise clients who have limited time—and who see insurance as a nuisance—is the challenge as agents go forward.”
Jacquelyn Connelly is IA senior editor.