As the U.S. economy continues to work through its phased reopening, including pullbacks and re-starts, many small businesses are struggling and an untold number may fail. However, new ventures have emerged to capitalize on this changing opportunity. COVID-19 has impacted insurers as well, presenting both known and unknown challenges that may reinforce rate and coverage tightening that began before the pandemic.
“The market correction began in late 2018 and early 2019, with notable hardening seen in the six months leading up to the pandemic,” says Troy Santora, senior vice president of AmWINS Access. “Although the more meaningful and dramatic corrections were felt in the SME and middle market brokerage space, binder ‘main street’ businesses were not immune and saw increasing pressures pre-pandemic.”
The challenge for insureds, retailers, wholesalers and carriers will be understanding what insurable risks look like over the next 12 to 24 months, and possibly beyond, as well as how to place and renew those accounts. This article will provide guidance for retailers in navigating the complex small business marketplace.
With respect to General Liability, it is a reasonable hypothesis that many business (primarily hospitality, real estate and some retail) exposures have changed and premises claims will likely be down through the period of “shelter in place” and for some time following.
“That said, some businesses that saw increased demand, such as grocery stores, bodegas and convenience stores, could potentially see an increase of slip and falls and other premises-related claims. In either case, what we do not completely appreciate at present is the impact of loss behavior to rate and coverage levels,” Santora says.
Lessors-Risk Only (LRO), Habitational and Hotel/Motel risks will be challenged by depressed occupancy rates. Mainstreet mercantile risks will be concerned with covering the cost of overhead as foot traffic builds. In construction, while all signals suggest residential construction will continue to grow, the picture is less clear in commercial.
Property risks will also present a unique set of underwriting challenges for both the physical property as well as the concerns surrounding business income coverage. Nicola Golder, senior vice president of AmWINS Access, explains: “The retailer, wholesaler and carrier need to acutely understand the changing exposure when considering certain risks may be far less occupied than they were prior to COVID-19. A partially occupied building presents opportunity for increased severity from losses more commonly associated with vacant buildings and, unfortunately, underwriting around moral hazard becomes a very real concern.”
“The retailer and wholesaler have the shared responsibility to protect the insurable interest(s) of the small business while ensuring risk clarity to the carrier,” says Golder. “With respect to business income coverage, insureds will continue to have need for coverage while carriers wait to see the impact of regulation or legislation determinations on the strength and holding of the current and standard policy wordings that requires direct physical loss for coverage to apply.”
“Irrespective, and as we have seen in the past, carriers will continue to strengthen the wording of their policies to eliminate possible ambiguities,” says Tiffany McPartland, branch leader of AmWINS Access in Redondo Beach, California. “Each carrier will independently determine the best timing and approach of making changes.”
In this challenging and rapidly changing environment, there are five essential tips for retailers to understand new client businesses and retain renewal business.
Although pandemic conditions differ across states and regions, the insurance challenges facing buyers and brokers across the U.S. share many similarities. Yet despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business.
“Each carrier will take their own approach as to how COVID-19 impacts their view of policy wordings, risk selection, pricing and their appetite in general,” Golder states. “Although how we are all thinking about risk is changing due to uncertainty, most underwriters still have their doors open. They still want, and need, to write business. Our job as a wholesaler is to stay connected with our carrier partners in order to avail the best solutions to our retailers and the insureds.”
We are going through a new phase and whether this becomes the “new normal” in the industry, these tips will help retailers fine tune their understanding of small businesses and capitalize on the opportunity afforded by increased knowledge.
Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
(c) 2017 AmWINS Group, Inc.