With Royal & SunAlliance's new Business Assurance Center, reaching small businesses is as easy as B-A-C
By Elisabeth Boone, CPCU
Chris Mower is vice president and manager of Royal & SunAlliance's e-Business Solutions.
Enron ... Arthur Andersen ... Merrill Lynch ... One after another, these and other icons of American business are reeling from the repercussions of bad management, bad judgment, and bad reporting.
As these sordid tales unfold, insurers are experiencing a rising tide of claims against companies' management liability coverages: directors and officers liability, errors and omissions, and employment practices liability. Litigation likely will go on for years, and payouts may be huge.
If you're an agent whose clientele is mostly small business owners, you may think that what happened to Enron or Arthur Andersen couldn't possibly happen to Apex Tool & Die or Hometown Department Store. If that's the case, you'll want to think again. Your clients may not have billions of dollars at risk, but they face very real exposures to management liability claims that could drive them into bankruptcy or keep them in court for years.
Agents who serve the small business market may be frustrated in their efforts to find appropriate management liability protection because available policies are not designed to meet their clients' needs. Another challenge is gaining access to the knowledge and support required to handle this business successfully. To help agents understand management liability concepts, identify their clients' exposures, and offer them a product tailored to their specific needs, Royal & SunAlliance-USA recently launched the Business Assurance CenterSM. This Internet-based system brings cutting-edge Web technology and common sense together in an agent-friendly environment that supports the profitable production of management liability insurance for small commercial risks.
The Business Assurance Center (BAC) is the brainchild of ProFinSM, the Professional & Financial Risks Practice of Royal & SunAlliance. Administered by ProFin's e-Business Solutions division, BAC is up and running in its launch states of North Carolina and Missouri. By year-end, BAC plans to be operational in 10 to 20 states and ultimately is expected to be active in 38 states.
Chris Gill is business manager of e-Business Solutions.
To meet the specific needs of the small business market, ProFin created ProFin SecureSM, a new policy that provides directors and officers liability, employment practices liability, and fiduciary liability coverage to privately held businesses with 100 or fewer employees. Coverage is underwritten by Connecticut Indemnity Company, a member of Royal & SunAlliance-USA that is rated A by Best's.
Going to the source
What factors did ProFin take into account when designing ProFin Secure and creating the Business Assurance Center?
"We wanted to understand the small business marketplace and what owners wanted in terms of product features, retentions, and premiums," responds Chris Mower, vice president and manager of e-Business Solutions. "We sought input from focus groups to help us develop a product that would fit the needs of small businesses and agents. We also used their feedback to design a delivery system that would add value for agents and produce a profit for the company."
What did the focus groups say? "The agents told us there was a lack of awareness of management liability exposures in the small business market, and that while they saw the value of the coverage, they were selling it primarily to protect their own E&O exposures," says Chris Gill, business manager for e-Business Solutions. Further, he notes, many smaller retail agents don't spend much time in the management liability arena and tend to work with wholesalers rather than directly with insurers. "From the small business owners, we learned that almost all of them had been the subject of either an employment-related or a benefits-related action," Gill continues. "The standard business owners policy didn't meet their needs; and, interestingly, the owners said they would be willing to pay considerably more for management liability protection than the agents
had estimated."
That's not to say, however, that cost is no object. "If a small business pays $10,000 for its total insurance package, it won't pay $30,000 for management liability," Mower points out. "Our research showed that small business is one of the largest segments of the economy and that it continues to grow. That told us there was a viable market for a competitively priced product that agents could sell and that Royal & SunAlliance could write profitably. We developed ProFin Secure to address coverage needs and created the Business Assurance Center to distribute and service the business efficiently."
Here is a brief summary of ProFin Secure underwriting qualifications:
* 100 employees or fewer
* Revenue of less than $50 million
* In business for more than two years
* Privately held and for profit (not a franchisee or franchisor)
* Corporation, sole proprietorship, or LLC
* Industries: manufacturing, wholesale, some retail and service, and agriculture
What's the rationale for the
100-employee limit? "Our automated underwriting system uses slot rating," Mower explains. "It's easier to automate the underwriting and rating for companies with fewer than 100 employees. Electronic underwriting and processing help keep our product affordable without affecting service."
BAC in action
The Business Assurance Center offers all the tools agents commonly associate with an automated policy processing system, and then some. BAC is an Internet-based electronic underwriting and knowledge management system. Prospecting, quoting, binding, and policy issuance are performed online. An online resource library offers agents 24-hour access to product overviews and benefits, policy comparisons, legal updates, and exposure analysis. After becoming policyholders, clients are given a user ID so they can download their policy forms and communicate with their agent about claims and midterm changes. Clients also can use the online library to gain access to loss prevention tools like human resource checklists, policies, and procedures, as well as articles written by attorneys who specialize in employment and management litigation.
In designing the Business Assurance Center, Mower says, ProFin has focused on meeting the needs of both agents and their clients. "We give agents a simple, easy way to do business. We eliminate the underwriter, shorten the sales and policy issuance cycle, and cut out the delays associated with using paper and mail. Not offering ProFin Secure through our bricks and mortar structure means we can afford to give agents entrée into a market they'd otherwise find it difficult to penetrate." An agent typically can get a bindable quote in five minutes and quote an entire renewal book in under two to three hours. The average annual premium on a ProFin Secure policy is $4,000; the commission rate is 12%.
"It's all about generating revenue," Mower asserts. "Everything in the Business Assurance Center is designed to help agents round out accounts, retain business, defend business by using our policy comparisons, and prospect for new business. Our objective is to help the agent sell and help the buyer decide."
For their part, small business owners benefit from a policy that meets their needs and fills in the management liability gaps found in the standard BOP or CGL policy. ProFin Secure limits are available from $250,000 to $1 million; retentions start at $2,500; and insureds are not required to submit financial statements, employee handbooks, or Form 5500s. "Our coverage is tailored for the smaller market; it's not a retrofit of existing policies," Mower points out.
High marks from agents
The Business Assurance Center was launched last December in North Carolina and Missouri. "From Day One, the feedback from agents has been universally supportive of both the policy and the process," Mower says. Many agents who serve the small commercial market are not experienced in offering management liability coverage, he remarks, and may not know how to respond to their clients' objections ("I don't need this coverage; I never get sued"). "We offer solutions to help agents position the product, overcome objections, and close the sale. We're here to be a resource for our appointed agents."
Michael Robertson is a project manager for e-Business Solutions.
Since the launch, "We've met with almost universal acceptance by agents," Gill observes. "The challenge has been helping agents shift from the old way of doing business to using Internet technology. Some agency owners need a little hand-holding, and we're happy to provide it.
"Most agents have seen companies' Internet models," Gill continues. "They look great, but then the company may leave agents on their own to figure out the system, sometimes without even a user guide. From the start, we've made ourselves available to agents. We've put a sales representative in every agent's territory, and our phone number is on every page of our Web site."
The Business Assurance Center has generated significant submission volume and is producing new revenue for agencies in North Carolina and Missouri. Using BAC technology, pre-qualifying prospects is easy, Gill says. "One of our agency relationship managers went through the renewal book of an agent in Charlotte--130 accounts--in one and a half hours on our site. The manager identified every customer who qualified for the policy and prepared a quote for each. Using the site once or twice helps agents become comfortable with it." Dun & Bradstreet plays a key role in BAC's efficiency, Gill notes. The agent simply keys in the insured's name and state of domicile, and the application is automatically pre-filled with D&B data. What's more, there's no need to submit financial statements, retirement plan statements, or employee handbooks.
Document generation software makes the application look like a traditional printed form, not like a Web page. Agents can select an application in the format required by their particular state. An electronic signature feature eliminates the need to sign hard copies. Clients can pay their premiums by E-Check, American Express, Visa, or MasterCard.
A policy whose time has come
For a number of reasons, the owners of small businesses need the kind of protection provided by ProFin Secure, Mower says. "Statistics support the value to small business owners of having customized management liability coverage and loss control procedures in place. Our goal is for every agent to sell the product to every BOP client in the agency's book." Ultimately, the Business Assurance Center is expected to give independent agents access to more than 1.4 million prequalified small businesses that need management liability insurance.
Speaking of statistics, ProFin offers some compelling evidence agents can use when presenting ProFin Secure to clients.
* In 2001 alone, 80,840 charges against employers were filed with the Equal Employment Opportunity Commission. About 40%, or 32,000, of those charges were brought against businesses with fewer than 100 employees.
* The cost for a small business to defend itself against a claim, even if groundless, can be $40,000 or more.
* Defense costs through trial can average $125,000.
* A settlement or verdict against a small business owner can easily reach seven figures.
* Plaintiffs win 56% to 64% of the time when in front of a jury.
* In a 2001 survey, the average jury award in employment practices liability cases was $218,000. The most expensive cases involved age discrimination.
(Source: EEOC, Jackson Lewis Schnitzler & Krupman, Jury Verdict Research.)
Agents can help prospects understand their management liability exposures, Gill says, by asking questions like:
* Have you considered the cost of defending a claim against you?
* Even if a claim is groundless, you still need to assert a defense. Can you afford it?
* Can you afford a $50,000 to $75,000 hit to your financial statement if you're sued for sexual harassment, even if the claim has no merit?
In response to these points, Gill says, most small business owners ask two questions: (1) Can I afford that? And (2) Do I have coverage? "Indeed, many companies are sending out letters to their BOP and CGL insureds indicating that they specifically exclude EPLI claims. Whether they realize it or not, many small businesses are now self-insuring their EPLI exposure."
Adds Mower: "Small businesses traditionally don't have formal HR procedures in place, so most carriers won't underwrite them. As a ProFin Secure policyholder, a business owner can download HR forms through a third-party company, HRLawInfo.com, that they can show their lawyer. We take a commonsense approach. We seek to understand small businesses and the realities they face, and provide a product they can afford. We think this definitely sets us apart from the rest of the marketplace."
By offering business owners broad coverage and a menu of resources, Gill comments, "We're helping make you a better company right from the start."
What's ahead for BAC?
"The Business Assurance Center is by no means a finished process," Mower continues. "Many issues remain; a major task is integrating BAC with agency management systems. Our goal is to make sure it works and is accurate 100% of the time, then expand. We built the product so we can expand both vertically and horizontally. Our approach is geared toward strategic and methodical growth. This is not an event; it's a process." *
For more information:
Phone: (866) 999-8880
Website: www.businessassurance.com