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The Need to Educate on General Liability

In a perfect world, insurance buyers would understand their products just as well their insurance agents. This would save a few headaches for everyone involved, and it would probably streamline the process on all ends. However, the reality is that most business owners don’t understand the extent of the insurance products they purchase. Then again, no one should expect them to.

Insurance products are highly complex vehicles. Few business owners have the time to invest in becoming experts in the field or in the products they purchase. Even the best insurance agents spend years learning about the products they sell, many of which change frequently as the economy changes.

That being said, no business owner should simply buy a product without understanding the most important aspects regarding what it does and does not cover. In truth, a highly skilled insurance agent should never let them, either. Here’s where there can be a gap between how much insurance a business purchases and how much it actually needs, showing why educating business owners on the extent of their insurance really matters.

False Perceptions of General Liability Are Common

Many customers tend to believe their insurance covers more than it actually does. This situation could probably be applied to any insurance product, but general liability policies are often the most frequently misunderstood by buyers.

See also: What to Expect on Management Liability  

To put it simply, far too many businesses are purchasing less insurance coverage than they should. In a sense, many are taking a huge gamble, believing their risk exposure is less than what it actually is or that their preventative measures, such as employee training, can shield them from those risks. While risk prevention definitely helps, it’s ultimately far from the bulletproof shield many companies think it is. Most companies do it to help themselves get a better rate on their insurance, while maintaining the false perception that their general liability coverage protects them against a multitude of risks not actually defined in the policy.

As a company scales in size, so, too, does its likelihood of experiencing losses related to cyber liability, employee fraud, fiduciary liability, directors and officers (D&O) or workplace violence. Yet many companies seem not to realize their exposure.

This would, of course, be less troubling if companies were purchasing policies that actually covered those kind of risks. Overwhelmingly, they’re choosing to avoid those insurance products altogether. According to Chubb’s survey on private company risk, non-purchasers believed their general liability policy covered:

  • Directors and Officers Liability (65%)
  • Employment Practices Liability (60%)
  • Errors & Omissions Liability (52%)
  • Fiduciary Liability (51%)
  • Cyber Liability (39%)

Businesses aren’t failing to purchase enough liability coverage because they’re unnecessary risk takers. Most, it seems, simply have false perceptions about what their general liability will and won’t do.

A small business may think its general liability policy covers a server hack. Yet, lo and behold, when a server gets hacked and the ensuing liability claims start pouring in, that small business may quickly find itself underwater. In fact, the U.S National Cyber Security Alliance found that the 60% of small companies went out of business within six months of a cyber attack. This seems extreme, but the average cost for a small business to clean up after a hack is $690,000, according to the Ponemon Institute. How many small- or medium-sized businesses can easily absorb that kind of cost without insurance coverage? Not many.

Similarly, mid-sized companies may believe their general liability policy covers directors and officers, leaving the company with unnecessary risk exposures should an incident occur. If, for example, a company begins operating internationally and fails to effectively meet one of the federal regulations governing its industry, a general liability policy won’t help protect the company from impending lawsuits. Any directors held personally responsible may find their own personal assets at risk. Given what we learned from the Chubb survey, it’s quite likely that most directors may think they’re fine with the minimal coverage they receive from a general liability policy. A costly mistake, to be sure.

Who’s to Blame?

We’ll leave the finger pointing aside for now and settle on this: The customer is always right, but he’s not always well-informed. As every insurance agent knows, the amount of time it takes to fully understand an insurance product can be extensive. Business owners, in general, lack the time to invest in fully understanding the products they purchase. It should come as no surprise, then, that misunderstandings arise over what general liability policies actually cover and what risks they simply won’t mitigate.

See also: ISO Form Changes Commercial General Liability  

Insurance agents have a responsibility to use their knowledge to help business owners better understand and sift through those misconceptions. More needs to be done to help decision-makers understand what they are and are not getting from their insurance.

Helping businesses better understand the ins and outs of their general liability policy is a win-win all around.

Fast and Slow: the Changing Landscape

From tracking our steps and calorie intake to the way we request taxis, technology has bled into almost every area of our existence. But not every industry has been able to move to a digital experience. The insurance industry is one of the least tech-savvy industries out there — but it’s also a $1.1 trillion market. That is is why investors and entrepreneurs have begun tackling it, vowing to make every process within the insurance realm friendlier, easier and, most of all, digital.

Where the industry stands today

Emerging technologies have had little impact on improving the carrier side of things. Though carriers have built systems to make a broker’s life easier, these systems are largely outdated and clunky.

These systems also have not addressed a larger issue: Small businesses are largely underserved in the commercial insurance world. Because the cost of acquiring a customer is high, brokers spend the majority of their time serving bigger businesses, which have more risk and higher premiums.

Insurance brokers do not have the means to acquire small businesses in a cost-effective way, nor do they have the structures in place to support the digital customer.

See also: Technology and the Economic Divide

Unless you’re a company like Apple, you likely don’t have the luxury of innovating quickly; that is because there are often many layers of management standing in the way of making a quick decision. The insurance industry has found itself woefully unprepared to respond to the drastic change in our economy. The scrappiness you see in corporate innovators was absent; the status quo of bad process was king.

Customers have higher expectations today than they did 20 years ago; couple that with changing demographics, and insurance companies start to feel the burn. Customers expect a seamless experience: that is, easily educating themselves, getting a quote, purchasing insurance and easily managing that insurance.

However, insurance is a much more complex buying process than consumers are used to. Customer expectations are mismatched with the way insurance is currently purchased, and Insurtech start-ups are seizing the opportunity to redefine this process.

Insurance is necessary. It allows us to protect ourselves, our businesses and our worldly possessions. But the process is outdated.

So, nothing has changed?

No one entity owns the insurance buying process, which makes it a slow-moving and often disjointed experience for customers. Things ARE heading for a change, though; it’s just been a slower change than other industries because of the complicated web of reinsurers, insurers, intermediaries and retail agencies that all have a stake in crafting the process.

The right financial resources are being allocated to figuring out this process; insights are being learned from making consumer applications intuitive; and the incredible power of the internet is becoming easier to access within the insurance industry.

Here’s what we’re already seeing:

  • Data: Carriers are using data in a smarter, better way. Machine learning and the computational power that is available nowadays allow carriers to slice and dice data in ways that were never a possibility before. As a result, rates are better matched to a customer’s risk.

The use of data in insurance has been game-changing from a customer perspective, a carrier perspective and a broker perspective. One of the earliest ways data was adopted by the industry? Price comparison tools for auto insurance. Now? Progressive is offering cheaper pricing for safe drivers by measuring things like speed and braking through a tool called Snapshot–which plugs directly into a consumer’s vehicle.

See also: Blockchain Technology and Insurance

In life and health, carriers are using data gleaned from wearables, such as the ever-popular Fitbit, to create an experience that encourages insureds to participate in less risky behavior and provides incentives to participate in healthy activities.

  • Speed and Ease: The use of third-party data has also opened the door for carriers to ask only the most relevant questions during the application process, which means shorter, better and less nitpicky applications overall.

SEMCI, or Single Entry Multiple Company Inquiry, is something we see more and more carriers take advantage of. The SEMCI approach enables brokers to obtain quotes from their markets. So, instead of spending hours filling in data and searching for quotes one at a time, I can get four quotes from four carriers within 90 seconds.

Customers are now used to driving to their agent’s office and signing paperwork or faxing paperwork directly to a carrier, but this has become too arduous in a world where everything is fast-moving. So, companies like CoverWallet are creating a more digital experience for business owners seeking insurance. CoverWallet allows customers to buy and manage insurance from the comfort of their own homes by leveraging technology and taking a more intuitive approach to interviewing the customer.

Paper applications were replaced by carrier portals where agencies manually entered data into their systems. Now, portals are being replaced by APIs and web services to stream information in an efficient and low-cost way.

There’s still a long way to go

It would be unfair to say that start-ups alone will change the face of the industry; the truth is carriers, brokers and innovators will all have to work together to create real, lasting change. The industry has taken steps in the right direction, but it’s nowhere near game over for innovation.

Over the next year we’ll see:

  • Improvements in accessing information and education: The information that’s found online surrounding insurance will become more personalized. For instance, what insurance does your business need if you live in a certain state and work in a specific industry?
  • Emerging technologies present new opportunities: From data breaches to drones, new technologies have made carriers and start-ups take a look second look. How do you access risk and intelligently price new technologies with little information?
  • Even smarter incentives: Wearables might be just the beginning for incentive-based pricing. We’re looking at an untapped market for incentive-based commercial insurance, but expect that to change in the near future.
  • Friendlier service, any way you want it: Most carriers are providing service on the phone, but it’s impossible to think that won’t change, and fast. Expect to get in touch with a carrier or broker via email and chat–sooner rather than later.

See also: 4 Technology Trends to Watch for  

At some point, change becomes easier than staying the same, and that’s where the insurance industry is now, if for no other reason than the consumer demanding it. Venture capitalists and entrepreneurs who have entered the space see the opportunity, and it’s up to carriers and brokers to seize it by working with entrepreneurs or innovating themselves. What they’ll choose is yet to be seen.