Product overview: Small commercial combined

Small businesses face a variety of different risks, making insurance a valuable purchase. Providing them with a packaged product that combines all the cover they need gives them the reassurance of protection but also a more streamlined experience if they do need to make a claim that crosses over more than one business line.  

Insurers started to bring together different lines of business to create commercial combined products in the mid-1990s, with technology making it easier to offer everything within one package. “It started out with spreadsheets with macros,” says Keith Hector, director of commercial operations and distribution at Covéa Insurance. “Then broker software came along, making it much easier to compare products and do quote and buy. Thanks to technology advances, the market has really gathered momentum over the last 15 years.”

Efficiency is everything at the smaller end of the market, with insurers looking to e-trade and digitally-enabled underwriting to reduce the need to manually intervene with these risks. “Insurers prefer to not touch the sides with these smaller risks,” says Rob Hughes, managing director broking and placement – retail specialty at PIB Insurance Brokers. “Most will put these products on the broker systems so the first port of call is to use these to find an appropriate product from multiple insurers.”

Tailoring cover
This efficiency means that products at this end of the market are increasingly commoditised, with most offering standard levels of cover plus a range of options to enable further tailoring. Insurers will also work with brokers to create schemes to suit specific niches or industry sectors.

Lisa Petherick, client director at Konsileo, would like to see more options included on these products, reflecting the increasing diversity of the SME market. “My focus is on science and technology, which can bring different risks to those faced by your more traditional small businesses,” she says. “It would be good to include intellectual property insurance on small commercial combined products. These businesses need this type of cover.”

While she’d like insurers to broaden the range of optional extras, she also recognises that some of the add-ons aren’t taken-up to the extent they should be. “Very few small businesses take out cyber where this is included as an optional extra,” she says. “Take-up is less than 10%. I can understand insurers’ reluctance to include it as standard as a significant volume of claims could come through, but it is a risk that most businesses face.” 

Market rates
With small commercial combined products bringing together different lines of business, premiums are dependent on the fortunes of each of these. David Jones, director of underwriting, property & packaged at QBE Insurance, says there have been some recent rate increases in the market. “It’s been driven by long-term low underwriting returns as well as increased inflationary pressures post-Covid-19 and post-Brexit,” he adds.

Brokers are also aware of this upward trend, but are not overly concerned about finding suitable cover for clients. “Rates are increasing, but not massively so,” says Hughes. “We might see a single to low double-digit increase, although it will depend on the class of business.”

For instance, while lines such as property, directors and officers and professional indemnity are hardening, liability lines are only seeing modest increases. As well as the mix of lines, Petherick says that competition helps to ensure cover is available for clients. “There is plenty of capacity in this market. You can still match a deal by looking around,” she adds. 

Business risks
Rate movements may be manageable, especially given the competitive nature of the small commercial combined market, but there also needs to be awareness of the shift in risks facing SMEs.

Both the pandemic and Brexit have rewritten the risk landscape for small businesses. Jones says there’s now greater emphasis on employee and public safety as a result of the pandemic. “This places greater liability risk on businesses,” he explains.

Claims could come from employees with musculoskeletal or mental health problems as a result of home working or where an employer hasn’t put adequate safety measures in place in the workplace. And, once furlough ends and employers have to make decisions about staff numbers, it could trigger more of these claims.

“We’ve also seen businesses experiencing supply chain disruptions from both the pandemic and Brexit, while also dealing with labour shortages,” adds Jones. “Additionally, they’re having to adapt to changing customer demands, such as a shift to online trading, which can open businesses up to new risks such as cyber.”

As well as advice on appropriate cover, this new risk landscape also requires the insurance industry to provide more risk management support. Throughout the pandemic, brokers and insurers have supported their business clients and helped them continue operating, however the business morphed. This advice will continue to be essential as businesses move forward.

Product development
Products are likely to adapt and factor in these new risks to ensure they continue to meet the needs of small businesses. Jones expects to see more innovation, pointing at areas such as employee wellbeing, cyber and reputational risk factors such as environmental, social and corporate governance and human resources issues, which are already being seen in larger organisations.

There could also be advances in the underwriting process, with Petherick expecting to see insurers using more data to verify proposals. “Insurers have access to more data about these businesses and, by using it, they could ensure that they have the right cover,” she adds. “Where they do this, they need to promise that if their data is inaccurate, the insured is still covered. This would benefit the market.”

Although this market is so dependent on technology, the personal touch remains essential. “We need to be able to speak to the underwriter if we have a query or attach additional information to support the proposal,” says Hughes. “Even the smallest risks sometimes need to be handled on a bespoke basis.”

Hector agrees. He says that a good referral service is essential. “Brokers and their clients need to get a quick response if they have any queries. This must not distract from the straight though system,” he explains. “The technology is there, and constantly improving, but these small businesses vary enormously so we must always ensure that brokers can speak to someone where needed.”

*Correct as of November 2021*