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What To Know About the Commercial Insurance Industry in the US

February 21st 2010 Posted at Basics of Commercial Insurance
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The commercial insurance industry in the US is large and thriving. According to Hoover’s Business Information (online), “About 130,000 insurance agency and broker offices in the US generate annual revenues of $85 billion. Large companies include Marsh & McLennan, Arthur J. Gallagher, and Aon. Despite the prominence of large companies in the commercial segment, the industry remains highly fragmented: the largest 50 firms only hold a 20 percent share of the total market. The average office has five employees and generates less than a million dollars in annual revenue. An insurance agent works on the insurance company’s behalf; an insurance broker on the customer’s behalf. Many companies on the commercial side function mainly as brokers.”

Relying on the 2002 Census Bureau Economic Census for its data, Hoover’s has generated an industry financial summary for the Commercial Insurance industry. Its report says there are 12,951 commercial insurers with annual sales (premium) receipts of $366 billion, an annual payroll of $32 billion and 607 million employees.

Interestingly, and good news for the consumer, is the fact that since the largest commercial insurance companies together hold less than a 20% market share, the commercial insurance market is highly fragmented and very competitive, a situation that should hold actual commercial insurance rates down for the average business.

Among the important trends Hoover finds in the US commercial insurance agents industry today are:

  • A diminishing number of life insurance agents
  • The reduced importance of contingent commissions to agents and brokers
  • The consolidation of insurance companies
  • The increasing use of the internet for commercial insurance research by consumers
  • The decreasing importance of telemarketing and call centers for sales of commercial insurance policies

The reduction in the number of life insurance agents is attributable to stagnant growth in new premium revenue, and the Bureau of Labor Statistics outlook says the total number of life insurance agents should dwindle by 30 percent by 2010 when compared with 2000 levels. Legal challenges to the practice of compensating agents and brokers by commissions on the sales of policies are causing many brokers to raise client fees or to use other compensation arrangements with insurers for business placed with them.

Consolidation among agencies appears to be the result of the broader insurance needs of business customers. The total number of independent agencies has diminished, but the average size of the agency revenue appears to have increased. Business consumers of commercial insurance are resorting to the internet in greater numbers today, but mostly for initial research on insurance companies and policies and not for buying commercial insurance online, because the actual purchasing of policies from agents and brokers is unchanged. The use of telemarketing and call centers by agencies is being replaced by Interactive Voice Response Centers and internet marketing as a cost reduction measure.

Its unclear at this point what effect the recession is having on the commercial insurance industry in the US, but as it is so closely tied to the health and growth of business in general, it is certain to have been impacted somewhat by the overall contraction of businesses of all kinds since mid-2008.

Business Owners Policies on Commercial Insurance

February 21st 2010 Posted at Basics of Commercial Insurance
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To efficiently package the various kinds of commonly needed coverages for medium to small businesses, most large commercial insurance companies offer Business Owners Policies. A Business Owners Policy (BOP) includes coverage for all of the most important property and liability insurance hazards and risks, and several other coverages, into a single policy appropriate for most medium to small sized businesses.

A customary BOP includes business loss of income insurance. This insurance will compensate the business owner for the business income lost as a result of a disaster. Disasters often halt or disrupt business operations and may cause the business owner to have to shut down or leave the business premises. The BOP also pays for the additional expense the business owner may have if he or she is forced to move to and operate out of another temporary location.

However, a business owner should not assume a BOP includes blanket coverage for all of his or her commercial insurance needs. Only a careful reading of the policy will reveal which critical areas to his or her individual business have been omitted. In order to have adequate coverage of the particular risks involved with a business, other coverages or riders may be necessary to tack onto the BOP. For instance, the typical BOP will not cover signage physically separate from the business premises itself, so if a business has a sign independent and free standing from the main premises, additional coverage may be necessary to insure it, requiring the payment of an additional premium.

Also, and more important today than ever before, interruption of internet service is not usually covered. If a business is engaged in electronic commerce, this would be an important extra coverage to obtain above and beyond the typical BOP. Interruption of internet service and electronic commerce for such a business could result in considerable lost income. If a business relies heavily on electronic commerce for revenue, the business owner may want to look into commercial insurance rates and add coverage for lost income and extra expenses incurred in the event e-commerce is obstructed temporarily or entirely stopped for one reason or another. Look for commercial insurance quotes from several different commercial insurers to get the best value for your business money.

While BOP’s can be an economical solution to a business owner’s insurance requirements, not all businesses are eligible for such insurance. BOP insurance is restricted to small- to medium-sized businesses that meet certain explicit criteria. Among the many factors involved in determining a business’s eligibility for BOP’s are the size of the premises, the requested liability coverage, the nature of the business and its operations and the amount of business it conducts away from its premises.

What Is Commercial Insurance?

February 21st 2010 Posted at Basics of Commercial Insurance
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In the most simple terms, commercial insurance is business insurance.  All going businesses have assets to protect and have inherent liabilities under law in conducting business, making commercial insurance an absolute must for prudent business owners.  Life is full of unforeseen hazards and unpredictable misfortunes, and the chief function of commercial insurance is to protect the “life” of a business from these events.  Any one of thousands of potential mishaps or natural disasters could instantly mean ruin for an uninsured business.  Commercial insurance protects businesses against such potential threats as theft, property damage, and liability. It can also include valuable insurance coverage for business interruptions and employee injuries on the job.  Without commercial insurance, a business owner is at risk of losing everything to a single calamitous event, including all of his assets as well as the means of making his livelihood.

Commercial insurance falls into three key categories:  property insurance, commercial liability insurance and workers’ compensation insurance.  Property insurance protects business property from damages to its valuable business real or personal property; liability insurance covers damages to third parties, such as customers and customers’ property; and workers’ compensation insurance protects a business against losses attributable to on-the-job injuries to its employees. Each business, depending on its nature, assets and location, may need additional specialized insurance coverages like commercial vehicle insurance if you have company-owned automobiles..

Businesses tend to grow and expand over time, and as they do, their insurance needs change.  Critical to the health of a business is doing at least an annual review of insurance policy coverage to assure it is adequate for the current state of the business.  As expensive new equipment is added, or improvements are made on buildings, for instance, additional coverage may be necessary to protect them.

One of the most important tasks a business owner has is to thoroughly familiarize himself or herself with the types of commercial insurance available and how they may or may not pertain to the business.  These vary widely in kind and cost and not all of them will be relevant to the conduct and protection of each particular business.

A good and dependable insurance agent can be critical to the success of obtaining the right commercial insurance for a business.  Good commercial insurers are knowledgeable about the different coverages available and expert in assessing a business’s vulnerabilities to potential losses.  To locate a reputable and well-informed agent, a business owner should interview several and get their views about and recommendations for commercial coverage for the business.

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