The small business unit of Chicago-based commercial lines insurer CNA hopes to hit $1 billion in premium volume at the end of 2005 by targeting Main Street businesses with more customized policy forms and a stripped-down version of its business owners policy.
CNA’s Small Business for Standard Lines unit grosses $800 million in annual net written premium, but Senior Vice President Henry Pippins Jr. sees room for growth.
“I think we can grow our small business segment faster than most of our others because that’s 90 percent of your businesses in America,” Pippins told Insurance Journal. “Walk down the Main Street of any small city in America and you’ll find them — retail outlets, offices, service-type businesses.”
Pippins argued that the economy is actually spurring the creation of small businesses.
“Unfortunately, the economic recovery we’re experiencing right now is a jobless recovery,” he said. “Bigger businesses are still shedding employees, who are forced in many cases to start their own businesses, trying things they didn’t before. This is causing the small-business market to continue to grow. And if you attack this growing market you will have more opportunities in different areas.”
To that end, CNA is rolling out some new wrinkles to its centerpiece Basic Account Policy Package.
“Eighty percent of what we go after is on our BAPP policy,” Pippins said. “It includes a broad range of coverages, but mainly focuses on property and liability coverages.” Commercial auto, workers’ compensation, professional liability, business interruption and inland marine and cargo are a few of the coverages that are part of BAPP.
Looking to broaden its reach, CNA is introducing a stripped-down policy it calls BAPP Basic.
“There’s a certain level of small business customers not looking for bells and whistles,” Pippins said. “They’re just looking for basic cover to meet regulatory requirements. We take the complement of coverages off and that’s what we call our BAPP Basic product. You’ll get a reduction in premium, and you’ll also get a reduction in coverage.”
BAPP Basic very closely resembles the Insurance Services Office’s BOP form, Pippins said. About 30 extended coverages included in BAPP Classic will not be included in the new basic package.
“There’s a segment of market that wants cheaper product but wants the same security they got with the original BAPP,” Pippins added. “This is a pretty strong coverage complement for the routine customer.”
On the other side of the coin is a series of customizable BOP policies available to cover the needs of particular risks, packaged under the label BAPP Choice.
“This is an enhanced product customized based on the class of business,” Pippins said. “For example, say you’re a florist, we’ll probably add additional coverages that are beneficial for a florist. So, you could get extended coverage for refrigeration breakdown or for a product recall.”
Various forms covering 34 different industries, including delicatessens, drug stores, eating establishments, offices, lawyers, food stores and business services, have already been filed in several states around the country. CNA hopes to have the new BAPP products available in the continental United States exclusively through its agency Web portal (www.cnacentral.com).
CNA also announced a broadened appetite for program business with more than 600 classes, and is particularly interested in trade associations and franchise-based groups of homogenous risks such as fast food and retail chains. The company does more than $55 million in program business offering commercial auto, workers’ compensation and umbrella coverage, as well as professional liability policies for directors and officers, commercial crime and employment practices liability. Pippins said CNA is looking to add $30 million more in program business.
The appetite remains strong in spite of a shaky year financially. The company posted a third-quarter loss of $1.8 billion and a nine-month loss of $1.6 billion after a comprehensive review of its reserves led to another boost of $978 million for core reserves and $517 million for asbestos, environmental pollution and mass tort reserves. This led Moody’s Investors Service to cut the company’s long- and short-term credit ratings to “Baa3” from “Baa2.”
To address this and other concerns, CNA recently completed a capital plan which involved the sale of $750 million in non-voting convertible preferred stock to its parent company, Loews Corp., which already owns 90 percent of CNA’s stock. Also, CNA has moved to sell off assets peripheral to its core P/C business, such as the $500 million sale of its group benefits business to The Hartford.
Pippins remained upbeat.
“We feel very positive,” he said. “We just strengthened our reserves. Our ratings were just reaffirmed. We feel pretty comfortable and pretty confident about our standing going forward.”
As for agents, Pippins said the company is looking to appoint agents who focus on small business and who operate outside urban areas, which he called the “bread and butter” of the business. CNA is also looking to work with agency aggregators or clusters and pointed to the recent appointment of just such a firm which resulted in 3,500 additional agency points.
Another target is agents already appointed to CNA but who are inactive. Pippins said 4,000 agents are appointed to CNA but in the last year only 1,600 of them sent in new business submissions. Underwriters in CNA’s Florida offices and field representatives will work with agents to help increase the flow of business from these inactive agents, Pippins said.
Cross-selling is another priority, and Pippins said the company is working to help educate agents about when clients in their current book of business should be cross-sold on other CNA offerings.
“For example, we write about 19,000 lawyers in our professional liability program,” Pippins said. “We’re trying to align our BAPP with our lawyers program so we can expand our writings with programs that we have in another entity of CNA. … We’re looking to get different sources of revenue from the same customer.
“Studies have shown that if you have one more than one link to a customer, chance of retaining that customer increase by 50 percent. That’s why we try to sell agents on more than one line of CNA business. … If we can round out all these accounts, we may pay [the agent] an additional percentage of the commission.”
Pippins acknowledged that agents who place more than one piece of a customer’s business with a company are also less likely to move the entire account.
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