It’s been a tough road for small businesses, with a vast majority reporting they lost revenue during the past year because of the coronavirus pandemic.
Of the nearly 10,000 small businesses surveyed by the Federal Reserve in September and October 2020, approximately six months after the onset of the pandemic, 95% said their business was impacted by the pandemic. Some 78% reported a decline in revenue, and 46% said they had to shrink their staff.
At the one-year anniversary of the global pandemic shutdown, business owners are still struggling to recover.
About 46% of small business owners do not expect to return to pre-COVID operations for at least six months, according to data from the Small Business Pulse Survey conducted by the U.S. Census Bureau in February 2021. However, that’s an improvement from the Census’s Survey in December 2020, which found 53% of small business owners not anticipating recovery within the next six months.
While 2020 was a trying year for many in the small business market, overall business was good for the small business division at Heffernan Insurance Brokers in Walnut Creek, Calif.
“Restaurants, hospitality, anything related to tourism, and public transportation, all took huge hits,” says John Prichard, executive vice president. “But in other small business segments, like professional services and healthcare and not-for-profits, and even a lot of construction, did really well. They did not miss a beat.”
Even a year into the pandemic, while some small businesses continue to struggle — especially in retail, hospitality and also in public transportation, such as livery, limos and rideshare — other small businesses have recovered well or were never severely impacted, Prichard said.
“We really span the whole gamut of small business,” he said.
While some areas, like restaurants, hospitality and some areas of retail, like dry cleaners, were hit hard, others performed well throughout the pandemic, he said.
For Heffernan, small business accounts are defined as those generating less than $5,000 in revenue. About 40 employees in the firm’s small business division, which writes about $60 million annually in small business premium, handle various retail classes, healthcare, construction, professional services, technology, restaurants and hospitality accounts.
Actually, the small business division at Heffernan is doing well. “We’re continuing to see a lot of new business,” he said. “Small business owners are entrepreneurs, and they’re going to make things happen. We’re seeing startups, we’re seeing a lot of pivoting, we’re seeing businesses eager to grow and take advantage of opportunities that are arising.”
As small businesses have pivoted and changed to meet new demands, so have their insurance exposures.
“Fundamentally, the biggest change in the market has been the reduction of exposures driven by the effects of the pandemic on small businesses,” said Ryan Furmick, business leader for small business products at Progressive Insurance.
These changes have come from different sources: the closures of non-essential businesses in the early days of COVID, reduced foot traffic in many brick and mortar establishments due to customers’ health and safety concerns and reduced payrolls due to employee layoffs or furloughs, Furmick said. “And of course, many small businesses have had to shutter their operations permanently,” he said.
But small businesses have been adapting.
“One of the innovations we’re seeing our customers undertake is the expansion of their traditional brick and mortar establishments to incorporate delivery services or online sales as part of their operations,” Furmick said. In some cases, these businesses may opt to move entirely online.
The move for many small businesses to online service has heightened discussions and opportunities around cyber liability, Prichard added. Prior to COVID, few really wanted to buy cyber. Now, there’s more interest in purchasing standalone cyber policies.
“Even as little as a year ago, just prior to COVID, small businesses were not very concerned about cyber insurance,” Prichard said. “They knew cyber exposure was a concern, but it was hard to sell them cyber insurance.” They may have spent a few extra dollars adding limited cyber coverage to a business owners policy, but that’s not appropriate coverage, according to Prichard.
Prichard expects to see an uptick in cyber buying behavior. He believes some newer insurtech markets are enabling brokers to better understand the needs of small businesses and how to provide cyber insurance quickly and easily.
Digital small business insurer Next Insurance is an insurtech focused on becoming a one-stop shop for small business insurance, Sofya Pogreb, Next Insurance chief operating officer, told Insurance Journal.
“We want entrepreneurs to be able to come to us and purchase all the commercial P/C coverage that their business requires,” Pogreb said. Pogreb said her company’s vision includes several insurance products the insurer doesn’t yet offer, such as commercial umbrella, cyber or property insurance. But it is a journey, she said. “We are on the way.”
While Next Insurance writes direct to business policies, Pogreb said its independent agency channel, Next for Agents’ business, doubled in 2020. Next Insurance launched its agency channel in the second half of 2019.
“It’s still a relatively new channel for us but we saw a lot of exciting growth in our agency channel in 2020,” Pogreb said. “2020 was then about growing and building our relationships.”
Pogreb said that Next for Agents launched with access through wholesaler and aggregator partnerships but expanded during the second half of 2020 with a program for direct appointments to retail agencies. “That’s been growing very fast, and we’re continuing to really invest on this front in 2021,” she said.
Overall, Next Insurance saw premiums fall in the first and second quarters of 2020 but, according to Pogreb, the digital insurer’s small business book made a full recovery by the close of the year. “2020 for us still ended up being a year of huge growth despite the pandemic,” she said.
Progressive’s Furmick thinks some out-of-business small business owners will resurface in 2021.
“Broadly speaking, we’re optimistic that many of these business owners who have had to close their businesses will recover and decide to give small business ownership another try by reopening or starting a new business,” Furmick told Insurance Journal.
Small businesses aren’t as optimistic as some of their insurance partners. The National Federation of Independent Business’s Small Business Optimism Index declined in January to 95.0, down 0.9 from December and three points below the 47-year average of 98.
“Owners expecting better business conditions over the next six months declined seven points to a net negative 23%, the lowest level since November 2013,” The NFIB said in a release. “The net percent of owners expecting better business conditions has fallen 55 points over the past four months.”
Even so, Pogreb and others in the small business insurance sector are counting on the entrepreneurship mindset.
“Entrepreneurs are resilient and failure’s just not an option,” Pogreb said. She told the story of a favorite customer – a baker who began shipping cakes thanks to COVID. Or the fitness trainer who began teaching over Zoom. “People find a way.”
For the insurance industry, that means innovating to make sure the coverage supports these new ways of doing business, she said. “We’re also encouraged by the growth we’re seeing in contracting classes,” Furmick said. “We believe this growth is fueled by both a strong housing market, and the demand for residential remodeling projects stemming from the increase in work from home.”
The bottom line: Small business remains a desirable place to be. “There’s certainly tons of competition,” said Heffernan’s Prichard. “Everybody wants to get into small business.”
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