BOP evolution warrants a second look

Do you think of business owners policies (BOPs) as low-premium accounts that won’t make any money, are too labor intensive or are more trouble than they’re worth?

Don’t be so quick to judge. This line of coverage is evolving so fast it hardly resembles the BOP of 20 years ago. Today, carriers are doing all they can to turn BOPs into easy-to-write “sleeper insurance” policies that agents can book quickly and then not worry about.

Take a second look:

• BOPs tend to pay higher commission than other commercial lines policies. Some offer commissions of 20 percent.

• They are profitable, with a long history of good loss ratios. For example, one company’s experience shows significantly better loss ratios from a small account book than its large account book in the past five years.

• BOPs diversify a portfolio.

• There is a lot of opportunity. The estimated 24.7 million small businesses in the United States represent 99.7 percent of all employers, according to the U.S. Small Business Administration.

Faster to write

Perhaps the biggest change the industry has seen with BOPs in recent years is the move to online quoting and submission by many carriers. Many include online manuals or built-in eligibility guidelines, so there is no need to dig through papers or try to quote a policy the carrier will not consider. Some also have supporting lines, such as commercial auto and workers’ compensation, available online. That has increased the speed of doing business like nothing else.

One agent said that when using an online system, she has a quote in hand in about 15 minutes. If the customer takes it, in a few more minutes, she finishes the online application and then issues the certificate of insurance with the system-generated policy number.

Comparing that to the “old way,” she said it took about 45 minutes to fill out a paper application, and then she had to mail it and wait two weeks to hear back from the carrier.

Another way carriers are making BOPs less labor intensive is by offering multi-year policies. One company is offering a three-year contract, which has been key to improving efficiency. Longer-term policies eliminate the need to go through the renewal and re-underwriting process every year. The selling point for policyholders is that they are guaranteed a certain premium amount for multiple years.

More sophisticated

BOPs have also grown to meet small business owners’ increasingly complex needs. For example, in addition to standard property coverages, some now include equipment breakdown coverage. Insurers also are beginning to include employment practices liability coverage to protect companies from lawsuits involving sexual harassment, discrimination, wrongful termination, etc. One carrier’s coverage now includes a $100,000 blanket limit for minicomputer, outdoor signs, accounts receivable, fire department service charge, recharging of fire extinguishers, and valuable papers and records coverages.

Based on current trends, BOPs should continue to grow more sophisticated as carriers increase their eligibility to include additional business segments and larger companies. BOPs are not just for mom-and-pop shops anymore; they are for multi-location operations with dozens of employees and a fleet of vehicles. Eligibility is often on property limits, which have almost doubled since 2004.

BOPs should not take an agency a lot of time to write. And they should include all the essential coverages small business customers need. When both of those are true, an agency can make good money by increasing its BOP portfolio.

Even one agency of only 15 employees can have a hardy BOP book.