BOPs deliver more now than in the old days
The business owner policy (BOP) of today is not the BOP of yesterday, industry experts agree. When the first BOP coverage was introduced in the late 1970s, it was mostly utilized by direct writers whose niche in the insurance market place had been in personal lines. The BOP provided them with a self-contained package policy written in simplified language. The ISO came out with its version of the BOP, which has taken on several form changes over the last 25 years. Most insurance companies have their own version of the BOP that utilizes the ISO as a platform for coverage, enhanced by individual company language and endorsements.
The BOP was and continues to be a package policy requiring both property and liability with built-in coverage lines such as crime and equipment breakdown that are activated by declaration entries. From its early usage, the BOP has had enhanced coverages unique in the industry. For example, the BOP automatically has a 25 percent peak season built into the form, typically combining personal property of the insured, and personal property of others, in one coverage for full limit. Most importantly the BOP has unlimited business income coverage, typically up to 12 months for insureds.
Not all inclusive
So what’s the downside of this product? The primary drawback to the BOP has been its limited eligibility based on a couple of criteria: size of risk, type of risk and level of hazard. Another concern with writing BOPs over other forms of commercial packages has been the limited number of endorsements available. Also, some coverage language tends to be more restrictive than in other packages. For example, while most BOPs have unlimited business income coverage for 12 months, they may also have a limitation built-in for only 60 or 90 days of ordinary payroll coverage. Many insurers will not allow for a longer period of coverage to apply, which is a significant cut back in coverage from other business income products.
In addition, the BOP has always been perceived as a program for smaller risks based on total gross receipts/sales, total square footage of the building occupied or owned by the insured, and the number of stories of the building utilized. While these size considerations have expanded allowing larger insureds to purchase the coverage, insurers still view BOPs as small risk policies.
BOPs continue to be designed primarily for operations that are retail/wholesale, service businesses and habitational. Today’s BOP market encompasses everything from the small “mom and pop” store on the corner to the national chain of mall retail stores.
What distinguishes one insurance company from another in the BOP marketplace is primarily its willingness to write certain classes of businesses as well as the size of the business that is acceptable.
Since the BOP is targeted for lower hazard operations, a carrier may accept a restaurant on its program but may be restrictive on factors that create greater risk, such as the amount of receipts from alcohol sales in relation to food receipts, entertainment, and cooking risks such as deep fat frying. If a restaurant has those exposures, it may not qualify for the BOP but may be underwritten with another product offered by the insuring carrier.
One area in which the BOP has enjoyed increased popularity is in the home-based business market. According to IDC, a national research firm, there are between 34.3 million and 36.6 million home office households in the United States alone. While endorsements are available on homeowners policies that cover some of the issues related to home-based business risks, they are for the most part limited and fail to provide the necessary coverage. A BOP is considered an appropriate option for insuring the homeowner who is operating a business from home.
Changing BOPs
How does the BOP of today differ from the BOP of yesterday?
The BOP has changed in three major areas, says Laurie Infantino, president, Insurance Skills Center based in Huntington Beach, Calif.
“First of all, it has changed over the years in terms of expanded eligibility,” Infantino said. “Types of business that would not be acceptable in the past are now being accepted on the BOP program.”
Insurers have expanded the eligibility and, more than ever, are utilizing the BOP for both the small- and medium-sized accounts, adds Peter Cazzolla, president and CEO, Capital Insurance Group. “In today’s BOP market, eligibility can fall with the very small retail establishment, the luncheonette, the shoestore, and extend all the way out to multi-million dollar accounts, such as apartment buildings,” he said.
The second major area of change in today’s BOP coverage can be found in the number of available endorsements, Infantino suggests.
“For example the ISO has more endorsements available and insurance companies have come up with their own endorsement packages,” she said. Some carriers are “stretching the BOP,” or offering optional coverages packaged in a single endorsement. This offers the client coverage at a lower cost than if these coverages were added to the policy individually.
The third area of change, and perhaps the biggest catalyst for change in the BOP market, is the influence of technology. According to Infantino, the technology used by both carriers and agencies today makes issuing BOPs much easier.
Technology influence
The influence of technology on the BOP market can be seen in several areas.
Technological advances have made starting and maintaining a small business more accessible and easier today than in years past.
Also, with technology advances have come new exposures related to property coverage and issues such as identity theft, notes Ron Miller, vice president, Zurich Small Business.
Many insurers have implemented digital and Web-based systems for issuing BOPs and offer information to clients on the Web. A number of insurers have also streamlined the transactional handling of BOPs, often handling policy applications, rating, issuance and modifications digitally.
Zurich North America, for example, has devised a product that provides both the insurance agent/broker and the customer with “data-driven insights into loss exposures,” and offers them information on how to mitigate those risks.
“With all of the advances that we are seeing in the world of technology, agents are able to write more policies, write them more efficiently and run profitable divisions for this specialty product,” said Gerald Chiddick, chief marketing officer, Zurich North America Commercial Small Business Division.
What does it take for an insurer to be successful in the BOP market of today? Ease of doing business, say some BOP experts.
“If you take any company, with any distribution model, the ease of underwriting and issuing the BOP will encourage it to grow,” Cazzolla said. “If it’s easy to do, the more they can do.”
Elements of success
Ease of doing business is only one element that will lead to success. According to Zurich North America’s Miller and Chiddick, insurance companies, agents and brokers also need “a competitive product, a broad appetite and competitive compensation for partners.”
They have additional advice. “Furthermore, because there is so much diversity, it is important to have customer insights, understand customer needs and make sure that you are giving them the amount of coverage that they need.”
Increased eligibility, expanded endorsements and technological advances have changed the BOP market and helped it continue to grow with increasing momentum. What will the BOP of tomorrow bring?