The high-level view:

• Agents are an indispensable resource in helping SMB owners plan for economic uncertainty. 
• The business outlook for agents serving small business owner customers is strong for at least the next 18 months.
• Social inflation is a trend that is affecting coverage costs.

1. As an insurance economist, how do you view the impact of accelerating inflation on small commercial insurance agents and their clients? 

Agents are the face of the insurer. In this role, you can deliver a lot of value to clients by ensuring they have adequate limits to contend with inflation.

Another factor for your clients to consider is how an insurance carrier’s rising cost to insure can affect premiums. Right now, inflation is the biggest factor driving higher insurance costs. However, natural catastrophe losses are a major driver in many parts of the country. 

During the COVID pandemic, inflation hit commercial property insurance harder than casualty insurance. Cost of building materials—lumber, steel, glass—are skyrocketing. New and used commercial vehicles and equipment prices are rising rapidly as well. Inflation to Casualty costs (medical) are lagging, which is a strange turnaround from 30-year health care inflation trends.

2. What is the overall forecast for small business insurance given economic uncertainty–and how might it affect agents’ revenue forecasts? 

Even amid uncertainty, the outlook for agents serving small business owner customers is strong for 2022 and will remain so through 2023. Forecasts show agents can expect 7% growth in their small commercial book of business in 2022/23.

The US economy is growing, leading directly to increasing property and liability exposures. Historically low unemployment  is leading to robust payroll growth and increased premiums written in the Workers Comp line.

One caveat: Again, keep an eye on inflation. The Federal Reserve Board’s efforts to check inflation by raising interest rates might have an impact on commercial insurance carriers. Rising interest could slow small commercial market growth in tandem with the pace of overall economic growth. 

In general, though, I expect agents to be insulated from the worst effects of any economic downturn.

3. Would you talk about some hidden perils agents should prepare for? 

One of the biggest and most discussed is social inflation, mostly driven by litigation costs. In particular, so-called “jackpot justice” awards have had a direct effect on claims-related losses and insurance coverage costs. However, I see this as another opportunity for agents to add value to the small business insurance proposition by keeping customers informed about liability and litigation risk trends.  

Agents need to get their arms around the issue and communicate candidly with small business owner customers to ensure they have the right types and amounts and coverage. This sort of informed advice can help customers “see around corners” to safeguard their businesses. A good example of this type of conversation could be to help customers recognize and prepare for cyber losses even if their businesses aren’t data-centered.  

Robert Hartwig, PhD, CPCU is Clinical Associate Professor of of Finance and Insurance & Director, Risk and Uncertainty Management Center, Moore School of Business, University of South Carolina

You can read Dr. Hartwig’s presentations and other information on commercial insurance topics at www.uscriskcenter.com

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