Small businesses face risks as they reverse pre-pandemic cuts – Nationwide

Despite their bleak outlook on the economy, many small and medium-sized enterprises (SMEs) are highly optimistic about their business conditions and are adapting their operations to return to pre-pandemic norms, a new survey has revealed.

Nationwide’s Agency Forward survey showed that about two-thirds of small and middle-market business owners expect a recession in the next six months. Seventy-two per cent (72%) expect economic conditions will be the same or even worse than the Great Recession between 2007 and 2009.

In this environment, SMEs are increasingly looking to slash expenses, including on their insurance policies, while ramping up growth and reversing cuts they made during COVID-19 to meet demand. Nationwide’s survey found more business owners are looking to find cost savings on their insurance today than last fall.

“Business owners are trying to be proactive about optimizing expenses at the same time they’re trying to maximize their business, and insurance happens to be one of those expenses,” said Tony Fenton (pictured), vice president of commercial lines underwriting at Nationwide.

“But if they make a wrong move in terms of slimming coverage or thinking about a low-cost provider, they might not be adequately protected. So, I think this is where the survey acts as a call to action for agents.”

SMEs ramping up growth amid economic upheaval

Nationwide partnered with Edelman Data & Intelligence to poll 400 small business owners and 400 middle market business owners between March 30 and April 28, 2023.

Inflation and high interest rates came out as the top challenges named by SMEs.

Twenty-one per cent (21%) of small business and 42% of mid-market business owners have hired new employees in the last six months, up eight and 18 points respectively from the fall. They’ve also slashed layoffs during that period, Nationwide’s research showed.

Many businesses reduced operating hours through the pandemic to maximize resources. But Nationwide found that only 10% of small business owners (-7 points) and 14% of mid-market owners (-11 points) have reduced hours in the past six months.

Additionally, fewer small business owners (21%, -8 points from last fall) see supply chain disruption as a top challenge. About a third (31%) of mid-market owners, however, are still concerned about the supply chain’s impact on their business.

Before making any changes to their policies, clients should approach their agents to assess the current state of their business and protection needs, Fenton added.

“It’s a dynamic time in the economy with inflation and banking,” he told Insurance Business. “Any time a customer or an insured is thinking about their operations, it’s an awesome opportunity for agencies and producers to be an expert. This is where an agent can really shine.” 

How can insurance agents help SMEs through this period of economic volatility?

Trying to grow their business amid high inflation, interest rates, and a potential recession means owners are looking to make every dollar count. Cutting costs is still a top priority for 63% of small businesses and 49% of mid-market businesses in Nationwide’s survey.

Furthermore, many are scrutinizing their insurance policies as they aim to slim down expenses:

• 39% of small business owners and 47% of mid-market owners have checked their policies online in the past six months
• 28% of small and 34% of mid-market owners have contacted their agent to discuss their coverage
• 18% of small and 27% of mid-market owners have asked their agent to requote their policy with different carriers to find a better price or coverage

Fenton said agents are key to optimizing, and not reducing, a business’s insurance coverage. Another opportunity for agents to step up to the plate is through proactive consultations and risk mitigation.

Agents should encourage their clients to leverage loss control tactics as they shift their operations, and explore different ways to manage their exposures through risk transfer.

“The main guidance I would give [agents] is to understand the operations. Where is the business today and where’s it going in the future?” he said. “Make sure you match up the protection needs with the actual operations and the additional exposures, for example, if they added employees.

“Another component of this is the client’s risk tolerance. Maybe they want to increase their deductibles if they’re in a good capital position. The good news is, when you take on more risk as a business, the price comes down, so that’s another lever that can be pulled.”

Are you an agent working with SMEs? How do you help them manage business risks amid economic volatility? Share your tips below.