Challenges remain for small business as COVID recovery builds

Small businesses have been hit particularly hard by the COVID crisis in the US, and the challenges haven’t gone away. As the delta variant of SARS-CoV-2 surges in many places, one  recent survey for The Wall Street Journal found declining confidence that the economy will bounce back next year. Now, just 39 percent of respondents expect better economic conditions in 2022, down from 50 percent in July.

However, many have proved resilient and, as Markel’s executive underwriting officer for small commercial business Matt Huels explains, they remain the economy’s “backbone”. But even as they and the country recover, there are fresh challenges both for the businesses—and their insurers.

Speaking with Intelligent Insurer’s digital hub, the Re/insurance Lounge, Huels didn’t seek to downplay either the seriousness or scope of the challenge facing small businesses.

“It’s no shock to anyone that America’s small businesses have been disproportionately impacted by COVID-19 and the disruption that followed. Businesses closed across the board, and unemployment surged to levels we haven’t seen since the Great Depression of the 1930s,” he said.

The impact was felt across sectors and over much of the last 16 months or more. Childcare businesses saw their income slump as parents stayed at home; gyms and hospitality businesses, even when not forcibly closed, experienced limited capacities and new measures to keep customers safe.

“I don’t think it’s too much to say that every small business has been impacted in some way.”

Businesses fight back

As striking as the breadth of crisis has been the resilience and innovation of many businesses: from restaurants shifting to outdoor dining and deliveries, to clothing manufacturers switching to facemasks, or craft distillers turning sites over to producing hand sanitiser.

“They’re adapting all over the place, addressing heightened demand, and they’re helping society,” said Huels.

At the same time, there’s been a flood of new enterprises since the start of the crisis. The number of new businesses last year was up a quarter on a year before, and the surge has continued in 2021—a testament to the sector’s spirit.

“It’s no surprise that these individuals are leading America back as we return to this new normal,” said Huels. For now, they’re in their infancy, but many will grow.

“I’m not sure all of them are shopping for insurance yet, but we believe that they will blossom,” he added. In the years to come, this will offer companies such as Markel a significant opportunity.

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Insurance innovation

More immediately, however, the inventiveness and adaptability of the sector has also been challenging insurers.

Adaptions have demonstrated the resilience of small businesses but also introduced new risks. That’s most obvious in the examples of those switching production, such as those distillers and clothing manufacturers.

“Those things create exposures we weren’t contemplating before and, often, heavier exposure,” said Huels. The same is true for less dramatic adaptions, such as the move to al fresco dining.

“It isn’t new, nor are the exposures of outdoor eating, but they are new to many of our businesses who haven’t had experience of it. Often they were trying to make do in areas near the restaurant that weren’t set up for it,” he explained.

“You have to think about propane heaters or umbrellas in the wind, or people dining in the parking lot next door with extension cords strewn across the ground. These all create additional exposures for loss.”

Huels said Markel’s role has been to work hard to facilitate, rather than constrain, its customers: providing services and educational materials to allow businesses to develop safety plans rapidly.

“Our loss control team was working overtime,” he remarked. “As an underwriting and risk management organisation, we looked at these challenges not as problems but as opportunities to help our customers succeed in the new world.”

That extended to expanding its risk appetite to accommodate entirely new practices, such as “learning pods”—small groups organised by parents in which children come together to learn and socialise while schools have been disrupted. This is a grey area between home-schooling and established daycare that fell in a gap in the insurance market.

“Nobody wanted to do it, but we were able to take our surplus lines toolkit, get to understand what was going on, underwrite it and provide an insurance solution.”

The challenges that remain

At the time of writing some areas in the US remain very much in the grip of the pandemic, but even as the vaccine programme advances, the challenges will remain.

Businesses are likely to continue some practices that have worked well over the past year-and-a-half and, as the recovery takes hold, new challenges will emerge.

One is already apparent: a shortage of labour. Despite widespread unemployment, the number of vacances in the US is at its highest level ever, at more than 10 million people. CNBC’s August 2021 survey found almost a third of small business owners with open positions they have been unable to fill for at least three months—double the level from a year ago.

“It’s a great example of those evolving challenges that our small business customers have had to deal with,” said Huels.

This is another evolving challenge for insurers. “Fewer employees means they are stretched and then supplemented with less experienced labour. That tends to increase loss activity,” he explained.

It’s particularly acute in areas that are seeing a strong resurgence in demand, such as construction.

“Construction business has been booming. Anybody who has tried to do any work on their house this past year understands that there is a high demand for contractors. Couple that with a labour shortage, and it’s a recipe for on-site accidents,” he warned.

“It’s not just workers’ comp but also liability concerns—and we worry about construction defect claims later on.

“We worry in general about businesses making the wrong type of compromises, but our loss control team and underwriters are working with customers to try to help them make the right decisions,” he concluded.

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