What Furloughs And Shifting Business Models Mean For SMB Workers’ Comp

With the coronavirus forcing small- to medium-sized business (SMB) owners to digitize, adjust business models, close their doors or furlough staff, entrepreneurs are quickly recognizing that the old ways of operating no longer cut it in today’s volatile, remote world.

The disruption was sudden an immediate, and for many SMB owners, workers’ compensation insurance plans were not likely the first issue to come to mind when managing these changes. But workers’ comp is often the largest insurance expense for SMBs, according to Cerity Chief Operating Officer Dennis B. Dix, and with cash flow tight, managing expenses of all kinds is critical.

But the commercial insurance market hasn’t digitized as quickly as consumer insurance products have, he told PYMNTS in a recent interview. Like so many other aspects of running a business, the InsurTech space is quickly realizing that traditional business and sales models aren’t cutting it in today’s market — and moving SMB workers’ comp insurance plans online isn’t the only shift ahead.

Overdue Digitization

“The pendulum for small commercial insurance is starting to move online,” explained Dix. “But I would say we’re still in the early adoption phase.”

The consumer insurance market has undoubtedly pushed the SMB insurance space to embrace the InsurTech revolution as more SMB owners demand the speed and convenience of online insurance procurement. According to Dix, platforms like Cerity are also able to offer SMBs lower costs thanks to their digital-native strategies, with automated underwriting able to cut out the middleman (and commission costs) while connecting SMBs to an insurance quote in a few seconds.

The digitization of SMB insurance — and of workers’ comp insurance in particular — is also the result of an expanded profile of SMB owner. While restaurant owners and mom-and-pop shops on Main Street are craving online insurance purchasing tools, the expansion of the gig economy and independent contractors also means more solo-preneurs are in need of digital access to workers’ comp insurance.

While workers like Lyft and Uber drivers don’t need to procure their own insurance plans, tech workers that secure a contract with a company like Google, or cable installers working as independent contractors for telecommunications companies like Verizon, are often forced to purchase workers’ comp, explained Dix.

Payroll’s Moving Target

While the online shift of SMB insurance has largely been a gradual one, there are other changes afoot in the workers’ comp insurance arena that are happening much more quickly as a result of the coronavirus and the market disruption it’s caused.

The digitization of SMB insurance solutions has allowed platforms like Cerity to offer more agile ways to respond to market shifts. For instance, SMBs that have been forced to furlough staff have become among the largest challenges when managing workers’ comp insurance expenses.

That’s because workers’ comp costs are typically calculated once a year based on what a business expects payroll costs to be. In traditional models, if payroll costs decrease as a result of closures, furloughs or downsizing, workers’ comp costs remain the same.

And while Dix noted that there are workers’ comp insurance providers that are able to adjust costs when payroll costs shift, the process requires manual intervention between an insurance agent and payroll provider to reevaluate pricing.

Cerity recently released its PayGo pay-as-you-go billing solution to address this challenge by allowing SMB owners to seamlessly submit monthly payroll information — a feature Dix said is essential in today’s climate.

“Especially during these really unprecedented and challenging times, having your billing plan tied to your underlying payroll makes a lot of sense,” he said.

Shifting Business Models

Another massive disruption in SMB workers’ comp insurance has been the trend of many SMBs to shift their business models to remain afloat. Perhaps the most dramatic example of this can be seen in the restaurant community, where dining-in is no longer an option, forcing employees who would not normally deliver to get on the road to provide orders — therefore introducing a new liability exposure for employers.

“In the past, that’s been an area of risk for us,” said Dix. “We removed that. We now assume every restaurant that is up and running is likely to either do curbside or delivery.”

Digital native platforms are able to make such adjustments quickly and, as a result, lower costs for SMBs struggling to make ends meet. While many of these adjustments are forced by the hand of market disruption, Dix noted that both SMBs and workers’ comp insurance providers will continue to embrace modernization and business model flexibility far into the future.

For InsurTech firms like Cerity, this also means encouraging SMBs to approach insurance providers not only as sources of expenses, but as strategic partners of a broader ecosystem of accountants, bookkeepers, payroll providers and others.

“It will take a while, but we want to be perceived by small business members as a vendor that helps them succeed,” said Dix, “not simply a vendor to whom they send money for insurance.”