You don't have to be a big firm in a big market to do big nichebusiness.

According to Big I and ReaganConsulting's Best Practices study, conducted every 3 years andbased on the previous year's financial results, agencies across allsizes and locations have experienced steady growth inspecialization. Even in the economic dark days of 2009, agenciesdedicated more resources to niches.

A major contributor to growth since then, beyond a bettereconomy and a harder market, was the specialization trend, saidShirley Lukens, senior vice president VP at Reagan. Of the agencieswith less than $1.25 million in revenues, 40% had at least onespecialty line in 2013—up from 25% in 2010. For agencies with morethan $25 million in revenues, that number was 80%.

Specialty business is more profitable, easier to retain andprovides a stream of new business through referrals. And althoughit's less complicated for big brokerages to devote the time andtalent to the process—searching for viable niches, then buildinginternal teams around those specialties to best serve theclient—small agencies are making it work, too.

Take Carroll Insurance in Maumee, Ohio, a suburb of Toledo. Withonly four employees, the agency is licensed to do business in 43states and specializes in restaurants, pizza franchises and lawfirms, says partner Mike Carroll. He began specializing in 1997after seeing limited competition and a “major pain for theconsumer.”

The agency works closely with insurers and wholesalers todevelop the business (Allied, Travelers, Argo and Employers forrestaurants; Guarantee and AIG for pizza; Zurich, Admiral andChartis for lawyers).

Carroll is so conversant on the topic that he's written books onall three niches. Check them out at Thebestroibook.com, Insurepizzeriabook.com andInsuringlawyerbook.com.

Then there's HobsonInsurance in Hobson, Mt., population 250, specializing inarchery ranges, gun stores and ranges, shoe retailers and sportinggoods stores. Vice president Kristy Longfellow-Hodik co-manages thefamily agency with her sister, Misty Longfellow- Kriskovich.

The sisters' parents launched Hobson in 1995. Their father beganspecializing with two buying groups and the agency grew throughword of mouth. Now 13 different buying groups and associationsendorse Hobson and it's licensed in 48 states, she said. Dad is nowretired, and mom does accounting for the company.

Unlike Carroll, Longfellow-Hodik is more reluctant to share thesecrets of Hobson's success. The increase in agencies finding aspecialization means more competition. And although Hobson'slong-term expertise in its chosen niches makes it hard to beat,they still feel competitive heat from the local insurance agent.“But people want the best bang for the buck,” she said. “Beinghighly recommended by other association members helps a lot.”

Positioning yourself as an expert means increasedprofessionalism and Hobson encourages its 10 employees to get CICand other designations to further set the agency apart from thewanna-be's.

But the biggest challenge, she says, is the constantly changingmarket that has insurers shifting their focus in the neverendingquest for premiums. Some companies decide to cancel a program afteryears of success, leaving the agency stuck with an entire book ofbusiness that needs a new home. This causes major upheaval becauseit usually means disgusted customers will shop around for anotheragent.

Another problem: An agency spends time researching anddeveloping a viable program for an insurer on an exclusivebasis—only to have the insurer say it's not interested, then turnaround and release the program nationally on its own. “You'regiving away all that work,” Hodik says. “Be sure to get it inwriting that the program is exclusively for your agency.”

Specialization has its ups and downs, but it's one of the majorways independent agencies can set themselves apart from thegeneralists and direct writers who are howling for blood.Specialization is like insurance for the insurance professional—itprotects your business. Like any insurance, it requires someresearch and costs some money. But when it's done right, it canhelp protect your agency against the loss of profits to commoditysellers.