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 three yearsand based on the previous year's financial results, agencies of allsizes and locations have experienced steady growth inspecialization. Even in the economic dark days of 2009, agenciesstill dedicated more resources to niches.

Forty percent of agencies with less than $1.25 million inrevenues and 80% of agencies with more than $25 million in revenueshad at least one specialty line in 2013.

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 Hobson Insurance in Hobson, Mont., population 250,specializing in archery ranges, gun stores and ranges, shoeretailers and sporting goods stores. Vice president KristyLongfellow-Hodik co-manages the family agency with her sister,Misty Longfellow-Kriskovich.

Their father launched Hobson in 1995 and began specializing withtwo buying groups. Now 13 different buying groups and associationsendorse Hobson, which is licensed in 48 states.

Longfellow-Hodik says 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 says. “Beinghighly recommended by other association members helps a lot.”

One challenge is when insurers cancel a program after years ofsuccess, leaving the agency stuck with an orphan book of business.Or when an agency develops an exclusive program for an insurer thatends up releasing the program nationally on its own. “Be sure toget it in writing that the program is exclusively for your agency,”says Hodik. Otherwise, you could find yourself giving away all thatwork.

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.