Independent Agents Can Be Big Players As Small-Commercial Market Expands

Over the past few decades, independent agents have struggled to make inroads into the small-commercial market, where a combination of low revenue and high-service demands often squeezed profitability.

In recent years, however, agents and carriers have come together in new and innovative ways to meet the needs of small businesses. Carrier investments in quality products, people and new technologies that streamline operations have caught the attention of more and more agents.

Agents who once considered “walking away”–and some who actually did–are now focusing more time, attention and resources on small-commercial accounts.

Running a small business is more complicated than ever. As a result, increasingly, small-business operators look to their independent agents as trusted advisors who will educate them about their risks, see to it they are properly insured and provide the service they expect–all without breaking their budget.

For this reason, agents who understand their local markets, have the necessary technical expertise and are committed to outstanding customer service are positioned well for success.

Overall, more and more agencies are looking to commercial lines to grow their businesses. Indeed, the number of agencies deriving more than 70 percent of their revenues from commercial lines grew to 27 percent, up nearly 30 percent since 2004, according to the Independent Insurance Agents and Brokers of America “2006 Agency Universe Study.”

Clearly, an increasing number of agents recognize that with more than 25 million businesses in the United States categorized as “small”–representing roughly 99.9 percent of all businesses–the opportunity to grow an agency with small-commercial business is huge.

While it is true small businesses don't generate as much in premium per account as larger businesses, they do bring great value to an agency.

Small-business owners know that the companies they work so hard to build can be lost in an instant without proper insurance. Therefore, they generally place great value on the advice of their local independent agent partner.

They are willing to invest time in building trust and lasting relationships, and as a result, are likely to remain loyal, long-term customers.

And because small businesses are the backbone of a local economy, an agent's ability to serve these customers can improve the agency's name recognition and reputation in the community, helping to attract additional clients and referrals.

Gone are the days when a small-business owner could easily analyze their own risks. The business environment is more litigious than ever, and a single lawsuit can easily drive a small business to bankruptcy.

With that in mind, it is more important than ever for agents to accurately assess a small-business owner's risk, and to offer coverage that will protect that business from crippling losses.

For example, a standard businessowners policy would likely cover damages in the event of a fire or if a customer slips and falls. But it would not cover a sexual harassment claim, an on-the-job injury, or a computer virus that results in a system failure.

Other types of coverage that are not included in standard forms but can mitigate significant exposures to a small business include employment practices liability. Indeed, a large percentage of employment-related claims are brought against small employers. This trend has continued to increase over the years.

Many small firms also face significant professional liability exposures. Policies can protect commercial customers against loss from a claim of alleged negligent acts, errors or omissions in the performance of professional services (including loss of client data, software or system failure) as well as claims of nonperformance, fraud or negligent oversell.

Despite the potential exposure, most small businesses that might benefit from these types of coverages do not purchase them due to the high cost and limited availability from traditional carriers.

However, carriers that are dedicated to the independent agency channel are introducing coverages such as EPLI and professional liability as BOP endorsements, making them easier to up-sell and more affordable than stand-alone policies.

Those agents who have experienced the most success in the small-commercial market have aligned themselves with true partner companies–those they believe recognize the opportunity small commercial presents and, in turn, invest in the people, products and service capabilities to help their agent partners grow in this arena.

Through their close partnerships, agents and carriers leverage their distinct and separate strengths to share in the above-average growth rate the market has to offer.

Specifically, agents are gaining momentum–increasing premiums and retention–when they partner with carriers that offer a total account solution for small commercial, including a businessowners policy, commercial package policy, commercial auto, workers' compensation, commercial umbrella, marine and bond.

Agents also benefit most when they work with carriers that are knowledgeable and maintain a local presence, providing easy access to an underwriting professional.

With a strong relationship in place, underwriters are more likely to be flexible in their underwriting and more willing to look closely at hard-to-place accounts that do not fit neatly into a specific BOP class. (Think of the country general store that sells live bait and will change the oil in your car.)

Because the keys to success in the small-commercial market are efficiency, cost and service, the most successful agents are also looking to carriers whose sophisticated technology and point-of-sale systems allow them to operate profitably, producing competitive quotes in minutes–and not just for BOP, auto and workers' comp policies, but for inland marine, bond and other ancillary coverages, as well.

Features such as policy and billing inquiries, endorsement processing and the ability to download customer data can reduce time and cost to service the customer.

Successful agents have also partnered with carriers that provide customer service centers which are truly service-focused, rather than simply provide transactional support. The ability to maximize the use of these facilities to complement the agency significantly improves the cost to serve a small client.

While the majority of small-business service requests involve non-revenue-generating transactions such as certificates and billing questions, agents increasingly rely on a carrier's service center to quickly and efficiently service their client.

Finally, the very best agents don't rely solely on their carriers' technology and service capabilities. They also will invest in their own systems to complement those of their partners, including wireless laptops and mobile phones, which allow producers to log on to a carrier's system at a client's office, or call an underwriter with questions, and instantly produce a quote.

As the small-business market grows, agents will find greater opportunity for growth themselves, as carriers continue to offer talented people, world-class products and responsive services tailored for this sector in line with the quality that used to be reserved for larger commercial clients.