By Linc Trimble, Head of eCommerce, Torus

As the economy is shaking off the effects of the financial downturn that began in 2008, few sectors have seen better gains than small business, making it an attractive specialty for independent agents and brokers.

 According to the National Small Business Administration:

  • Small business contributes almost $1 trillion to the U.S. economy yearly
  • There are more than 28 million small businesses in the U.S.
  • More than 500,000 new businesses are created each month
  • 130 million people are employed by small businesses (nearly half of the U.S. workforce)
  • Small businesses represent 52% of retail sales, 47% of wholesale sales, and almost 25% of manufacturing sales in the U.S.

Such a vast universe of risk can represent a significant opportunity for independent agents and brokers, as many small businesses do not have experienced risk managers to rely on nor the knowledge base or time to effectively buy insurance—a tool that not only satisfies contractual or regulatory obligations, but protects a company's assets.

The benefits of specializing in small business are vast for agents and brokers, including:

  • Collecting a portfolio of smaller risks lessens the notion of only working with one or a handful of larger accounts. A greater amount of smaller accounts leads to more stability in volume and profits
  • Smaller business is less subject to market volatility, both in hard and soft markets
  • Smaller businesses have significant needs in terms of market access and knowledge of the complexities of purchasing insurance.  By selecting an independent broker or agent, a small business can essentially outsource a significant part of their risk management function.  This is a significant need, as small business and especially start-ups, need to fully focus on their business, and rarely can afford the luxury of possessing in-house insurance expertise
  • Fewer agents and brokers have yet to realize the potential for small business accounts, and thus the competition to attract and retain this business is normally much lighter, as compared to middle market and national accounts.

Unfortunately, small businesses are increasingly looking to direct writers for insurance, particularly those with easy-to-use online facilities. The main advantage to customers is the speed of delivery and instant gratification. But this can be a short-sighted approach as the advantages to using an independent broker or agent are obvious. 

Independent insurance producers:

  • Handle hundreds of companies, many of which are probably very similar in risk profile to other small businesses, and as such, can act as an outsourced risk professional for the firm;
  • Have access to many markets either directly or through wholesale insurance professionals;
  • Understand the complex nature of insurance as it applies to each unique company;
  • Can usually provide multiple quotes from insurance carriers (often in minutes via eCommerce platforms) from which to choose the best alternative; and
  • Carry errors & omissions coverage to protect small businesses in the event they do make consultative errors.

Although small business can be an attractive niche, it can also be an expensive proposition for intermediaries. Although the risk profiles for small businesses are typically more straight-forward than middle market or national accounts, the business still needs to be solicited, evaluated, marketed and serviced. 

As larger accounts need more detailed evaluations and customized solutions, small business requires excellent customer service, along with speed and efficiency of processing accounts. In general, the smaller the account, the more a broker distinguishes itself through customer service rather than risk evaluation.

One way for brokers to make the process more efficient is to partner with insurance carriers, wholesalers or managing general agents (MGAs) that specialize in small business. There are a number of access points for the most common lines of business, such as workers' compensation, business owner policies, stand-alone general liability and property coverages, as well as commercial auto. These firms can turn quotes around in minutes, either through telephonic call centers, online systems, or simply fast response times to the traditional method of emailing submissions.

There are even a growing number of online alternatives for specialty coverages, such as excess umbrella liability, employment practices liability, directors and officers coverage, errors and omissions liability, equipment floater property coverage, among many others. 

Forging a relationship with a carrier, wholesaler or MGA that is committed to small business is key and can lead to streamlined quoting and servicing, which leaves more time for account solicitation.

There are clear advantages to building a book of business focused on the small business sector. The trick is to establish a set of processes and relationships that maximize efficiency. As such, there is an opportunity for agents and brokers to become a trusted source to one of the main, driving forces of the economy, and at the same time, prevent these businesses from unforeseeable losses.

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