Episode 041 — The Digital Broker Podcast

How Insurance Agencies Can Profit From Small Commercial Lines


In this episode of The Digital Broker, Steve and Ryan confront the challenge of profiting from small commercial accounts at insurance agencies. By listening to this episode, you will learn:

  • What makes small commercial lines hard to profit from in the first place
  • Why you shouldn’t leave that money on the table just because the profit margins are low
  • How you can automate, reduce, eliminate, and outsource your way to profitability in this niche

Small commercial is a vice among insurance agents and brokers. Everybody pretends not to care about it, but behind the scenes, they’re all doing it. It is said that you should court small commercial business despite the low profit margins because one of your small business clients could mature into a bigger company whose account you will inherit. But this doesn’t happen often enough to make it the sole basis of your small commercial strategy.

When a small business blows up, it tends to start switching agencies, on the lookout for a better deal. Most small businesses stay small and loyal to their current policy. Small commercial is thus good business for the carriers. For the agencies, not so much. (6:14) Irrespective of where you set the revenue threshold, the primary characteristic of small commercial is its imbalance of value and volume. A small commercial book of business might contain as many as 5,000 clients but account for just 10% of your agency’s revenue. Compare this to the 100 or fewer clients in the large commercial book that account for everything else.

Some agencies elect to ignore small commercial entirely because there’s only so much time you can afford to spend on an account that drives little revenue. But is it wise to give up 10% of your total revenue? Granted, there’s a case to be made against trying to be everything to all clients, but small commercial won’t stop requiring service. If your agency doesn’t provide it, someone else will. Good job, you just empowered a competitor.

(8:52) You shouldn’t operate any part of your business at too great a loss, but if you can render a service efficiently and at some gain to your company, we don’t see why you shouldn’t. This is where operational excellence is most needed, and it is absolutely critical to run a niche like small commercial. People tend to think of a niche as something that makes little money, but revenue has little to do with it. A niche is something that requires specialized knowledge outside the ordinary or mainstream. Ryan knows an agency with a killer residential book operated by just four people. Four people to a book? Right away, that’s efficient. But the value will be driven by what these four people know how to do. Having worked in residential for so long, they know the carriers, they know the programs, they know what questions to ask and what answers they’re likely to get in return. All of this combines to save time. Small commercial is just another niche, and you’ve got to figure out how to run it efficiently, sustainably, and profitably.

Here at The Digital Broker, we’re big on extirpating soul-sucking tasks and their atrocious ilk. In the case of small commercial, the issue that everybody’s trying to solve is getting a quote(11:51) It would be nice if you could enter the client’s data one time, get several quotes from multiple carriers, and deliver them right back to the lead. In practice, it almost never works out this way. It takes time and effort to send the same data to multiple carriers, tempting many agents to cut corners by soliciting quotes from just a few carriers they know best or who are easiest to deal with. But you can only get away with this for so long. As we’ve determined in our episode about the future, if something can be done better, it will be—though not necessarily by you. Case in point: solutions to the small commercial quoting problem are emerging from startups outside the traditional agent and broker channels.

(17:17) We know at least one startup that is catering explicitly to small commercial. If their platform or others like it eat into the small commercial revenue stream, it won’t be because agencies tried their hardest and couldn’t compete. It will be because most agencies didn’t compete in the first place. Why should a client choose your agency over a digital platform? Heck, why should they stick with your agency when they can go to a direct writer? This is a tough question for most agencies to answer, but ask if you must.

Luckily, you don’t need to reinvent the wheel with a lot of this stuff. If the barrier to profitability concerns the ratio of time over the gain, you should leverage all the tools that reduce the time it takes to get your work done. (18:58) Plenty of such tools exist already. Did you know that Indio can save you time and money by automating and streamlining the application and renewal processes? We’ve also talked about the RealTime feature of many agency management systems that enables you to retrieve client information instantaneously or close to it. If your quoting process is overworking your account manager, outsource some of it to services that operate overnight, saving you additional time. Take a comprehensive view of the customer life cycle: what are all the touch points you can automate, reduce, eliminate, or outsource?

Your carriers probably want to grow small commercial. Talk to them about the challenges you’re facing as an agency and what they could do to help.

Oh, and talk to us as well! We just created the Digital Broker LinkedIn Group, where you can trade ideas and solutions with other agents and brokers in situations similar to your own. Have you been able to make small commercial work for your agency? What are some characteristics of small commercial worth keeping in mind that you didn’t hear addressed on this episode? Ryan and Steve are in the group often and eager to take your tough questions. Come make them regret it here.

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