Independent Agents can Enhance Growth Opportunities by Writing More Commercial Insurance
According to IIABA’s 2023 Best Practice Study, small agencies (defined as under $1.25 million in revenue) on average generate 43.9% of overall revenue from commercial P&C. Within SIAA, the national average of overall revenue from commercial P&C is 40%. And although there are exceptions, agencies with a healthier mix of commercial P&C business grow faster and generate higher overall revenues than agencies primarily focused on personal lines P&C. Agencies below that revenue metric (40% split of commercial P&C) should consider increasing the amount of commercial business they write.
Consider a few reasons why commercial lines should be the primary focus of a growth-oriented independent insurance agency. First, the independent agency channel has proven its strength as evidenced by market share. Independent insurance agencies maintain a competitive advantage in writing commercial P&C. The most recent Agency Universe Study published by the Big “I” states that independent insurance agents “placed 62% of all property-casualty insurance written in the U.S. in 2022”. Breaking that number down by lines of business, independent agent market share in Personal Lines is only 37%. Commercial lines market share differs significantly in that the independent agent channel writes 88% of commercial lines written premium. According to Chris Bogg, the Big “I” Vice President of Agent Development, Education and Research: “(I)ndependent agents continue to prove their dominance in commercial lines.”
Commercial Insurance Sustainability
Second, in recent years commercial insurance commissions have been more stable than personal insurance commissions. Even before the recent hard market, personal insurance carriers have been restructuring commission schedules which has essentially lowered overall commission averages. While 12% to 15% remains common for most new business primary (auto and home) personal lines, renewal commissions tend to average around 12.5% to 13.0% and in some cases (i.e. monoline) can fall as low as 5% to 10%. Commercial lines commission schedules have for the most part remained steady at 15% or higher, and in the case of targeted classes can be as high as 18-20% for new business.
Faster Growth with Commercial Accounts
Third, since the average revenue per commercial insurance accounts are typically larger, agencies will typically realize faster growth and higher agency revenue. IIABA’s 2023 Best Practice study noted for small agencies, the average book of business (commissions) per producer is $317,314 for Commercial P&C compared to $198,858 for Personal P&C. Not only is the average revenue per account higher, but the average growth rate is also consistently higher as well. Within SIA of Northern Ohio, commercial-focused agencies grow 35% more than personal-focused agencies on an annual basis.
Availability of Commercial Appointments
Finally, considering current market conditions, the availability of new appointments with commercial lines carriers is generally better than personal lines focused carrier appointments. While the hard market is impacting commercial lines in certain classes of business, there are still multiple classes of business that are profitable and fit a commercial carrier’s appetite. Many of these carriers, as a result, are still looking to appoint new agents that can write those preferred business classes.
How to Increase Commercial Growth Opportunities
Agencies looking to increase their commercial mix of business can start by identifying target classes of businesses their company partners are willing to write. Gathering updated success/hit lists and prioritizing the types of business an agency can best approach is essential. The most successful commercial agents are those that can focus on a few targeted niches as opposed to being a generalist. Since different types of businesses require more specialized industry knowledge, focusing on a few related niche markets can help a producer gain expertise to become a trusted advisor. Many business types can be protected with a Business Owner’s Policy (BOP). However, niche-focused producers may be able to better explain why contractor’s need separate errors & omissions (E&O) insurance, or the benefits of Employment Practice Liability Insurance (EPLI) to a retail or restaurant owner.
Approaching those prospects does take time. The best commercial producing agents are most effective by methodically developing a commercial pipeline revolving around gathering XDates. By using Internet tools including Google, Bing, Yahoo, Yelp, Manta, miEdge, Data Axle, or several other resources, agents can easily generate a contact list for businesses within a target class to approach. Developing an effective marketing and prospecting campaign, such as those illustrated in SIAA’s Business Insurance Advantage (BIA) program, an agency can develop an effective process for a commercial producer to be successful.
We have successfully helped many agencies expand their commercial business and feel confident we can do the same for you. For more information about how to create an effective commercial insurance growth plan, please reach out to Russ Durst.