Small Commercial, Big Rewards: Benefits of Diversifying an Independent Agency’s Book of Business

Weathering a hard insurance market isn’t for the faint of heart. As premiums increase and personal line capacity decreases, independent agents must seek creative solutions to expand their books of business.

Getting your agency to thrive during times of economic uncertainty is similar to investing in the markets. The best results will come to those who diversify their portfolios. For many independent agents, that means now is the time to dip their toe into small commercial lines.

The appetite for writing small business remains strong among carriers. And while commercial premiums are rising (30% of small businesses reported rate increases in 2022, according to the J.D. Power U.S. Small Commercial Insurance Study), customer satisfaction in the space is soaring, too, nearly matching its pre-pandemic heights.

As a result, the small commercial market is an attractive growth segment for independent agents who deliver outstanding service and want to develop a well-balanced book of business.

Why Diversifying Creates Growth

Personal lines and commercial lines traditionally have different market cycles. This allows agencies in any geography to gain more stability by including both personal lines and commercial lines in their books of business. Small commercial lines should be especially attractive to insurers in Texas, California, Florida and other regions where personal lines have been hard hit by increasing climate-related property risks.

Profit-sharing on commercial lines tends to be more lucrative than with personal lines — agencies building small commercial books could see increased revenue by year’s end. Carrying both lines also opens the door for fresh cross-selling opportunities. This may boost client retention, considering that it’s more difficult for a customer to move both their commercial and personal lines from an agency compared to moving just one or the other.

For these reasons, commercial lines offer independent agents the power to create significant growth. I’d estimate that agencies achieving a 50/50 split of commercial and property lines could grow by 15% or more depending on how much small commercial business they generate.

Agencies that are more heavily weighted toward personal lines could grow by as much as 30% to 35% by adding small commercial accounts and cross-selling new personal line accounts.

4 Best Practices to Diversify

Agents looking to enter the small commercial market should consider these four steps.

1. Form tight bonds with a carrier. It’s reckless for an agent to enter small commercial lines if they don’t have a carrier on board who has an appetite for that business. To avoid this pitfall, agents must understand their market fully and know which carriers are willing to write specific types of small commercial risks.

2. Put service first. Agencies that gain the most success in small commercial will be those that sell and service the business well. Develop a plan for how you’ll do so. Consider how to best deliver that service — virtual assistants, utilization of your carriers’ service centers or a combination of both.

3. Market your new line. A well-constructed marketing plan will help introduce your small commercial lines to both existing and new clients. For best results, embrace a multichannel approach that includes your website and your social media channels. Another potential consideration: create video clips and/or video proposals that introduce your capabilities and explain why you’re the right agency — with the right carrier partners — for that class of business.

4. Tap into the right resources. Agents who have strong existing relationships with their carriers should rely on those carriers to help them learn more about commercial lines. Get their expertise on their policies, their inclusions and exclusions, and their overall risk appetite.

Then, look for other ways to expand your knowledge of commercial lines. For example, SIAA’s Business Insurance Advantage Program — open to its members — offers virtual, instructor-led training on how to grow a small commercial book of business. SIAA also partners with carriers to provide education for agents on common commercial line products, such as business owner policies, workers’ compensation and commercial auto.

Should Agents Specialize?

Specializing in a specific small commercial niche — such as manufacturers, retailers or restaurants — may benefit some agencies. By focusing on one particular area, agents can become and show that they are expert in the unique risks of their niche.

Before developing a niche, agents must make sure there is ample market opportunity. For example, a specialization in small commercial hospitality lines may benefit agents located in a tourist hotspot but may not help agents located in a non-tourist area.

Don’t Become Complacent

When premiums rise, independent agents have two choices. They can get complacent or they can be proactive. Complacent agents will stick with what they know, raise premiums and fail to actively discuss the reasons why, which will alienate clients and erode their books of business. Active agents will look for new opportunities. They’ll also explain premium increases thoroughly with their insureds as a way to enhance their client relationships.

Active agents will be best suited to weather the hard market. By adding the right small commercial lines to your book of business, you will position your agency well now and into the future.