The Dilemma of Tiny Commercial Accounts

By | January 14, 2013

Many advisors suggest agents simply jettison small commercial accounts. But sometimes small is good. When small accounts are processed and serviced efficiently, these books can be much more stable in tough times than a few large accounts. More than one agency can attest to this as the soft market comes to an end.

However, some accounts are so tiny that an agency cannot make a profit or even break even, regardless of how efficiently policies are processed. Sometimes the account is special – it is an in-law, a relative of an important account, a referral, and so forth. On a one-off basis, agencies generally need to accommodate these clients, but these truly special accounts make up less than 2 percent of tiny accounts.

When an agency has too many exceptionally small accounts, it will lose too much money. These accounts often carry too much errors and omissions (E&O) exposure because the client rarely buys enough insurance, a concern that is topped by the buyers often being less knowledgeable than larger account buyers. This lack of knowledge, in turn, results in more servicing time, higher servicing costs, and frustration. Some agencies still think they are making money on these accounts because they have cut the steps required to the bone, but they often do so without adequate regard for the E&O exposures they’re creating.

Most agency owners choose not to think about this because other accounts subsidize these losses adequately so the pain is not enough to force action. It is simply easier to ignore the problem. But why is it so difficult to eliminate tiny accounts?

An agency with too many small accounts may lose money.

One reason is that some agency owners think, right or wrong, that they need this volume to keep their carriers happy. Agencies always want their carriers to be happy, and donuts, drinks and golf just don’t cut it like back in the day. These agency owners feel so strongly that the volume is more important than the profits and E&O exposures that they will sacrifice both to keep their companies happy. (Again, I am not writing about small accounts written efficiently, I am writing about tiny accounts.) Certainly a better solution, a compromise between eliminating these accounts and just leaving them on the books, must exist.

Better Solution

A better solution does exist for creating volume. An agency can make the best of the situation by first making sure it has offered these clients all the coverages they need. This is a clear win-win for everyone involved. The client gets better coverage. The agency closes the gap on its loss and decreases the E&O exposure. The carriers get more volume.

Another solution, not legal in all states, is to charge fees so the agency at least is not losing money on these accounts.

But none of the reasons I’ve identified is the real reason agency owners refuse to make the best business decisions on tiny commercial accounts. The real reason in many cases is ego. Two main subcategories exist here.

The first is that these accounts create agency volume that builds and maintains the agency owner’s ego.

The second and more serious arises when the owner personally writes these accounts. This is a sticky situation because emotions often run very high.

Giving up these tiny accounts creates insecurities of mountainous magnitude. These owners’ sense of self is tied to their book. So even admitting they have these accounts creates a fight or flight emotional response. Letting go means evoking emotions such as: feeling like they are not important, feeling like they have wasted their efforts, and feeling like they are inadequate, unaccomplished, and underachieving.

I am not suggesting it means those things. I am simply listing the thoughts they would likely have. To be an agency owner with a bunch of worthless business is an unacceptable reality. So they fight or flee.

Their personal value is tied to their book, so the thought of giving this business to the house (thereby creating value for the agency) is never even considered. Not only would they lose their personal value, but they may entertain thoughts such as: “What do I do with my time if I give the agency my accounts? Do I have to get out and sell again? What if I cannot sell again? I worked to a point where I would never have to sell again! By damn, I will not do it!”


Emotion trumps logic in all but the direst situations. So what does an agency do, especially the partners in an agency where one of the partners fits this description? Wait for an emergency? Sometimes. Sometimes it works to just wait until the agency is sold. One of the great secrets of some serial buyers is they target sellers like this because they can afford to pay more than the agency may be worth. This makes the seller feel good without realizing the price is associated with eliminating the dead weight known as the owner.

However, what happens if you are the partner who cannot wait for an emergency to motivate your partner to deal proactively with the tiny accounts? In your mind, the agency already has an emergency. What happens if you don’t have an emergency but simply do not want to waste the opportunity or money? Prayer sometimes works.

I am not being sarcastic or facetious. Good, positive thoughts and building the self-confidence of your partners is essential, because one way or another, owners are not going to make the right decisions unless they feel safe making them. They have to see a safe light on the other side. And most often, to see this guiding light, they must be imbued with self-confidence.

If you are the rare person with the discipline and self-awareness to address this situation on your own, please consider that in today’s insurance world, an owner who builds people is often more valuable than a person who can sell insurance themselves.

By building people, I do not mean being soft on producers or hiring producers who cannot sell. Agency owners who cannot sell have a far higher tendency to hire producers who cannot sell than other owners. So be careful here. But if you are that rare person with the insight to see themselves accurately and you have a book full of these tiny accounts, I encourage you to focus on your strengths and build the agency upon your strengths. With time, your confidence will build as your agency grows.

About Chris Burand

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: More from Chris Burand

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Insurance Journal West January 14, 2013
January 14, 2013
Insurance Journal West Magazine

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