The small business insurance market has grown in importance to agencies and companies alike. Yet, despite the favorable attention given to this profitable arena, too many agencies still treat small business as they always have, as an indistinguishable part of their overall commercial lines department. To aggressively grow in this highly competitive field, agency managers must permanently separate small business from its larger brethren, and allow it to stand fully on its own.
Why small business?
A Small Business Administration June 2006 report notes that “Small firms…represent 99.7 percent of all employer firms… employ half of all private sector employees … [and] have generated 60 percent to 80 percent of net new jobs annually over the past decade.” This description makes it sound like an inviting target. No wonder everyone is fighting for a piece of the action. The best way that you can get and keep your share is by devoting real resources to it, funneled through a dedicated small business unit (SBU).
SBUs are not new
This concept is not exactly novel. We’ve all heard it for years. But too many agencies still haven’t formed a full-fledged SBU. And many of those that have done so did it in name only. Now is the time to create one. But before you do, carefully consider the reasons why an SBU is in your long-term interest. Your motives may include any or all of the following: To increase writings, to improve retention, to serve as a training ground for young commercial agents, to free up selling time for veteran producers, to give your senior CSRs more autonomy, to take better advantage of new online capabilities, and to utilize service centers. Any one of these reasons is strong enough to motivate you to consider an SBU; combined, they virtually mandate it. The growing competition for small business policies will not disappear soon.
Start by defining what a small business account is to you. Forget what other agencies use and disregard that the federal government commonly identifies a small business as one with fewer than 500 workers.
Here is a sample definition you can tailor: Any business account that totals less than $X (anywhere from $1,000 to $5,000 in annual commissions) and isn’t allied to a larger commercial account (such as a start-up division of a much bigger enterprise).
Now that you have your core characterization in place, identify the files that meet your small biz definition. Use management system profiling, as well as your staff’s knowledge, to arrive at the initial list of accounts that will populate your new SBU. Compensate all commercial agents for the appropriation of their small business insureds. This step is essential to the future profitability of your new department. You cannot afford to pay commissions (or a salary based on commissions), generated by SBU insureds, to agents who no longer service them.
An easy way to handle this is to temporarily raise the commissions paid on the agent’s new, larger commercial sales, on a sliding scale. In the first year make it large enough to offset the entire loss of their SBU book, but only if they maintain or grow their previous level of larger account sales. Then over the next few years, phase out the increase, ultimately bringing it back to just above its original amount. In addition to the higher commissions for larger accounts, pay a one-time commission or flat-dollar finder’s fee for any new small firm that’s written on behalf of, or successfully referred to, the SBU. Without this, commercial agents may be tempted to pass on easily attainable small business sales.
As for who will sell and service your newly liberated SBU accounts, you have some options. The simplest approach is to man the department with at least one young producer and CSR, overseen by senior management. Why? Because the newest small businesses are owned or managed by young people. This is partially due to the Internet, which has widened the scope and lowered the cost of promoting a new venture, whether the operation is Web-based or not. The young people that launch your SBU can be pulled from your existing staff or attracted from a competitor.
Also set up a separate SBU accounting profit center to track the department’s revenues and expenses and to generate a distinct P&L. And always adequately budget for and plan marketing activities that aggressively target local and regional small businesses.
Finally, as an added incentive, optionally share a portion of the unit’s annual profits with the staffers who helped to generate them.
Small business isn’t small anymore. It is a growth industry. The Internet has lowered the barriers of entry and expanded its horizons. It’s a mistake to treat these accounts as second-class citizens within a monolithic commercial lines department. Break them out and allow them to stand on their own. Handled right, your firm, clients, and carriers will all profit from it.
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