Pros and Cons of Running a Small Business Unit

Agencies Say SBUs Take Dedication, Technology But Offer Profitability

Going for the big fish may bring in big returns but some agencies think having a strategic plan to go after all those little fish is just as important. Three of the largest agencies in the country say having small business units (SBUs) as in integral part of their agency is simply a must.

“I just can’t imagine not doing it,” says Tim Templeton, president and chief operating officer of North Carolina-based Senn Dunn. “For us it turned out that the client was getting served better by having a small accounts unit. And it turned out that our producers who were very tenured, very experienced, were really able to work on more larger and more complicated accounts which then helped the agency grow a lot.”

Senn Dunn, an Insurance Journal Top 100 agency with $22 million in revenue, brings in just $500,000 in revenue through its small accounts unit, but Templeton says the benefits of having it go beyond that. “I think it has also helped us grow the larger clients,” he says. “Not only is it serving the small clients but it’s helping the rest of the company grow.”

For Steven Grossberg, president of The NIA Group in New Jersey, also an IJ Top 100 agency, having a small business unit is just part of having an agency that writes all facets of accounts — benefits, life, property/casualty or personal lines. “We like to cross-sell small accounts,” he says. “We find it to be very effective. … What may be a small property/casualty case could be a large group benefits case,” he added.

For another IJ Top 100 agency, California-based Heffernan Group, targeting small business was always in the cards, according to Mike Heffernan, founder, president and CEO. “One of my goals was always to build a small business unit and have it be more like personal lines,” he said. Heffernan envisioned an SBU that used technology, procedures and systems that would enable the firm to handle a large flow of potential clients and insureds.

Heffernan Group has operated a small business unit since it opened its doors in 1988, but about nine years ago the firm invested to make the unit a little bigger. Then about two years ago, the firm again invested capital to make the SBU what it is today — 26 small business producers generating about $4.2 million in revenue. That’s up from $1.8 million in revenue just two years ago, Heffernan said.

Heffernan says that while its SBU generates just 4 percent of the agency’s total revenue, the unit and the people who run it are an integral part of the company’s plan.

He says there’s a big market in the small business arena that few other agencies target. “A lot of carriers have done very well in that arena and a lot of brokers really do not concentrate on it,” he said. “We saw a lot of brokers, our competitors, not aggressively pursuing small business and almost letting it go. So to me there was opportunity there for us to give the independent agent touch to clients who might not have been getting it from their current broker or on a direct basis.”

Target Market

For Senn Dunn and The NIA Group, the success of their SBUs has depended upon finding the right target small business market.

If the small business account fits with a standard market, or stock carriers, a lot can be done to make the operation very efficient, says NIA Group’s Grossberg. However, he added, the efficiencies just aren’t there when writing a small account through an alternate market.

Linda Coleman, executive vice president for The NIA Group, who supervises the agency’s small business division, says risk appetites for insurance companies are not very broad when dealing with small business clients, which can be a challenge. “That leads you to go into the alternative markets and that requires a lot more involvement in the underwriting process,” she added.

“You’ve got to be able to pick something up, answer it and put it back down,” Senn Dunn’s Templeton said. “The volume is a challenge. There’s a lot of renewals every month. There’s a lot of activity going on every month.”

According to Templeton, in order for Senn Dunn’s SBU to be effective, it had to decide what type of small business account to focus on. “We have to focus on things we can control, focus on things that are relatively straightforward,” he said. “We get a call from a small contractor, we know exactly where to go, what carrier to use, we know how to get it done, we can turn a quote around very quickly,” he said. “But if we had somebody call with a really unique exposure, say a ship’s hull inspector that would take a lot of work and we really don’t have that expertise.” Templeton said, “sure there’s a market out there for Mr. Hull Inspector,” but the time spent chasing specialty coverages might have been better spent writing three retail locations.

“As we became more focused on the right carrier and right type of client our service improved,” he said. “Once we got the discipline to do that then we really had more time and more capability to handle those good Main Street businesses.”

For Heffernan Group, much of its small business has gone to monoline workers’ comp carriers in California and to the surplus lines market, but Heffernan expects to do more in the future with standard carriers. “The Hartfords and the Travelers of the world definitely enjoy the fact that we have a dedicated unit that kind of mirrors their own corporate structure,” he said. “They are able to allocate the resources that they have for that unit directly.”

Even though small business growth has been good with standard carriers, Heffernan envisions it being even better in the future. “One of our goals for this year is to try to take advantage of the fact that they are giving us resources. And we just want to have better results with them.”

Phil Runge of Travelers’ Select Accounts division likes that Heffernan’s business model focuses on lower exposures and smaller premium based accounts. “Their business model fits in quite well with our business model,” he said.

Technology

SBUs rely heavily on technology to create greater efficiencies, including in-house automation tools and carrier resources that enable producers and service staff working with small accounts to move quickly.

John Pritchard, Heffernan’s senior vice president and manager of special accounts, or small business, says to be successful an SBU has to have to a lot of volume and has to track that volume constantly. “We have invested in technology that allows us to track activity for each producer, which is very, very important. We’ve also, to the extent possible, taken advantage of as much technology as we could from our carriers, using their online rating systems, and the like.”

“Every producer is extremely accountable for activity,” Heffernan said. “We cannot allow someone to not constantly prospect. In the larger commercial, we monitor it but it’s not that hands on.”

Small commercial prospecting has to be tracked daily, Pritchard added. “We actually track it real-time, daily. I’m tracking activity on a day-to-day basis for everybody to make sure they have a consistent flow of activity on a daily basis.”

Heffernan says, most importantly, for an SBU to be successful it has to have quality leadership and management support.

“Someone has to lead it. There’s a lot of people, there’s a lot of moving parts, you have to have the passion and understand the insurance business. You have to have the knowledge about pretty much every product available because we are selling to manufacturers, to contractors, to non profits … you have to have broad-based knowledge and you have to be a good leader. It doesn’t work without that kind of individual.”

Heffernan also believes a successful SBU must have support from the top down.

“I think you have to have a belief in it. You can’t belittle it,” he adds. “You can’t make it seem like it’s just small business.”

Dedication to the SBU is a must for success, Heffernan says. “It’s taken us two years and believe me it’s a capital investment. You don’t start making money right off the bat. I think if you want to do it, you have to be dedicated and spend at least three years to see if it works.”

Topics Carriers Agencies Commercial Lines Business Insurance Tech