Profitable Niches

Finding Their Niche

Agencies that specialize in certain products or sectors see higher profits.
By: | February 18, 2014 • 6 min read

Independent insurance agencies that specialize in niches and focus on technological improvements are getting a leg up on their competition — and reaping greater profits, according to the 2013 Best Practices Study by the Independent Insurance Agents & Brokers of America.

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By focusing on niches, agencies have increased their targeted leads and referrals, improved retention rates and boosted their competitiveness, according to a study of “best practice agencies,” chosen by the in Alexandria, Va.-based trade group and Reagan Consulting for their “outstanding management and financial achievement.”

Specializing in certain product lines or courting specific industry sectors has paid off: The average revenue growth rate in total commissions and fees was 9.8 percent for agencies with net revenue of more than $5 million, up from 4.5 percent in last’s year’s study. For agencies with net revenue less than $5 million, the growth rate was 9.4 percent, up from 2.1 percent last year.

Agency revenue was also boosted by the results of higher technology spend, including for search engine optimization and social media marketing, as well as by increased hiring and improved producer accountability.

Finding niches is key, said Madelyn Flannagan, the trade group’s vice president of agent development, research and education. Many agencies are adding personal lines such as auto insurance to their product mix, often bundling them with commercial lines to enhance offers to business clients.

Some agencies are also specializing in cyber liability insurance.

“Almost every business now has to safeguard information about their customers and employees, and they need to have the correct liability insurance for when security breaches occur,” Flannagan said.

Specializing for Assurance Agency, with offices in Schaumburg, Ill. and Chesterton, Mo., means focusing on particular industries, including temporary staffing companies, contractors, nursing homes, manufacturers, municipalities and school districts, said Jackie Gould, chief operating officer.

“The benefit of specializing in our clients’ industries is that it allows us to dig deeper into their business and understand the issues they are facing, so we can be better at solving their problems with special coverage they might need,” Gould said.

“We have the right carriers in place to handle their exposures, and our claims advocates and safety advocates know how to deal with claims and risk control issues,” she said.

M.F. Block in Paragould, Ark., concentrates on serving family farms, said partner Phillip Greer. Few carriers are in that market, so there is less competition.

“We understand family farms, so we can price the insurance right,” Greer said. “We also try to go above and beyond insurance, and offer other services to family farms, such as loss control and risk management.”

Firms cited for their best practices in the study also were noted for increasing their technology spend.

Agencies with annual revenues above $5 million invested more in agency management systems, while smaller firms spent more in Internet SEO marketing and social media marketing.

Agencies of all sizes devoted more staff time to social media marketing: On average, 1.3 employees spent 10 percent of their time marketing via social media.

“Social media is becoming more important to agencies as they try to get a leg up on their competition,” Flannagan said. “They use it to become more visible in their communities, which makes them more effective in selling and marketing in those communities.”

Assurance Agency has “a very big initiative around social media,” geared toward enhancing the firm’s relationship with its existing clients and attracting prospective clients by posting articles on topical issues, Gould said. The firm also uses social media to publicize its seminars and webinars on hot topics, such as on health care reform.

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“We help hundreds of employers to figure out how to manage their benefits programs, and that can be very different, depending on the industry, such as the temporary staffing industry,” she said. “It’s a moving target, so we help employers by giving them a step-by-step playbook on what they can do now to prepare.”

Pierson & Fendley Insurance LLC in Paris, Texas, increased its SEO marketing spend to use on sites such as Google and Yahoo! to attract more clients, said partner Matt Frierson. Moreover, the agency has a Facebook page and its producers are encouraged to post topical information and helpful advice on their own Facebook pages, which are tied to the firm.

“Facebook is a great way to get your brand out for an inexpensive price,” Frierson said. “It’s a media that’s far more encompassing than anything the agency has seen before.”

The agency also encourages its producers to post updates on their LinkedIn profiles to trigger push emails to their connections.

But the company’s growth is mainly attributed to buying two other agencies as well as hiring additional producers, he said. In 2010, Pierson & Fendley had three producers; it now has eight.

Stuart S. Durland, vice president, operations at Seely & Durland Inc., said the Warwick, N.Y.-based company has been “consistently growing” due to IT implementations including imaging, eSignature, real time technology, consumer website ratings and a “sophisticated” website.

“Agencies have got to have an agency management system — and use it, as well as technologies that take advantage of marketing capabilities and those that enable us to work in real time,” Durland said.

“Instead of taking four hours to input information for a quote to four different commercial line carriers, we use our agency management system, Applied Systems, that enables us to input the information just once, and then send data to any of our real time carriers.

“That has significantly reduced the process, which not only saves us money, but frees up time to allow my [customer service representatives] to do more important things, like cross-selling and writing new business,” he said.

At Insure-Rite, a Norman G. Olson Co. in Evergreen Park, Ill., each generation of the family-owned business grows the enterprise by taking “it to the next level,” said Pete Olson, who works alongside his father and grandfather.

Over the past several years, processes have been turned “upside down” to improve producer accountability, he said.

“We’re focused on placing business where it belongs, not just how it could help our profits,” Olson said. “We place according to what’s best for the client, not on what’s best for us.”

The trade group’s study also showed that profitability improved at many best practices agencies over the past year.

While profit margins in the prior year’s study “remained stubbornly flat” due to waning contingent income growth, that trend has reversed — contingent income grew an average of 10.7 percent for those with revenue of more than $5 million, and an average of 21.8 percent for agencies with revenue less than $5 million.

Moreover, agencies did “a much better job” of controlling expenses so that operating profits grew faster than contingent income, according to the study. As a result, larger firms averaged 22.7 percent proforma EBITDA, and smaller to midsized firms averaged 29.3 percent.

Every three years, the Independent Insurance Agents & Brokers of America collaborates with Reagan Consulting to select “best practices” firms throughout the nation, nominated by either an affiliated state association or an insurance company.

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The agencies are grouped into six revenue categories: less than $1.25 million; $1.25 million to $2.5 million; $2.5 million to $5 million; $5 million to $10 million; $10 million to $25 million; and more than $25 million. Financial and benchmarking information for the participating agencies are also reviewed and updated.

Sixteen insurance companies and four industry vendors provide financial support for the research and development of the best practices study: Agency Business Solutions/Amerisure Insurance, Applied Systems, Beyond Insurance, Central Insurance Cos., Chubb, CNA, EMC Insurance Companies, Encompass Insurance, Erie Insurance, Great American Insurance Group, The Hanover Insurance Group, Harleysville Insurance, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corporation, Main Street America Group, Ohio Mutual Insurance Group, Travelers and Westfield Insurance.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]