In the midst of a hard market, going after general commercial business is a “recipe for disaster” for small and mid-sized commercial brokerages, say P&C insurance brokers.
“If you’re a generalist, it’s getting tougher and tougher because of appetite and capacity limitations that we’re seeing among a lot of the insurers,” explains Kevin Neiles, chief marketing officer and president of Western Canada at Gallagher Canada. “If a small broker is specializing in a certain area, they have greater opportunities for organic growth.”
That’s because smaller brokerages can meet the minimum volume requirements of their insurer partners by focusing premiums in a couple of areas. Big firms with “1,500 people employees can specialize in nine, 12, or 15 different areas. When you’re 20 [to] 90 employees, you can’t do that,” says Michael Loeters, senior vice president of commercial insurance and risk management at mid-sized brokerage Prolink. “You have limited money, time and resources.”
The days of the generalist brokerages are over, says Loeters. “The only way you can compete is to specialize. It’s not about the volume of your brokerage. It’s about how much volume you have with really specific underwriters within your key markets.”
In addition to spreading your volume and markets too thin, Loeters adds, generalist brokerages that spend their time on too many industry segments at once risk that they won’t do any of them well.
Steven Van Halst, Aon’s executive vice president of Western Canada and national director of risk control services, agrees. “If you’re a regional broker, it’s very hard to have the scale to build deep content expertise if you’re doing a D&O policy for a restaurant in the morning, a construction policy for a mid-sized contractor in the afternoon, and then trying to get a complex claim solved for a financial services firm,” he says.
Here’s why — and how — specializing can help small and mid-sized brokerages grow their business in today’s tough climate.
Align with carriers to develop your niche
To specialize successfully, you need a plan. “Figure out, ‘What do I know about? Who do I know? and, Where are my customers going to come from?’” suggests Brenda Rose, partner and vice president at Toronto-based mid-sized brokerage FCA.
Loeters recommends analyzing your current book of business to identify common verticals. Next, take a look at the markets to which you currently have access, and then pick up the phone. “Have a meaningful conversation with the commercial lines manager at every one of those insurers and ask, ‘Where is it that you as an insurer want to grow? What are the classes of business at which you really excel, and in which classes of business do you want to grow?’”
During these conversations, check to see if any of your existing business matches up with the insurers’ appetites. “You’re looking for overlap — contractors, for example,” Loeters says. “Then you [ask yourself]: ‘Is there enough of that business in this marketplace in which I operate for me to make a living? Is the marketplace big enough, and is there something I can offer in that industry that’s unique from everybody else?’”
Don’t put down the phone. As the market hardens and reacts to the fallout of the COVID-19 pandemic, insurers’ appetites are constantly changing, says Greg Belton, executive chairman at HUB Canada. You need to stay up to date.
“You could waste a lot of time getting the details on a risk and sending it out to every carrier you have,” he explains. “The carrier could be going, ‘Don’t these people know we don’t write this kind of risk?’ You really have to invest the time to understand the risk appetite of the carriers.”
Neiles agrees. “The last thing you want to find out is a carrier can’t provide the same capacity they could previously. Really understand appetites and restricted classes insurers will not entertain. It comes down to asking those very direct and specific questions.”
Don’t have a strong relationship with carriers?
If you don’t have someone to call at your insurer partners, building up business in your niche can help you attract their attention. When Belton launched his brokerage 20 years ago (which was subsequently acquired by HUB in 2008), insurers didn’t take him seriously. “They said, ‘Who are you guys?’” he recalls. “We just put our heads down and thought the only thing that we have control over is to get out there and write new business.”
He eventually landed two big accounts: Toronto’s biggest sports and entertainment venue, Rogers Centre (still called the SkyDome at the time), and a large vehicle leasing company.
“That started us on the idea of specializing in auto leasing and entertainment,” Belton says. “The carriers thought, ‘They’re getting big accounts, they’re growing. We should invest time in these people.’ That was the only thing we could do to get carrier support and new markets as needed.”
Prolink used a similar strategy, specializing in professional services verticals. Loeters says focusing on one or two specific lines of coverage “allows us to concentrate our volume and our relationships with a handful of key insurer partners. It gives us the same benefit as if we were a 900-person firm.”
Once you build your expertise and grow your volume, carriers are “going to know you and trust you,” Loeters says. “You know what you’re talking about. You always give them the right information, which makes the underwriter’s life really easy. And you’ll be able to get anything done that an alpha house would.” In contrast, he points out, generalist commercial firms aren’t “putting any significant amount of volume with any particular insurer, and you’re not having any regular interaction with any particular underwriter. It doesn’t get you any benefits.”
Rose feels the same way. The most vital benefit of concentrating premium volume, she says, is that it allows FCA to stand out and “compete with [big] shops on a level playing field. While the national shops can leverage their volumes with insurers, they’re dealing with the same insurance companies that we are.”
However, the brokerage-insurer relationships look different between large alpha houses and small or mid-sized brokerages. The Aons, HUBs, and Gallaghers of the world deal with the C-suite at insurers — but Rose says developing relationships with underwriters is equally helpful.
Get to know “all the construction underwriters or wind farm underwriters — people who are specialized in [your niche] on the insurer side,” she advises. “Then you can have that one-on-one conversation, and the underwriters get to know you.”
Especially during a hard market, underwriter relationships are vital, says Van Halst. “There’s a finite amount of market capacity and human capacity. If you get 20 submissions and you bind one or two of them, think about the cost for the underwriter to assess that. If we can be sure we know what their targets are and increase that ratio of success, it’s better for everybody.”
The right strategy for growth or acquisition
If your end goal is to sell your brokerage, specialization can enhance your appeal, according to Neiles. A brokerage like Gallagher “has a much bigger appetite for a commercial broker that will do a lot more in fewer areas and develop that niche,” he says. “We’re looking to see what unique things they do. That’s a way that a small broker can flourish — and maybe the only way.”
Whether you’re looking to be acquired, or grow organically by focusing on a niche, Loeters says, “I firmly believe being the best at it is the only way you will be successful.”