Personal Lines or Commercial Lines...Where Should I Focus My Agency?
We asked our LinkedIn followers to help us chose this month’s article topic and here it is! Which line of business should my agency focus on, commercial lines or personal lines? This can be a very important question as an agency owner and can determine the agency’s long-term success or failure. Which line of business will give me the most opportunity to grow my insurance agency? The answers to these questions are not always clear-cut, but I see some consistencies with agents that experience long-term growth and have implemented a dual-focused strategy for building. First, let’s lay a little groundwork.
What are the real differences between the two?
For starters, the premiums for commercial lines (CL) business tend to be much larger on average than personal lines (PL) business. The good news is you won’t have to land as many accounts through CL to equal what you would need in PL for the same book size. This can be a blessing and sometimes a curse. If TOO much of your overall premium consists of only a few very large accounts, losing one can be detrimental to your agency revenue. So be careful not to overload your book with only ‘large’ premium accounts.
Another major difference can be in the length of the sales cycle. There is generally more work in gathering information and quoting CL business over PL business. This can lead to a much longer sales cycle that can sometimes take months to complete and win. The cycle for personal lines, on the other hand, can sometimes be counted in minutes rather than days or months. Because insurance success tends to be a ‘numbers game,’ this difference needs to be accounted for and the need for consistent quoting is sometimes compounded in CL-heavy agencies.
The last difference is the level of experience and knowledge needed to write each line. Because CL risks tend to be less uniform and more unique from business to business, it is extremely important to have a high level of expertise and knowledge. Liability concerns and E&O exposures for agents can also increase because of this greater level of sophistication, and thus staff and producer oversight are paramount in maintaining a healthy agency and book of happy CL customers. PL business is much less sophisticated, so it can sometimes be an easier way to build, especially for a new agency with limited resources and experience.
Which direction should I take my agency?
Now that we have highlighted some of the differences between CL and PL, which one should you focus on for your agency? In my experience, the most successful agencies I work with have a dual focus and write both lines!
It is a well-known business tactic to diversify your revenue sources no matter the industry. The trick comes in making sure that you resist ‘over diversification’ and stay focused on what you do best. CL and PL business is different, as noted above, but not too far removed from each other so they can easily go hand in hand at the same agency without stretching yourself too thin. Having a producer in the office that is focused solely on writing and attracting CL business can help balance the PL book (and vice versa if you are a CL-focused agency) and provide revenue stability and client diversification. There is also great opportunity in cross-selling from both the CL and PL sides of the book to help increase premiums per customer.
Approximately 1 in 10 people own a small business, and according to research done by The Hartford, 25% of Americans have some type of ‘side business.’ Therefore, if you aren’t selling business insurance to your customers… another agent IS. Don't let other agents gain that advantage - create a plan and offer insurance solutions to help your customers who own a business. For most agencies, a dual-focused or balance between CL and PL is the way to build most successfully.
A note concerning a CL-only focused agency: If you had asked me a year ago (before COVID), is CL going to give me more stability in my agency over PL? I would have said yes. However, through the past year, it has been the balanced PL and CL agencies that have weathered the storm better than others. It is true that PL has become more commoditized, and many carriers are still pushing to bypass the local agent force and sell home and auto products directly to the public. This isn’t the case with business or CL products which require a more tailor-made approach from an experienced agent. However, after the events of the last year and so many small businesses being devastated by the economic environment, having a dual-focused agency for both PL and CL has insulated these agencies from big losses in premium on the CL side and thus bolstered their revenue through PL accounts.
If you haven’t diversified your agency and started writing both commercial and personal lines business, there is no better time to start than right now. Put together a plan. If you only focus on PL, hire someone with CL experience or partner with another agent you trust and start building. Most (but not all) of the larger CL agencies in the marketplace have already added a PL division. So that means if you are focused on PL and haven’t yet started adding business insurance offerings to your agency, you are missing the boat! Regardless of your current focus, having both PL and CL customers in your book of business will set you up for long-term success and help insulate your agency from changes in the market and economy.
As always, please feel free to reach out to me if you are interested in learning about the different ways to grow your independent agency, and don't forget to check out our other free resources on www.ISGUnited.com.