Balance Your Book with Commercial Lines to Increase Your Agency’s Value

A stack of rocks balanced on a beach, to illustrate balance.

Growing commercial lines is becoming more important as the personal lines market evolves.

Diversification has long been regarded as an effective tool for managing your investment portfolio – and savvy independent agents know that it’s also a smart strategy to employ when balancing their agency’s book of business.

If you’re looking to enhance your agency’s value, a diversified book is a wiser bet, especially in the long term. On average, a balanced book is worth more to someone who would acquire your agency than a book that is more narrowly focused.

Making the Shift

Over the past year, successful independent agents have told Renaissance they’re looking to shift the ratio between their personal and commercial lines accounts. Two separate agents who we’ve interviewed for our member-agency newsletter both said they currently had a balance of 80% personal to 20% commercial – and despite the good retention they had enjoyed with their personal lines clients, those principals were looking to boost their commercial premiums in order to establish more balance.

While the environment is as challenging as ever for commercial lines, in time, things might prove even more volatile for personal lines. On a long enough timeline, InsurTechs could gain a larger slice of personal lines market share than independent agents might expect. The valuations of those independent agencies will also be impacted as competition heats up in personal lines.

It can be challenging for independent agencies to achieve meaningful growth on the backs of small personal lines business. At some point, an agency needs the opportunity to service accounts at higher levels of premium in order to sustainably grow. Additionally, commercial lines loss ratios tend to be more stable over time and have performed better than personal lines over the last decade.

It’s always a good idea to regularly review your operations and consider whether the decisions you’ve made and that you’re currently making will have a positive impact on your business in the long term. With that in mind, now might be the right time to ask: as an independent agent, is my book of business really as diversified as I think it is?

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Periodic review of your list of accounts is essential in ensuring your agency is doing all it can to serve a wider variety of clients. This can prove a profitable approach for several reasons.

First, as sectors like homeowners and auto become increasingly commoditized, it’s harder for an independent agency to stand out as being a specialist in personal lines. Even if your agency is known for specializing in personal lines, that can put you in a “box” that can limit the scope of your referrals.

Conversely, having a diverse customer base helps get you get more referrals as an agency known for being able to place both Main Street business and harder-to-place commercial lines risks. Being known as an agency that possesses strength – as well as valuable carrier partners – in serving both commercial and personal lines clients will pay off not only in expanded premium, but also in reputational equity.

This is not to say that developing expertise in commercial lines is easy. Not every independent agency has the resources to gain specialization in serving commercial clients. Selecting which commercial lines you want to do business in requires a balanced scale between the profitability of those lines and the level of investment you want to make in having the bench to effectively serve those customers – and that equation looks different for every independent agency. Is it large contractors, or manufacturers, or even technology companies that you want to be serving? Long-haul trucking? Only you can answer that question.

An Easier Way

One of the benefits of joining a network like Renaissance is that our member agencies have access to a small-commercial comparative rater through which they can quickly and easily obtain multiple quotes. They also have the advantage of being able to reach out to our Placement Team, which is experienced in placing a variety of hard-to-market commercial risks.

Specializing in both personal and commercial can also tee up cross-selling opportunities for your business. This is an area in which some agencies do a better job than others, but let’s face it: the ones who excel in this area often have help – whether it’s through an agency network or with a technology solution that surfaces those opportunities for them. Or, in some cases, both.

Renaissance’s Member Success Team and our proprietary technology help our member agencies identify areas in which these two lines intersect among the clients they serve, and offer insight into the cross-sell opportunities they often didn’t realize they had.

We’re not at all suggesting that you should serve commercial lines clients in lieu of personal lines customers. Independent agents are the insurance industry’s boots on the ground, and their personal lines clients depend on them for their experienced counsel and service.

However, balancing personal and commercial lines is something to strive toward in diversifying your own portfolio of risk, as well as an effective way to enhance your agency’s value.

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