Most of the insurance brokerage industry tends to follow the 80/20 principle – 80% of the average firm’s revenue is driven from 20% of their customers. The inverse of that formula is 80% of a firm’s customer list accounts for only 20% of the total revenue. That means losing a top 20 account has an immediate and direct impact on company value.
For brokers serious about growth, building a value proposition and proactive strategy to retain the top 20% of accounts is essential. It’s also important to write additional accounts of equal or greater size to add a buffer if one is lost. A firm’s producers should make it a priority to target larger accounts for new business. To balance these factors, while maximizing client retention and internal profitability, MarshBerry strongly recommends that insurance brokerages create a Small Business Unit (SBU).
How an SBU profits insurance brokerages
A Small Business Unit (SBU) typically refers to a specialized department or division within an insurance brokerage that focuses on serving the insurance needs of small businesses: those which have a relatively low number of employees, minimal annual revenue, and limited assets compared to larger enterprises. While it may sound counterproductive at first, developing an SBU can be a wise investment in the long-term.
Here are some of the specific benefits of a strong SBU:
- Better client service: One of the core reasons high growth and high performing brokerages build an SBU is to help create a more efficient, stronger value proposition for their smaller accounts.
- More attention to larger accounts: By adding a dedicated SBU, tenured producers are free to work on larger and more complicated accounts, boosting growth.
- Cross-selling opportunities: An SBU is just one more venue to sell additional insurance products to established clients.
- Competitive advancement: Since the majority of today’s insurance broker landscape have neglected the SBU strategy, smaller clients are taking notice and have ultimately gravitated towards an SBU broker model by purchasing more of their products, increasing loyalty and therefore improving retention rates.
Without a dedicated unit to properly improve the servicing capabilities on this business, brokerage owners are at risk of losing large, potentially profitable blocks of business. Firms that avoid building a specialized unit to service those account thresholds should reevaluate their long-term commitment to this type of business.
Developing your SBU
Refining the servicing process should be a year-one priority when establishing an SBU. Start by ensuring quality service personnel are in place and the carrier strategy for placing small business is concrete. A well-defined SBU brings immediate efficiency with small business accounts, but the overall effect the unit can have on the company’s long-term value should not be overlooked. Growth costs money, so balancing growth with shareholder return is a challenge for brokerage owners, which is why when executed correctly, SBUs complement both organic growth and profitability simultaneously.
Typically, the SBU is made up of specialized staff who have expertise in the unique insurance needs and risk profiles of small businesses. They work with business owners to assess their specific risks and recommend appropriate insurance coverage.
A well-defined SBU brings immediate efficiency with small business accounts, but the overall effect the unit can have on the company’s long-term value should not be overlooked. Growth costs money, so balancing growth with shareholder return is a challenge for brokerage owners, which is why when executed correctly, SBUs complement both organic growth and profitability simultaneously.
Once the unit is established, your firm should establish a five-year growth plan, similar to other niches or verticals within the business. A brokerage’s growth plan should involve:
- Creating an SBU value proposition that is consistent with the brokerage’s current branding and marketing collateral.
- Developing a dedicated sales professional(s) responsible for driving SBU growth.
- Building a profitable list of executable value-added services that provide scale to the unit.
- Creating a different sales model to handle smaller accounts.
- Defining and documenting what types of accounts qualify to be handled by the SBU. This includes identifying which accounts require low-touch and low-cost client interaction, bring in minimal revenue, etc.
As you can see in the below chart, dissecting a producer’s book of business can help identify the bottom 80% of accounts that belong in the SBU:
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There are only so many accounts that a producer can service before new business and book growth plateau. Implementing an SBU results in smaller accounts being transferred to other staff, thus freeing the producer to sell more and service less.
As an insurance brokerage owner, if your plan is to drive long-term sustainable value, then establishing or refining your SBU goals should be a focus. Building an SBU can consume a lot of organizational time and resources, but in the long run, the returns are worth the output.
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