Today's Viewpoint: A MarshBerry Publication

Pareto Principle & Your Firm’s Book Of Business

Using technology to more effectively streamline operating efficiencies

What Is The 80/20 Principle?

Famed economist Vilfredo Pareto first published his 80/20 Principle in 1897. It revealed an uneven but predictable reality about cause and effect, labor and output, cost and profit. Simply stated, while 80% of what you do will only produce 20% of your results, the remaining 20% of what you do produces 80% of your desired results. So, in theory, if you could eliminate the unproductive, under-performing, less profitable, non-additive “80%” and focus on the highly desirable top 20%, we’d be more productive, profitable, happy, etc.

Ever since this concept was introduced, its applicability has been boundless. The Pareto Principle shapes decisions across all disciplines – and insurance is no exception. When the most disciplined practitioners of this rule look at their books of business, the rule still applies – 80% of your revenue comes from the top 20% of your book. Eighty percent of the labor your clients require comes from the bottom 20% of your book.

Pareto Principle Example

The average commercial Property & Casualty revenue in 2019 for our MarshBerry Platform members was in excess of $14M. In this data we see that 79% of their collective 80,000+ commercial clients (incepted in 2019) produced revenue less than $2,500 annually. Many struggle with this reality, particularly those that focus on larger customers or look to dissuade their sales teams by not paying producers on accounts that generate less than “X.” But the better performing firms embrace Pareto and to paraphrase Matt Damon in the Martian, they “science the ‘heck’ out of it.”

Depending on the demographics, size, book make-up and culture of your organization, small commercial accounts are typically considered accounts below a stated threshold, which generally ranges from $2,500 to $10,000 in commission per account. Often, this business is written on a Business Owners Policy or it may be small Excess & Surplus business which can be cumbersome, paper-intensive and unstructured. Since the late 1980s, carriers have tried to help their distributors by ‘simplifying’ process.’ They’ve done this by moving the rate, quote, and issue process for small commercial lines through their carrier portal where they can submit, quote and bind this highly desired, profitable business. This helps until that broker feels, or is required to seek, alternative options for their solution.

Over the past few years, MarshBerry has focused on helping firms align technology critical to their organic growth and financial performance. Business Intelligence, Resource Optimization and Brand Differentiation are critical components to create value for stakeholders. Regardless of account size, these factors ultimately dictate where, how, when and with whom you work with. And, the better this process is designed and refined, the better your ultimate performance.

Take a good look at your firm’s existing book of business. The Pareto Principle is there waiting for you to use technology to make the bottom 20% of your business more profitable and to more effectively streamline operating efficiencies.

If you have questions about Today’s ViewPoint or would like to learn more about using technology to drive efficiencies in your business with insurance consulting services, please email or call David Soforenko, Executive Vice President, at 440.220.4101.

MarshBerry’s Connect Platform financial advisory consulting team is hosting a webinar highlighting how technology and carriers are “Connecting the Dots” to help insurance agents and brokers better manage (and grow) their SBU. Join the panel discussion with representatives from Grange, Hanover, Tarmika and ITC.

“Connecting the Dots: How Carriers & Technology Partners Can Help Accelerate Your Firm’s Growth”

  • Date: Wednesday, July 22, 2020 @ 11:00 am ET
  • Click HERE to register. Space is limited.

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