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From tailoring existing products to developing new ones from scratch, from tailoring an approach commonly used with larger commercial customers to adopting a quasi-retail mindset, from adapting existing databases to converting that data to useful market intelligence, extracting premium from the small business marketplace isn't to be taken lightly. But for commercial carriers, here's a guide to entering the small business marketplace.

Underwriting models. Commercial carriers obviously are pros at underwriting big companies, but only a portion of that ability is cleanly transferable to the small business market, where they will be dealing with a much greater count and diversity of companies, will have less time to spend with each customer; and must draw on different sources and types of information for sound analysis.

The complication, however, is that the manner in which owners manage their personal affairs often differs greatly from the way they handle their businesses. Whether insuring for business interruption, liability or key-person loss, commercial carriers must learn to efficiently analyze the discrete risk of the small business.

Sales and service. Agent expertise is pivotal in the corporate insurance market, but automated expertise will be needed for small business sales, which often will be handled by people other than the most seasoned professionals. People in the field will need tools that provide qualified prospects, generate appropriate product recommendations, and smoothly fulfill origination and servicing activities.

Although this is being worked on, the intense effort of building technology platforms has distracted carriers from ease-of-use considerations, often leading to overly complex user interfaces and data input requirements. It is a case of commercial carriers injecting the megacomplexity of their traditional activities into a space where retail-like transaction transparency is needed.

The race is on to minimize the field transaction time needed to underwrite the customer, and some players can formulate small policies in less than 10 minutes. Yet the cultural pull of corporate underwriting continues to hamper streamlining efforts. So strong is the practice of using skilled-but-expensive claims adjusters, for example, that many players cannot bring themselves to consider automated systems that would actually do a better overall job of efficiently settling claims.

These issues highlight a cultural barrier that most commercial carriers have yet to surmount--adapting to the retail-like dynamics of the small business market.

Growth priorities. It is imperative that commercial carriers accurately identify priority opportunities within the vast territories they seek to serve. Not all locations have sufficient concentrations of small businesses, for example, and marketing and sales resources need to be deployed selectively. A systematic analysis and ranking of local markets is needed to guide expansion efforts.

The concept of prioritization extends to targeting as well. The challenge lies in segmenting the market for prospects that have a close match to the carrier's product capabilities and network coverage, while avoiding adverse risk selection.

The payoffs from clarifying the profiles and needs of prime customer segments are many. The carrier can, for example, gain insights on how to create offers that will induce switching. In turn, such offers can be deployed within the current distribution network--especially valuable for carriers with captive agent networks.

Additionally, market- and segment-based knowledge provides invaluable support and context for agent performance, not only with prospecting and offers, but also with goal-setting, performance measurement and incentives. Typically, among field representatives, producers in the top two or three deciles account for roughly half of total sales, and methodically nurturing this group is critical in driving profitable growth.

Information and analytics. As commercial players continue to hone their small business initiatives, the key to breakout performance will be an ability to differentiate based on superior market intelligence.

Commercial carriers will need a variety of new information sources and skills to guide their prospecting activities and make the most of every relationship. Instead of leaving outreaches solely to the discretion of various field offices and agents, progressive players are forming central teams to analytically scan the market and develop systematic guidance on opportunities and how best to exploit them.

One particular challenge in the small business market is matching individuals with their business ownership. Not only do commercially available business databases suffer from insufficient market coverage, but developing the algorithms used to bridge the gap between individual and business requires significant investment and time.

Winners will combine multiple sources of data and use their own experience with small businesses to validate matching algorithms and build proprietary knowledge.

SAM RADWAN is a managing director and DALE JOHNSON is a principal in the Chicago offices of Novantas LLC, a management consultancy.

August 1, 2008

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