Why Should an Agent Choose Commercial Insurance Over Personal Insurance in 2022?

According to the Insurance Information Institute (III), Property and Casualty insurance (P&C) remained profitable in 2020 despite a 26% drop in the net income when compared to 2019. Despite the challenges the pandemic brought, the sector survived based on its health revenue and capital.

Although it may look like a grim time to invest in the P&C industry, it’s really not. With all the problems brought by the pandemic, the industry is gradually adapting and coming out stronger than before.

However, one of the biggest dilemmas for you can be whether to focus on personal insurance or commercial insurance. Well, the answer is easy: Commercial insurance is the better option.

We’ll tell you why. But first, let’s just touch on the basics of these two lines of insurance.

Personal Insurance vs. Commercial Insurance 

Personal insurance provides coverages for individuals to tackle personal losses due to injury, accidents, or damage to properties, whereas commercial insurance offers insurance products for varied business protection needs.

Personal insurance has been the golden child. But what about commercial insurance? 

In 2019, a fact sheet by III showed that the Net Premium Written (NPW), for personal lines amounted to $340.7 billion which was 53.2% of total NPW and to $299.3 (46.8% of total NPW) billion for commercial lines. Yes, the numbers show a massive market for you to tap for anyone selling property and casualty insurance. However, the table is turning, and the dominant growth is shifting to commercial insurance.

According to the First Quarter Financial Results of 2020 by III, the growth rate of Net Premium Written (NPW) for personal lines is 3.0 percent while that for commercial lines soared by 12.1 percent. To give a complete picture for your information, in the first quarter of 2019, the NPW growth rate in commercial lines was -9.3 percent.

The data above shows the shifting dynamics within the property and casualty insurance market. Though personal insurance had been the “volume game,” it is comparatively saturated while profitable niches are yet to be carved out in the commercial insurance arena.

Why is Commercial Insurance Better for You?

Commercial lines are critical to the U.S. economy. According to U.S. Small Business Administration (SBA), as of May 2020, there were 31.7 million small businesses (which is 99.9% of U.S. businesses) that employ an aggregate of 60.6 million employees, which is only 47.1% of total U.S. employees. These businesses vary from small home-based businesses to construction firms. Regardless of their nature, there is one thing common in all of them: without the right, and adequate insurance coverage, a disaster or a lawsuit can wipe each of them. And that applies to large-scale companies too.

Here are the reasons to highlight of why commercial insurance is better:

Commercial insurance has high commission payout 

Commercial insurance policies have high policy limits than personal insurance policies. The high-valued nature of commercial insurance makes directly affects the commissions you earn. To clarify, the higher the policy limit, the higher your commission dollars, lower the limit, lower the commission dollars you earn.

Diversified proliferation of commercial insurance

Businesses evolve with changing dynamics of the market – For instance, the novelty idea of Transportation Network Companies (TNCs) like Uber and Lyft. New business trends are opportunities for the insurance industry to develop new niches, like ridesharing insurance, and proliferate. That’s how insurance products have evolved in the first place.

While you will be able to build probable niches under a specific commercial niche, the personal line has stagnant diversity.

Booming business environment in the commercial market

The number of businesses has been growing. According to Small Business Profile 2019 issued by SBA, there were 30.7 million small businesses in the U.S., while the Profile in 2020 reports 31.7 million small businesses, an addition of a million.

With the growing number of businesses, the demand for commercial insurance is also likely to grow. The federal government mandates every business to purchase commercial insurance like worker’s compensation insurance, once employee/s are hired. So, new business automatically opens demands for commercial insurance.

Rising commercial insurance rates

The insurance premium rates increased in the first quarter of 2020. The highest spike was in Financial and Professional liability policies by 23%, and Directors and Officers (D&O) Insurance by 44%. Higher prices mean higher commission dollars. Also, the rise in renewal fees can bring in a higher commission for you.

Penetrating technologies in insurance as a whole 

Technologies have penetrated our lives through innovations of smart ways of living. Businesses have been aggressively leveraging tech-solutions because technology has become a culture today. In 2016, III had predicted that, while only 6.4 billion internet-connected devices were vulnerable to cyber-attacks that year, the number will increase to 20.8 billion devices by 2020.

According to Risk Based Security, data breaches exposed 36 billion records in the first half of 2020. Many small businesses don’t understand the importance of cyber insurance. However, you can capitalize on this market and carter to specifically them.

Tips for selling commercial insurance

If you had been selling personal lines of insurance, you should revise the techniques to better target the commercial market. Or, if you have been selling the commercial insurance products, you may want to check these tips. Either way, the following tips will be handy for any insurance agent seeking to have a firm foot in the commercial insurance market.

  • Choose a few niches that you want to focus on and develop knowledge.
  • Start with rigorous research to locate your prospective clients. Don’t rely entirely on referrals.
  • Start cold calling, prospecting, and networking.
  • Understand the specific business needs and analyze the potential risks at a much deeper level.
  • Accumulate information on the number of employees, history of business disruptions, safety measures undertaken by the company, and its impact on workers’ compensation.
  • Use digital materials like interactive and comprehensive website. You can either build one or partner with an insurance aggregator.
  • Send out newsletters and organize risk management webinars to keep yourself on top of your potential clients’ minds.
  • Always follow up with your clients after you make the sale. You have the best chance to up-sell or cross-sell.

If you focus on a single line of business under property and casualty insurance, survival in the insurance industry can be a tough cookie. So, keep up with the competition and branch out on new niches. Commercial insurance has tons of opportunities to explore and is not as rigid as personal insurance. Once you demonstrate your expertise in the selected niche in commercial insurance, you’ll uncover a significantly profitable market pool.

Source: Agency Height