The Amazing Race for Growth - Is Small Commercial Insurance the Answer?

April 26, 2016| By Rick Hartmann | Property | English

Region: North America

$670 billion dollars. Now that’s a large number.

Policyholder surplus at the end of 2015 continues to stand near record levels at $670 billion.1 This abundant supply of capital is forcing insurers to try to find new, dynamic ways to grow and innovate. Competition is starting to mirror that of the Hunger Games. Well, maybe not quite at that level.

As organic growth becomes increasingly difficult, carriers are employing a number of growth strategies, including: appetite expansion into emerging risks, broadening coverage offerings to include cyber or employer liability, M&A and product innovation.2 However, there is one trend that is clearly emerging as the front runner, and that is growth in U.S. small commercial insurance.

A recent survey from McKinsey & Company indicates that the U.S. small commercial insurance market is one of the few bright spots in the U.S. P&C insurance sector, serving businesses with up to 100 employees and $100,000 in annual premiums. Currently, it accounts for more than a third of the U.S. commercial lines market. According to the study, the small commercial market is more dynamic than the mid- to large commercial segment, with growth similar to personal lines auto and a fragmented competitive and geographic landscape.3

Small businesses are significant drivers of the U.S. economy. "According to SunTrust Banks, Inc. Business Pulse Survey, there is a significant shift in growth strategies of small businesses."4 For example, 41% of small businesses with annual revenue of $2 million - $10 million plan to introduce a new product or service, which is up from 31 in 2015%.

The top 10 states with the highest number of small businesses are listed as follows:5 


Why are many personal lines carriers moving to small commercial? Well, according to an Insurance Journal article, companies are attracted to small commercial because it is believed to be less price sensitive and that agents do not shop small commercial as much.6

Small commercial accounts are considered small because they have not been sold or written properly. When ramping up a new line of business, results can turn south quickly without maintaining underwriting discipline. Attention to underwriting detail is a much more profitable approach especially in today’s low interest rate environment, where combined ratios must be lower to generate targeted ROE’s.

McKinsey defines a winning strategy to successfully build a small commercial book as targeting specific customer segments, developing a compelling message through the full range of distribution channels and delivering a distinctive value proposition to acquire and retain customers.

However, retention remains a key ingredient as the vast majority of small companies still make their decisions based on loyalty. Of the 94% who renew with their incumbent carriers, 82% do so without shopping. Furthermore, renewal business has been found to produce loss ratios 7% to 18% lower than new business.7

In a world filled with unknowns and uncertainties, we all know that not all growth is good, profitable growth.

In fact, it is generally recognized that new business produces higher loss ratios and expense ratios. Without oversight, a growth strategy may generate significant underwriting losses.

Who will your second set of eyes be?

As a direct reinsurance provider, the ability to have underwriter to underwriter dialogue enables us to share our observations, insights and perspectives. Our mutual goal is to produce profitable business. A Gen Re property excess of loss cover not only provides frequency and severity protection, but can also serve as bridge for carriers exploring growth in the small commercial insurance space.

Ultimately, our goal is to help our customers realize a better growth outcome overtime resulting from retaining more of their gross profitable business and ceding less reinsurance.

The race is on. Ready, set, underwrite.


  1. Lynch, James. (2016, April 6). Insurance Industry Overview & Outlook: Trends, Challenges & Opportunities.
  2. Monaghan, Kathleen. Insurance Trends and Growth Strategies.
  3. McKinsey & Company. (2016, March). Small commercial insurance: A bright spot in US property – casualty market.
  4. (2016, March 23). SunTrust: Significant Shift in Small and Mid-Market Business Growth Strategies.
  5. Merhar, Christina (2015, March 2). Top 10 U.S. State for Small Business Growth.
  6. Burand, Chris. (2014). Small Commercial Lines: The Good, The Bad, The Ugly. Insurance Journal.
  7. Fu, Luyang. (2015) Optimal Growth for P&C Insurance Companies [Abstract]. Casualty Actuarial Society, Volume 65, 102-103.


Stay Up to Date. Subscribe Today.


Get to know our global experts

View Contributors