Depth Perception: The Advantages of Commercial Lines Specialization

Carolyn Reynolds has fond memories of growing up in her dad’s insurance agency, spending summers riding bikes with her sister through the parking lot.

But when she thinks back, what stands out most is the contractors who spent their mornings catching up at the office.

“They’d come in and have their coffee and their cigarette, and just hang out with Dad,” she recalls. “This is where they congregated.”

Three decades later, Reynolds Insurance Agency, headquartered in Berea, Kentucky with a second location in Richmond, still specializes heavily in the construction business. “A lot of those guys are still in business today,” says Reynolds, principal and producer. “Some of their children and grandchildren are involved now too, carrying on the family business. It’s all about those relationships.”

According to the latest Future One Agency Universe Study, 26% of independent agencies specialize in construction and contractors. Other popular specialties include restaurants (16%), agriculture (12%) and transportation (12%)—and agencies that focus on construction, ag or transportation report that those industries account for at least one-third of their medium commercial lines revenue.

But 54% of independent agencies don’t specialize in a specific industry at all. If you’re part of the majority that’s missing out on a big opportunity, here are three good reasons to consider developing a niche.

ReynoldsLess competition. Carolyn’s dad Paul Reynolds, principal and president, opened the agency in 1974 after starting his career at a large agency in Ohio which specialized in commercial contractors. “When I came back home, I had more knowledge and experience than anybody in the area,” he recalls. “I was able to go to the contractors and present coverage they didn’t even realize was out there to be offered.”

It’s a market where “we really have to know our stuff,” says Carolyn Reynolds (pictured right with her dad)—and that level of expertise can set your agency apart in a big way.

Greg Sandrock’s niche experience began a little closer to home: When his family’s farming operation hit a rough patch in the mid-80s, he shifted gears and became a crop adjuster before joining an agency as a part-time crop producer. In 1988, he started The Cornerstone Agency, Inc. “from scratch,” he says.

Headquartered in Tampico, Illinois, a rural area about two hours west of Chicago, the agency employs 14 staff members and focuses primarily on agriculture. “Probably 85% of anything we touch has some sort of farm or ag relationship to it,” says Sandrock, partner. “It’s been our specialty for several years, and now, we don’t have as much competition.”

Blame it on significant transformation in the ag sector in the last two decades. Sandrock says that although there are still plenty of family, hobby and retirement-type farms in the U.S., “there’s also a lot of family farms that are run more as corporations or multi-entity operations.”

Instead of a traditional family farm with row crops, for example, today’s farm may pursue commercial operations like tiling and drainage, long-haul trucking, fertilizer and chemical application, precision farming services, grain storage and seed sales.

Succeeding as an agent in this space, therefore, requires “pretty good expertise in those areas, as well as a menu of company appetites that understand this is no longer just a farm—it’s got a lot of commercial feel to it,” Sandrock points out. “That’s where you start weeding out the competition. A lot of agencies say they do farm, but they stop once they reach a certain size or complexity.”

The same concept applies to agencies outside the independent system. Steve Lipstone has worked in insurance for 42 years, beginning his career as a commercial underwriter on the East Coast. In 1978, he moved to Los Angeles and eventually wound up working for a direct writer in commercial lines, where he insured the Panda Express chain and about 125 Subway locations.

“I became very knowledgeable and familiar with the restaurant industry,” says Lipstone, who is now president of ISU-Lipstone Insurance Group, the family-owned agency he started in Cary, North Carolina in 2001. Once he went independent, Lipstone found he had a much better suite of options to offer restaurant clients, and started developing a specialty from there.

From food spoilage and contamination to liquor liability, employment practices liability and loss of income due to weather-related incidents, the exposures a restaurant faces span further and wider than your average commercial risk, Lipstone points out.

“If you’re working for a direct writer, you have one option,” Lipstone says. “There are lots of additional coverages clients may want.”

Access to the right markets is crucial in every niche, agrees Brett Nilsson, senior vice president of The Buckner Company, an independent agency headquartered in Salt Lake City which focuses heavily on trucking and transportation.

“There’s never going to be just one company that’s going to be able to deal with all the risks,” Nilsson says. “You have to have relationships with carriers that provide you with all the understanding and things you need on a state-by-state basis.

“But there aren’t a lot of markets,” adds Nilsson, who works with several franchisee vehicle rental programs in various states across the country. “Navigating it comes from years and years of education. It’s a highly technical, difficult class of business. It’s not one you can easily transfer into.”

Greater longevity.
Developing that targeted expertise makes it easier to not only secure the right coverage combinations for your clientele, but also keep up with market changes that will have a big impact on them. Proactive education and risk management benefits their premiums and ensures their survival—while giving you a reliable source of business well into the future.

Sandrock’s agency, for example, must keep its finger on the pulse of environmental, workers comp and even quality assurance regulations that vary by state as ag risks continue to become more complicated.

“If you go into local restaurants, the big thing right now is farm to table. That’s really increasing the responsibility on the grower’s side, because now when the end consumer sits down to consume that product, it’s traceable all the way back to the field where it came from,” explains Sandrock, who notes that kind of risk is entering the product liability territory.

“That’s an arena the ag market has never thought of, and I’m not so sure it’s even actuarially ready for that,” Sandrock adds. “We have to be able to read the contracts and help our clients understand who’s liable during the process. The risk management on these operations is pretty significant.”

The immense knowledge the ag sector requires of agents is exactly why Sandrock views it as “a tremendous niche opportunity,” he says. “A lot of clients aren’t quite geared up to have an understanding of what’s going on, or anticipate what’s going to happen down the road.”

The same is true in the short-term rental car business, where one of the biggest challenges is that “you’re just taking a car and giving it to somebody when you don’t really know that much about their driving records, their driving habits. They may come in from overseas where they may be used to driving on the opposite side of the road,” Nilsson points out. “Or, they may be coming here on business and they have a franchised business account and they don’t buy their insurance coverages.”

Like agriculture, this subsector of the transportation market faces different challenges in every state. “Every state is different with their filings—in some, you have to provide the primary minimum limits; in others, the renter is the first obligee to the rental agreement, so it’s their personal insurance that has to pay,” Nilsson explains. “Staying on top of that is a challenge.”

And whether it’s state regulations like workers comp or federal issues like tax reform, “people don’t always think about how that kind of stuff drives costs in their industry,” points out Carolyn Reynolds, who will serve as president of her local homebuilders association this year.

Consider that because Canadian Southwood Lumber represents 30% of U.S. lumber sales, she says, lumber prices went up 20% after the U.S. instituted a tariff tax on Canadian trade. What happens on the Hill “affects the housing market, building materials, mortgage rates—everything.”

Stronger relationships. While Cornerstone does “quite a bit of work” within a 100-mile radius, the agency is licensed in several states as far away as South Dakota and Nebraska, Sandrock says.

Serving non-local clients isn’t typical in the farm sector, but specializing so deeply in ag allows the agency to significantly expand its sales and prospecting reach, Sandrock explains: “Maybe you’ve got a really good client that’s 600 miles from home, and you only visit them every three or four years. But you communicate multiple times in a month.”

Sandrock’s agency even launched a program to solidify connections to the next generation of farmers specifically: Combine Talks, in which younger agency staff visits key clientele during harvest and asks a series of questions regarding what they want out of their insurance experience.

“We go out and sit with them while they’re combining, and we ask about what they expect from us in the future,” Sandrock explains. “‘What services do you want from us, from risk management, from claims, day-to-day service—what do you want our staff to be able to do for you? How do you want to communicate with us?’”

Investing heavily in a particular niche increases your ability to focus on the needs of one particular group of clients, and then deliver exactly what they want. Carolyn Reynolds says the combination of her staff’s “special knowledge” in construction with their eagerness to provide excellent service leads to not only a strong reputation, but also a solid foundation of trust with the agency’s target demographic.

“Because construction has always been our niche, our clients spread the word that we’re the go-to,” she explains. “We take care of our clients and we really try to educate them. That’s another reason why people still buy from independent insurance agents—they want to know they’re in good hands, that we’ve got their back.”

In a business Sandrock says is “completely built on relationships,” the quickest, most reliable way to gain trust is understanding a client’s business as well as they do. “It comes down to when that claim occurs and you’ve done your job proper,” he says. “You go out there and you sit down with them in their greatest time of need. That’s when we really do what we do.”

“We have some contractors that have retired, and they still stay in touch. Our clients are like family,” Carolyn Reynolds agrees. “It’s people entrusting us with everything they’ve worked for, and that means a lot. We take it personally.”

Jacquelyn Connelly is IA senior editor.

Eggs in One Basket?

Depending on the economics at play, there’s an obvious downside to specializing heavily in one niche. Insuring contractors, for example, can be notoriously risky because their success depends so heavily on the health of the construction industry.

“The problem with a niche market like construction is that business is up or it’s down,” says Paul Reynolds, principal and president of Reynolds Insurance Agency, headquartered in Berea, Kentucky. When the housing market took a dive in 2008, “it really hurt us. Payrolls were down—our contractors weren’t doing the work.”

It was the first time the agency suffered a blow from what Reynolds calls its main market. “We had to reevaluate what we were doing,” he says.

The solution? Developing a secondary niche—in restaurants.

“Restaurants don’t come and go like contractors,” Reynolds explains. “Today, we have a pretty good market of restaurants we picked up. We had to build a rapport with restaurant owners, which takes time, and we also had to find markets that were competitive for restaurants. But that way we weren’t just sitting around waiting for the construction market to come back.”

After a while, Reynolds says, “everything balanced out. We’re back on top with construction, but now we’ve diversified a little bit.” —J.C.