Finding Commercial Insurance

The commercial insurance industry in the US is large and thriving. According to Hoover’s Business Information (online), “About 130,000 insurance agency and broker offices in the US generate annual revenues of $85 billion. Large companies include Marsh & McLennan, Arthur J. Gallagher, and Aon. Despite the prominence of large companies in the commercial segment, the industry remains highly fragmented: the largest 50 firms only hold a 20 percent share of the total market. The average office has five employees and generates less than a million dollars in annual revenue. An insurance agent works on the insurance company’s behalf; an insurance broker on the customer’s behalf. Many companies on the commercial side function mainly as brokers.”

Relying on the 2002 Census Bureau Economic Census for its data, Hoover’s has generated an industry financial summary for the Commercial Insurance industry. Its report says there are 12,951 commercial insurers with annual sales (premium) receipts of $366 billion, an annual payroll of $32 billion and 607 million employees.

Interestingly, and good news for the consumer, is the fact that since the largest commercial insurance companies together hold less than a 20% market share, the commercial insurance market is highly fragmented and very competitive, a situation that should hold actual commercial insurance rates down for the average business.

Among the important trends Hoover finds in the US commercial insurance agents industry today are:

• A diminishing number of life insurance agents
• The reduced importance of contingent commissions to agents and brokers
• The consolidation of insurance companies
• The increasing use of the internet for commercial insurance research by consumers
• The decreasing importance of telemarketing and call centers for sales of commercial insurance policies

The reduction in the number of life insurance agents is attributable to stagnant growth in new premium revenue, and the Bureau of Labor Statistics outlook says the total number of life insurance agents should dwindle by 30 percent by 2010 when compared with 2000 levels. Legal challenges to the practice of compensating agents and brokers by commissions on the sales of policies are causing many brokers to raise client fees or to use other compensation arrangements with insurers for business placed with them.

Consolidation among agencies appears to be the result of the broader insurance needs of business customers. The total number of independent agencies has diminished, but the average size of the agency revenue appears to have increased. Business consumers of commercial insurance are resorting to the internet in greater numbers today, but mostly for initial research on insurance companies and policies and not for buying commercial insurance online, because the actual purchasing of policies from agents and brokers is unchanged. The use of telemarketing and call centers by agencies is being replaced by Interactive Voice Response Centers and internet marketing as a cost reduction measure.

Its unclear at this point what effect the recession is having on the commercial insurance industry in the US, but as it is so closely tied to the health and growth of business in general, it is certain to have been impacted somewhat by the overall contraction of businesses of all kinds since mid-2008.