Getting Serious About Niching: Introduction For Insurance Agencies

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In this episode of The Digital Broker, Ryan Deeds and Olivia Schmitt discuss the practice of niching at insurance agencies. By listening to this episode, you will learn:

• What a niche is: a class of clients who consistently show the same risks and require the same expertise.
• What a niche isn’t, and why you can’t make one up based solely on revenue or volume.
• How niches drive profitability at many agencies by mandating the wisest use of resources, multiplying the value of marketing spend, and educating incoming employees about the coverages they’re supposed to sell.
• What success looks like at a real-life insurance agency that has properly niched out.

Small commercial accounts are such an operational challenge, we’ve already had to do a whole episode trying to figure out why. What we found is that nobody wants to settle for the small, select accounts that are underneath a certain revenue threshold; they’d rather chase after the monster accounts that bring in massive amounts of revenue. Short of obtaining those, many agencies go for the next best thing: casting as wide a net as possible to capture multitudes of different clients.

The trouble there is that success seldom looks like that in the real world. Agencies that try to cater to every client imaginable tend to go broke rather fast. General agencies do exist and get by, but they do not always outperform agencies that niche out. Many of the most successful agencies are the ones that have decided to concentrate on certain types of clients. And why wouldn’t this be successful? There is nothing about operational excellence that says you have to bring in as high a number of clients as you can. You’re supposed to get max value out of the book of business you can sustain.

Olivia Schmitt understands this. We invited her to come on the show after her commentary stood out in our LinkedIn discussions. Were it not for niches, Olivia wouldn’t have her job at Tricor Insurance, where she oversees a select accounts team. Though headquartered in Milwaukee, Wisconsin, Tricor has nearly thirty locations, half of which are in small communities whose economies are driven largely by small businesses.

What’s the secret? It is simple. Clients don’t need to see that you can do everything under the sun. They only need to see that you really understand their issues. You don’t achieve this by spreading yourself out so thin that you end up with only a superficial understanding of most coverages. You buckle down, commit to a niche, and grow expertise over time. In a way, this makes niching almost essential to success.

A niche emerges when you notice that a portion of your clientele is consistently showing the same risks and characteristics. (3:26) At that point, good business sense mandates that you pay special attention to that group of clients. It doesn’t matter what kind of revenue they’re bringing in. Since they require the same expertise from your agency, you can deliver it all at once by staffing that niche with employees who are specialists in that field. Because a single specialist can do the work of ten generalists, usually better and in a fraction of the time, the result is conservation of agency resources, a reduction of expenses, and an uptick in customer satisfaction—all critical objectives of operational excellence.

Niching also forces you to get more serious about your marketing. (5:56) When you try to market to as broad a base of prospects as possible, you are likely to overspend. The content of your campaigns will reflect the vagueness of your uncertainty, killing any chance of getting through to prospects. Niching, on the other hand, requires you to show fluency in your clients’ language, which they definitely notice. The content of your campaigns will be more powerful, augmenting the value of your marketing dollar. Insights into the habits and preferences of your clients will enable you to craft targeted, specific campaigns, eliminating wasteful spending on all other campaigns that go nowhere. Score two for operational excellence.

Producers are frequently undereducated about the coverages that they’re supposed to sell, which causes several issues later. (10:07) In defense of producers, the education that they receive in the first place isn’t always very good. Sometimes, there is no education at all. When the dominant philosophy is to grab as many clients as possible, producers are pressured into writing pretty much everything that calls and denied the opportunity to learn and specialize in any field. This is tough on new producers especially because they’ve yet to get the hang of the business. Niching helps with this as well, allowing producers and other employees to develop confidence and insight into what they’re selling, reducing the incidence of problems later on and engendering loyalty among clients, who appreciate knowing that they’re dealing with experts. (For that matter, carriers like it too.)

Now that we have sold you on the viability of niches, you might be tempted to drop everything and go reconfigure your agency accordingly. Not so fast. We see principals trying to force niches into existence by lumping together some assortment of clients—usually, the ones who are bringing in a set amount of revenue but have little else in common—and calling it a niche. It doesn’t work that way. Niches aren’t defined by revenue (nor by volume, for that matter), but by expertise. And they can’t be reverse-engineered; either they come into being on their own, or they don’t. Your job isn’t to make up niches out of thin air, but to spot them when they become apparent and to decide whether to commit to them. This requires patience, concentration, and care, but so does everything in the world worth growing.

Neither does niching mean that you should turn away all other business. (16:46) If you did, how would you discover other niches? Even Tricor has figured out a way to satisfy coverages outside their niche because their clients require general coverage sometimes. Just make sure you can handle other business without taking away from your commitment to your niche.

Every agency has to be open to general business at some point, especially when they’re starting out. But you can still have an eye toward building long-term expertise. If a niche begins to show, hire accordingly, and don’t take too long to do so. Many principals hesitate to bring in specialists until the niche has matured, without realizing that niches don’t mature until you’ve got the right people looking after them. Niches make specialists, and specialists make niches. Introduce yourself into that cycle at a strategic time.

When you’re ready to seek out your specialists, make sure to check into the Digital Broker LinkedIn group, where hundreds of insurance specialists gather to talk exactly this kind of shop. You might find the person you’re looking for among our community—post a message and tell us what you’re after. Is your agency niching out? Are you having some conversations about it with your team? What do they think? Join us and let us know.