Niche programs in Commercial Lines are an outgrowth of the Property/Casualty insurance industry's efforts to tailor insurance products for designated insureds.
Some examples are accountants' Errors & Omissions (E&O) Liability, Tax Preparers' E&O, and programs for public libraries, ambulance companies, homes and services for the aging, auto repairs, contractors, car washes, boards of education, credit unions, contractors who install water-based sprinkler systems, law firms, school bus operations, and loggers.
New niche programs in Commercial Lines are created in response to legal events, as opposed to regulation (e.g., Prop. 103). A case in point: The July 1995 California Supreme Court opinion of Montrose Chemical Corp. v. Admiral Insurance Co. caused contractors' defect claims to be covered, even though they had not been covered previously. From an underwriting perspective, many carriers and their reinsurers said, 'We don't write contractors in California because of the Montrose decision.' Others, however, saw an opportunity to design a General Liability insurance product for California residential contractors that build condos or tract houses.
As an agent, you must be aware of opportunities in the marketplace. The best way to discover new niche programs in Commercial Lines is to pay attention to 'market voids.' Listen for consistent exclusions by all carriers. The new niche program is created by changing the language of the policy. Using policy language to exclude or limit coverage is an essential ingredient to having a successful niche insurance program. When such policy language has been upheld in a court of law, the program becomes even more successful.
By altering underwriting guidelines and changing a policy's wording, a new risk such as that created by the Montrose decision can be mitigated.
What if most of the Workers Compensation insurers' operations in a state exclude compensation for start-up businesses, and apply this on a blanket basis to exclude 'all business'? This then becomes a 'market void' and can provide another opportunity for a niche insurance product. How do you price Workers Comp for a start-up business? What about the experience modification? Is the economy viable for that type of business? These are all considerations when designing a niche Workers Comp product.
To encourage retail agents to look for new market niches, consider increasing your agents' compensation. The retail agent might get a base commission of 15%, with an additional commission for meeting higher premium volume levels for the niche programs. Since the niche product has strict guidelines, sales are of paramount importance, and rewards are tied directly to premium production. The more business your retail agency writes within the niche guidelines, the more commission it will receive.
In trying to find new niche programs in Commercial Lines, pay attention to the establishment of new professions. A recent example is the creation of a new association for the personal chef. More than 7,000 personal chefs are now working in the United States, with most in California. What is a personal chef? How should the Professional Liability be structured for the personal chef? How do you price the expense? What have been the losses in this profession? A new profession is a new opportunity. Most professional chefs don't realize it, but they're going to need insurance. Isolate the expense-to-risk ratio for this new profession. Solicit the association for a Group program.
An abundance of opportunities exists for new niche programs in Commercial Lines insurance. It's up to your agency to find them!