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All insurance is local

There’s no such thing as a U.S. small-commercial market.

State-by-state regulation and regional and local business dynamics have led to the development of at least 50 distinct insurance markets in the United States, of which small commercial is only one segment.

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Expanding into new states

If this seems like semantic nitpicking, consider the experience of one highly profitable regional insurer that decided to expand its offerings into several states outside its traditional territory. Written premium growth picked up as it entered the new states, and predictably, initial underwriting results were below average as the insurer strove to achieve the same market position enjoyed in its core states. This striving took two forms, both of which are frequently observed:

  1. “Burning their way” into the new market by offering below-market rates
  2. Shifting their underwriting appetite to accommodate the business agents in the new territories

The insurer expected the costs of the burn-in strategy to be offset by improvements in the quality of accounts it was asked to write as its relationships with agencies in the new states strengthened. Predictably, this took longer than expected, and in the interim, results in the insurer’s core states deteriorated as it lost focus on its core markets.

This is the all-too-common result of an insurer expanding into a new geography without really understanding how local factors affect risks and costs. 

Local data and insight are key

As this anecdote suggests, even the most successful regional carrier needs to have several things go right when expanding into new markets. Among the most critical:

  • Choosing the right expansion markets. Other things being equal, states with strong organic growth prospects make the best targets.
  • Alignment with the insurer’s underwriting appetite. Selecting expansion states that offer premium potential aligned with the insurer’s underwriting appetite is essential to becoming a top market in each state.
  • Targeting the right submarkets. Within a state, not all metropolitan areas offer equivalent premium potential or organic growth prospects.
  • Relationships with the right agencies in each market. Some agencies specialize in small-commercial accounts, while others treat them merely as an accommodation business.

Just as there’s no such thing as a single U.S. small-commercial market, there’s no one-size-fits-all approach to profitable growth. High-quality data is essential to a successful expansion strategy.

Fritz Yohn

Fritz Yohn is the chief economist at Verisk. You can contact him at

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