Industry analysts predict that small-business owners will spend more than $40 billion on commercial insurance this year-as much as one-third of the total commercial insurance market. Most of this lucrative business is going to a few captive carriers, leaving independent agents and their carriers to divvy up the rest.Yet, consumer studies indicate that small-business customers want a broad choice of products from multiple carriers-something they can't get from a captive agent. What's preventing the independent agency system from snatching such a blatant opportunity?

Often the first place small-business owners look for insurance is to whomever is handling their personal insurance, which is generally a captive agent.

Even if they're aware of the advantages of working with an independent agent, small-business owners sometimes have a hard time finding independent agents for a couple of reasons: The agent shies away from small-business customers because the small premiums and commissions don't offset the time required to service them-or the agent doesn't have access to markets that can write the customer's business.

The small agent's struggle

A thriving network of small, independent agencies capable of servicing small-business customers would enable agents and carriers alike to tap into a growing and profitable segment.

The problem is how to create such a network within a system so crippled by inefficiency that a solution identified more than a quarter of a century ago-SEMCI (single-entry, multi-carrier interface)-still has not materialized.

Therefore, should agents keep waiting for the perfect SEMCI solution, or is it time to look for an alternative?

Running a small agency is fraught with challenges; even technology is little help. Many small agents can't afford the cost, time and effort required to learn complex agency management systems and other back-office technologies.

Those who can afford it often find themselves with sales tools, management systems and accounting tools that don't work together to simplify cross-selling and other key functions.

While the industry waits for SEMCI, the number of independent insurance agents willing to cater to small businesses is shrinking. Most agency owners elect to sell their business to a large broker, forcing their young producers to seek positions with these brokers, who tend to trim jobs rather than add them.

Captive carriers are spawning more out-of-work agents by forcing them to become subcontractors, selling direct to customers through the Internet, and squeezing commission rates.

Many captive agents view the advantages of independence as a way out. But they face the same vexing factors that impede any young entrepreneur launching an independent agency:

* Lack of carrier contracts for new agents.

* Complications setting up a back room.

* Need for an agency management system.

* Costly software.

Without the help of an agent offering a broad choice of products, small-business customers have difficulties finding a convenient way to purchase financial services. Unlike their counterparts at larger companies, small-business customers must purchase life, health, benefits and P&C products from separate sales organizations.

Not only is the small-business sector underserved, it is poorly served. Captive carriers have done a passable job of serving the full range of the small-business customer's needs, but they can't offer choice in product and price.

To tap the small-business market, the independent agency system needs to create a "captive-like" choice environment in the form of a SEMCI solution. But maybe it's time to rethink what that solution will look like and who will build it.

Industry associations and outside technology providers have had limited success, pointing to carriers as the main barrier. But expecting carriers to spend millions building SEMCI technology after already spending millions on their own point-of-sale (POS) systems is unreasonable and unlikely to happen.

Encompassing all operations

Agents need a solution that encompasses their agency's total operation, integrating all of its components-sales tools, agency management system, accounting tools, on-line application, a single-entry connection to top-tier carriers through their existing POS systems, a full set of financial services products and customer care services to support them.

Such a system must also be affordable, easy to use, and work with carrier POS systems as they exist today. Such technology would truly liberate time for small agents to devote to mining the small-business market.

Everybody wins. Select carriers participate in a SEMCI model that operates through their POS systems and enables them to increase their market share in a profitable segment. Agents virtually eliminate their back rooms and focus on selling more products to more customers. Customers have a choice of high-quality products in property/casualty, life, health and benefits and can buy from someone they trust who lives and works in their community. Small, independent agents and small businesses are a natural fit. We just have to break a few paradigms to get them together.

John Dawson is President and CEO of Financial Keyosk, a provider of personal and small-business commercial financial services products.

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