Outside of AI and its transformative potential, one of the most provocative and nuanced topics in the insurance industry today is small business. Ask a national or super-regional carrier, and they'll tell you: small business is big business. Ask the U.S. Department of Labor, and they'll point to the fact that small businesses consistently drive more year-over-year employment growth than any other segment of the economy, accounting for over 52% of net job creation between Q1 2021 and Q2 2024, according to the Bureau of Labor Statistics.
Chambers of commerce across the country echo this sentiment, often emphasizing the essential role small businesses play in fueling community development and long-term economic resilience.
Today, there are approximately 35 million small businesses in the United States, according to the U.S. Small Business Administration. These businesses employ around 59 million people, representing 46% of the private-sector workforce, and contribute approximately 44% of U.S. GDP.
However, when you ask a retail broker about small business, they may not have such a straight-forward viewpoint. While agents and brokers recognize the strategic value of small businesses, and many are or have been small business owners themselves, they also grapple with the significant
Key challenges & opportunities in small commercial insurance
Profitability and labor environment: In most agencies 80% of revenue is generated by only 20% of their accounts. This is commonly known as the Pareto Principal. That means that 80% of an agency's customer base is responsible for only 20% of its revenue. This estimate may be conservative. According to research by The Sitkins Group, for many mid-market and large agencies 50% of revenue comes from only 5% of customers, and 95% of revenue comes from 50% of customers. It is therefore reasonable to conclude that half of a commercial lines customer base may not be profitable for a mid-to-large agency. Sitkins research also examined the impact of this phenomenon on service levels. Their TEPEE (Time, Energy, Problems, Expenses, and Employees) framework finds that 70% of resource strain comes from 80% of customers; those same customers who generate only 20% of the firm's revenue. That's a lot of time effort and resources for a small fraction of a firm's operating revenue.
This is exacerbated by the independent agent operating environment. While many carriers have invested in proprietary systems to manage complexity at scale, agents and brokers must navigate multiple systems, often manually, to serve their customers. And while small business owners are experts in their fields, they rarely have dedicated risk managers or insurance experts in-house. As a result, the responsibility for providing guidance and risk advice falls squarely on the agency, further burdening already overworked staff in an intensely competitive employment environment.
The broader labor environment, from which insurance organizations must attract, recruit and hire employees, is under significant strain. Gallup data from 2024 shows that nearly 70% of U.S. employees were disengaged or actively disengaged at work, marking the lowest engagement rate in a decade. At the same time, over
Rising client expectations are raising the stakes. Small business customers are willing to reassess their insurance providers amid rising premiums. According to the
Crucially, the study reinforces that service quality and communication are now as vital as price in retaining clients. Among the most impactful drivers of retention:
- Insurers demonstrating strong understanding of a customer's business or industry saw a +37 percentage-point lift in renewal intent.
- Helping customers understand their policy details added +33 points.
- Clarifying premium increases drove +26 points.
- Resolving a problem entirely via the insurer's website improved retention by +23 points
Together, these insights underscore that customers value intuitive, informative and digitally enabled service experiences. Yet, the agents and brokers who serve them are facing several compounding obstacles: a shrinking workforce of qualified insurance professionals, an upside-down mix of business that draws resources away from the most valuable customers, and an operating environment not yet fully optimizing advanced technology. This pressurizes the agents' job of delivering risk management insight and advice, providing clarity about risks and coverage and delivering value to a quickly evolving base of customers.
Trading one problem for another
So how are agents and brokers addressing these existential risks to their business? A trend we have seen over the past 15+ years is an increase in account/service segmentation. This is a smart strategy used across industries, and a helpful analogy comes from the airline industry. If you are a frequent flyer, you understand what it means to get a preferred seat on a specific airline, the airline that has earned your loyalty. But when you fly an airline infrequently you also understand what it means to be "unseen", and you make your way to your back middle seat.
In insurance agencies today, segmentation allows account managers to deliver value added services to the largest accounts while tapering service levels as the account size shrinks. This common practice allows for flexibility and appropriate resource allocation. But while it has helped, it has not solved the problem. When resource constraints persist, many firms are making the decision to eliminate some tasks from the workload of their account managers and service staff. In recent years we have seen an increase in the elimination of policy checking of small accounts as one such way to alleviate administrative burden on employees and reduce operating expenses. The assumption is simple: low premium means low risk. Check the larger policies for accuracy and let the small policies fly (straight to the back middle seat).
The question becomes: is it worth the risk?
Let's examine real examples to understand the risks of skipping small commercial policy reviews and how to proactively reduce those risks.
Small policies, big risks
A common misconception in the industry is that small policies inherently carry less risk. But premium size doesn't always reflect potential exposure. In one case, a client's wind deductible increased from 5% to 25% at renewal, but the change went unnoticed because the updated policy documents were not reviewed. When a major wind-related claim was filed, the client was shocked by the out-of-pocket costs and felt blindsided, leading to a strained relationship and a legal claim against the agency.
In another scenario, a successful architecture firm suffered major losses after a fire severely damaged their $3.2 million insured building. While their policy provided replacement cost, business income, and equipment breakdown, it lacked Ordinance or Law coverage. After receiving a $2.9 million settlement, the city required code compliance upgrades because the damage exceeded 50% of the building's value. These upgrades added $800,000 to the reconstruction costs. Since that portion wasn't covered, the firm had to take out a commercial loan, delaying its reopening by five months and impacting profitability for the next three years.
Commercial property owners should continually evaluate their exposure to code enforcement risk, especially in older buildings or rapidly developing municipalities. Reviewing coverage limits and endorsements with an agent is critical to avoid costly surprises. This is sound advice regardless of the size of the property premium.
In another case, an agency was managing a pharmacy insurance program, with coverage written on a Businessowners Policy (BOP) that included professional liability. At some point, the carrier made a change to the program, removing professional liability coverage from the BOP.
The change was not clearly communicated, and several pharmacy policies were renewed without the professional liability coverage in place. It wasn't until months later that an Account Manager, while reviewing a renewal, noticed the omission. Upon further investigation, the agency discovered that multiple pharmacy clients had experienced a six-month gap in professional liability coverage.
This underscores the importance of thoroughly reviewing and clearly communicating policy terms, even on routine or seemingly low-risk accounts. Skipping this step can expose agencies to serious financial liability and long-term reputational harm.
High volume + low oversight = massive aggregate risk
While an agency may only have 10% to 20% of its revenue tied to small commercial accounts, those accounts represent 80% to 90% of its total policy count. Multiplying the opportunity for missed details across those risks creates a significant cumulative exposure. Claims arising from this book of business can lead to financial loss, reputational damage, and legal scrutiny.
Additionally, errors in small business policies can strain important agency-carrier relationships and lead to employee morale issues, exacerbating an already tight employment market. Afterall, it's the very employees we are "saving" from the tedium of policy-checking, who are responsible for damage control when a problem arises. While the rationale for overlooking small commercial accounts is logical, that calculus ignores the significant inherent risk implications. In other words, relying on premium size to guide quality control decisions is self-defeating.
Smarter policy checking in complex operating environments
Agencies are operating in increasingly complex environments, and working with hundreds of carriers' proprietary systems presents challenges that strain staff capacity and increase the risk of oversight. Policy checking is risk management. Failing to quality control what is being sold is buying risk.
Today's technology further supports this effort, as companies increasingly rely on AI-powered platforms and integrated systems to track coverage details, monitor emerging risks, and maintain real-time communication with their insurer or agent. These tools reduce manual touchpoints and help ensure that critical information doesn't slip through the cracks. By combining automation, expert oversight, and intentional strategies, insurance organizations can protect themselves without sacrificing efficiency or scalability.
