“Our producer is retiring. We have to talk about how we allocate her book.”

That statement is an all-too-familiar one for leadership at many brokerages around the country today. As the industry faces consolidation and turnover on a massive scale, attrition is happening more frequently and agencies are being forced to make some difficult decisions. The challenge is particularly acute for brokerages with a large percentage of small company books of business.

It’s no secret that the economics of small business benefits puts financial pressures on a brokerage. Many brokerages service a mix of business that looks something like this: 30 percent small business, 50 percent mid-market, and 20 percent large business. But the mid-to-large size clients often drive the majority of a firm’s revenue and cash profits. At best, the smaller clients return a slim, single digit margin, and end up pulling down the firm’s bottom line.

This is because as a commission-based business, it’s nearly impossible to return a solid profit on clients with less than 50 lives. They generally require the same service intensity of a 100-life group, but with only one-fifth the revenue. Some individual employee benefits clients might be profitable, but overall, small group business with expanded HR service needs and a technology experience expectation effectively blows the profit and loss formula.

Despite this, many brokerages continue to service small business clients, as they are often a producer’s income hedge and perceived lottery ticket in the hopes they’ll grow into larger, more profitable clients one day. But what happens when the producer servicing those small business clients leave an agency? Is it business (and margins) as usual, or is it an opportunity to transfer the portfolio and reallocate client services to focus on more revenue-generating work?

Some forward leaning agencies are learning that they can deliver a higher standard of client service and contribute to the bottom line by monetizing their small book of business. They are monetizing small business clients using a short-term outsourced partner that will pay cash for the book and provide a return of the business to the broker at a predetermined threshold, effectively freeing up time and resources to newer, mid-sized or larger clients. This approach provides a roadmap for managing broker attrition and delivering better service to your clients for the long-term.

Below are three approaches brokerages can take to more effectively determine how to manage their small business book of business — either as part of a proactive exercise or because broker departures force a decision.

1. Assess the performance of your overall portfolio. Understand tenure over time and evaluate how many and which companies are more likely to grow and become larger, more profitable pieces of business. How many of your accounts have been a 10-15 employee firm for the last five years? Are your smaller clients likely to follow that path, or is there a strategic relationship for keeping them as firm accounts?

2. Assess your small business clients’ appetite for change. Many small businesses today are comfortable with modern tech and app-based tools, so a transition to an online platform with client dedicated relationship managers via phone could be a natural fit for them.

3. If you can transition the bulk of your small business clients to a technology based solution, then you must next chart the best course to market. This requires an evaluation of the cost versus benefits of building a technology in-house or utilizing available SaaS technology platforms. A custom-built solution is great for accommodating the unique nature of your business and staff. But it can also be expensive — both to develop and sustain — and take longer to roll out. There are enough outsourced platforms on the market today that you will likely find one that suits your firm’s needs, whether outsourcing servicing, market quoting or selling the book. If you are able to sell your small business book, be sure to consider sale to a firm that provides a path back to you in case that book grows to the next Google.

At the end of day, it’s possible to turn broker attrition into an agency opportunity. By playing your cards right, you can use that moment in time to transform the underperforming majority of your client mix into a more sustainable and growth oriented portfolio that will improve overall margins.

Kevin Dunn is CEO of Decisely, reimagining the way brokers and small businesses work together.

Instant Insights /

Turning small business broker attrition into an opportunity

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