Does the 80:20 Rule Apply to Commercial Insurance?
Most people will be familiar with the 80:20 rule, or Pareto Principle, which suggests that 80% of outcomes result from 20% of causes.
Analysis of the data within Broker Insights VisionTM shows that for regional commercial insurance brokers, the situation is more extreme, with on average 81% of total GWP coming from just 10% of product classes.
The knock-on implication being that just 19% of GWP covers the remaining 119 classes or 90%. This ‘long-tail’ of products clearly highlights the need for a robust placement strategy to ensure that policies are managed efficiently and effectively, to deliver returns for the business and outcomes for the client.
To explain this analysis; all data uploaded to Vision is automatically analysed, with over 1,600 variations in product class name being standardised down to 132. Our unique standardisation process allows us to analyse GWP split across all policies and products, to determine that 81% of GWP managed by brokers comes from just 13 classes of business, or 10%.
Further analysis into the aggregated data with Vision also shows that the 80:20 rule, or should we say 81:10 rule, varies depending on the size of the broker. Larger brokers are managing fewer product classes than smaller brokers; on average, those with in excess of £50m GWP manage 115 product classes, while those under £5m manage 124.
What this suggests is that the larger the broker, the more specialised they are, focussing efforts on product classes that fit within their business goals, expertise, and placement strategy.
Head of Broker Sales and Mid-Market, Dave Smith, believes that brokers of all sizes can benefit from the findings of this analysis:
It is interesting to discover that on average, 81% of GWP comes from just 10% of products. While there are challenges associated with the remaining 19% of GWP coming from 90% of products, most brokers would agree that the ‘90%’ is vital to their business. While it only generates around one-fifth of GWP, they key is to manage these smaller of niche classes efficiently and ensure that they are embedded into a robust placement strategy.
Client requirements and market challenges are undoubtedly the driving forces behind the ’81:10′ finding. These are part of the fabric of the industry and unlikely to change, so the ‘solution’ is to better leverage data and systems to address these challenges head on. Thankfully, the multi-award winning Broker Insights VisionTM is well-placed to provide the support required.
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