Making more of the middle: insurers must apply a hybrid approach to succeed in a relatively untapped layer of the commercial market.

As children, we learn that blue and yellow are primary colors individual and apart from each other. Blended, they form a new color, green. Green has elements of blue and yellow, and can vary in shade depending on the ratio of its components, but it is an identifiable and distinct color.

There's a similar relationship in commercial insurance. If we think of small businesses as yellow and middle-market businesses as blue, there's a "green" layer between them with elements of both primary colors, but also with a distinct personality of its own.

Successful insurers have found ways to meet the needs of very small businesses by tapping into their commonalities so that they can be handled quickly and efficiently.

Similarly, these insurers have focused on specific needs of middle-market businesses and devised a more complex system to individually underwrite accounts so that prices, retentions and products can accurately reflect each business's specific exposures. For carriers with expertise in very small and middle-market business segments, the new segment formed by the larger end of small commercial and the smaller end of middle market offers the prospect of profitable growth opportunities for carriers and their agency partners.

This segment, which I'll call "green" because it's like a secondary color and is relatively untapped, includes close to 600,000 businesses and represents a $20 billion market. These are businesses with between $ 5 million and $15 million in revenues, and premium ranging as high as $75,000 to $100,000. The segment is quite broad, including manufacturers, wholesalers, retailers, professional services firms, high-tech businesses, contractors and others in its ranks.

Some insurers noting this segment's need for quick handling and turnaround tend to lump it with very small businesses by increasing the existing small commercial eligibility definitions and using small commercial products, underwriting and pricing processes. Others, focusing on the account's need for individual underwriting, tend to lump these companies with larger ones, subjecting them to intense underwriting and handling that is inefficient and cumbersome for their size. Neither approach is a good fit.

To succeed in this promising market sector, insurers must apply a hybrid approach, balancing the need for speed, productivity and efficiency with the disciplined individual account underwriting protocols and customized products common to middle market business.

First, it's very important to strike the right balance between sales and operating efficiency, and underwriting intensity and integrity. Ideally, these businesses require a hybrid approach that allows accounts to be handled in an efficient way so the agent can place business quickly, without an unnecessary expenditure in resources.

To accomplish this, insurers need a broad and consistent underwriting appetite to attract and keep the business they want--and they need to communicate that appetite to their agents.

It's also important to create flexible and streamlined products customized for both the business size and industry sector. These products should retain the essential simplicity of the business owners policy, while including more precise rating capabilities so premium can be better matched to exposure.

Agency technology tools can help make business taster and easier for agents, led by online sales guides that communicate current underwriting information upfront, essentially pre-qualifying a particular risk before the agent completes an application. Technology also will speed up the quoting and submission processes.

Technology can allow agents to electronically submit schedules of information for things such as commercial autos, property locations and employees, without retyping the lists or having to check for typos in the data. Where it now takes five or six weeks for an agency to obtain a quote for a "green" account, underwriting and technology changes should enable carriers to respond within two days, and to produce a bindable quote in about a week.

Beyond these factors, "green" businesses are sufficiently different and therefore deserve a dedicated cadre of specially trained and expert underwriters who should have the skill to quickly and thoroughly assess each risk as an individual entity, provide the right product and price it properly. They'll also require the flexibility to customize terms and conditions based on an individual risk underwriting profile appropriate to the client.

Ultimately, these underwriters, by thoroughly understanding the needs of these businesses, should realize good loss ratios for the insurer, resulting in a consistent market for agents.

Judy Blades, a Best's Review columnist, is senior executive vice president, property-casualty; The Hartford Financial Services Group Inc. She can be reached at [e-mail].