“Advance to water works” utilities can offer opportunites for agents

“Advance to water works” utilities can offer opportunites for agents

Electricity, gas, water and garbage pickup. They all appear on a bill somewhere. And nearly everyone has a relationship–good, bad or indifferent–with a utility company. These utilities employ more than one million people in nearly 21,500 establishments across the country. This niche market provides total direct written premiums of more than $3.17 billion, 2.8% of the total commercial lines premiums written in the United States, according to data compiled by IMR (Insurance Market Research) Corp. of Morris Plains, New Jersey.

There are nearly 20,000 small (0-24 employees) and medium (25-99) sized utility companies providing more than $1.21 billion in premium. The 14,400 small companies provide a total of $377 million for an average premium per account of $26,200. There are nearly 5,100 medium-sized utilities providing $833 million for an average of $163,900 per account. The 1,600 large (100-499) utilities provide 91.04 billion in premium, an average of $634,000 per account. There are 325 jumbo utilities providing $920 million in premium for an average of $2.8 million per account.

“This market has become extremely competitive in recent years,” points out Ralph Gray, president of IMR. “A number of companies have re-entered this market, which until recently, had been forced to the surplus lines arena to obtain coverage. Because of this, it is a market that is wide open to independent agents who can offer competitive products to utilities that have felt trapped by lack of choice.”

“The high average premium per account for small and medium-sized establishments makes this an excellent target for independent agents,” IMR vice president Katherine Grieder notes. “Even though more than half the premium volume rests in the large and jumbo accounts, the fact that there still is more than $1.2 billion in the smaller accounts makes this an attractive target. The average loss ratio is high at an average of 106.5% for the U.S. overall, but this is skewed by the poor results of several subgroups and careful selection can result in profitable business. In fact, of the 10 subclasses in this niche market, two offer loss ratios under 60 and five have ratios in the 70s.”

General liability is the largest line of business for this target, accounting for 45.7 of the total. This is followed by commercial property (32.7%); workers comp (12.8%), commercial auto (7.8%) and boiler and machinery (1%).

These utilities provide more than $548 million in premium in the Rough Notes Southeast region. The loss ratio is poor at an average of 91.7%. However, if the two worst subgroups are removed from the total, the loss ratio averages a more attractive 76.5%. Unfortunately, one of the poorest subclasses, gas production and distribution, is also one of the largest with nearly $196.3 million in premium and a loss ratio of 99.7%. Electric services is the largest subgroup, with $229.5 million in premium and a loss ratio of 80.2%, followed by gas production and then sanitary services, which offer nearly $35.3 million in premium and a loss ratio of 80.1%. Loss ratio winners are steam and air-conditioning supply, with a loss ratio of 40.9% on $503,000 in premium, and water supply, 55.9% on premiums of $8.3 million.

There are nearly 4,900 utilities in the Southeast–3,240 are small-sized companies providing $77 million in premium for an average of nearly $23,800 per account; more than 1,200 medium-sized companies provide $167.8 million for an average of $139,000; the nearly 420 large and jumbo companies provide $303.6 million for an average of $726,000.

Additional information about this or other target markets is available from IMR Corp., P.O. Box 1686, Morristown, NJ 07962-1686. Phone (201) 898-4706.

Copyright Rough Notes Co., Inc. Aug 1994

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