Simple Premium Concentrations Represent Straightforward Targeting Technique

Narrowly-focused, carefully defined target markets can produce a host of benefits for insurance carriers, was the message for those attending a seminar on Target Marketing held recently in Chicago. According to Dr. Fritz Yohn of MarketStance, a market definition method as simple and straightforward as one based on premium concentrations can be used to help garner those benefits.

“There are many virtues to a more narrowly defined market,” said Dr. Yohn, the founder of MarketStance, providers of leading edge market opportunity information and analysis tools and services. “Among the benefits is the ability to clearly articulate your underwriting appetite with the resulting gains in application quality and hit ratios. Refined market definitions also facilitate developing accurate performance information and understanding.”

Dr. Yohn, an economist with more than 10 years experience in assessing commercial property/casualty business and markets, went on to note that often narrowly-focused target markets will still constitute 50% of the total premium available in a given locale.

“The temptation for carriers is to aim broadly to increase the amount of business you can pull through. The art is to get enough potential premium to support success, but to do so with the fewest possible number of classes to facilitate clear communications and underwriting performance,” said Dr. Yohn.

Citing a sample case of a regional carrier with a manufacturing focus, Dr. Yohn explained that more than 350 business classes were encompassed by that market definition, making the firm’s appetite difficult to articulate, and diffusing the carrier’s efforts and resources. “Such a broadly scoped market would require large amounts of data and experience to reveal performance trends. A more narrowly defined market would mean that the concomitant loss experience data would provide performance insights more quickly. That means a carrier might have great comfort in its targeted growth efforts after one year, whereas a broader market approach might require five years of production and experience to reveal under pricing or adverse underwriting factors.”

He outlined the steps to reliably refining market focus — factoring in number of accounts, average premium, future growth projections and loss ratios — to put a finer point on growth and expansion efforts. A complete summary of Dr. Yohn’s presentation is available at www.marketstance.com.