Much of the property and casualty insurance market revolves around its cyclical nature, or soft market and hard market pricing periods. As a result, the industry periodically does things that leave casual observers and insurance buyers alike scratching their heads.

One of those areas has historically been the battle over middle market property and casualty insurance accounts. In the hard markets, where commissions are plentiful, some brokers, especially the large ones, tend to lose interest in the middle market. Not too many years ago, several large brokers decided it was not worth pursuing mid-sized accounts and either sold their middle market business or just gave it away. However, in the extended soft insurance market we are experiencing today, brokers of all sizes are looking for more business, any busi­ness; and middle market accounts meet the requirement.

One of the most frequently asked questions is what constitutes a middle market account. Unfortun­ately, there is no universal definition. Some brokers indicate that they be­lieve that the middle market ranges from $50 million to $750 million in annual revenue. Greenwich Associates, which provides critical market research to the financial service sector, indicates that the range for middle market accounts is $10 million to $500 million in annual revenue. Others within the industry choose to consider it from a premium standpoint and consider middle market to be $100,000 to $2.5 million in annual premium volume.

There are, however, some additional distinguishing characteristics that are frequently associated with middle market accounts. For example, middle market accounts typically do not employ full-time risk professionals and, as a result, client contact is maintained with either the business owner, CEO or CFO. As a result, many times the brokerage arrangement is based on a long-standing personal and/or business relationship between the broker and the client. Further, since there is no professional risk manager, one important service is technical advice and counsel from the broker. Thus, despite the long-standing relationships, account servicing is one of the major keys to retaining middle market accounts.

Another important feature of the middle market is that it is very segmented. As a result, there is very little concentration of this business. In fact, Greenwich points out that no one broker has more than 5% market share. This is one of the principal reasons that the middle market segment has become such a prize for the large international brokers. Although from time to time, large brokers have indicated that they are not interested in this business because it requires too much in the way of account servicing, today, they are having no problem with this issue.

But, what is causing all the newfound interest in this market segment today? There are several reasons for the increasing interest. Large brokers have been under intense pressure to eliminate their contingent commissions. And while there has been some push back from this issue in recent months, large brokers still have lost a significant amount of overall revenue as a result of a decline in contingencies. Consequently, many are searching for a way to replace some of this lost revenue, and they believe that middle market accounts are the answer.

Additionally, despite the close relationship between mid-sized brokers and their customers, Greenwich indicates that at any given point, at least 20% of this market is vulnerable to competitive offers. They indicate that this is primarily due to poor account servicing. In addition, most large brokers can provide several clear competitive advantages for middle market accounts. These include such things as specialized industry knowledge, increased insurance placement resources, international networks, and dedicated risk management consulting experience.

Finally, big brokers realize that most middle market accounts continue to utilize traditional risk transfer methods, with many still depending on guaranteed cost products, which typically net the highest commission. However, this practice is fading fast, as more and more business owners are gaining sophistication regarding the array of risk financing options that are available to them. One noticeable trend over the past couple of years is the rise in the number of middle market accounts that are moving into captives. Here again, the large brokers may be able to bring a wealth of recent and relevant experience to bear on this issue.

It’s not just the brokerage community that is zeroing in on mid-market business. One of the most successful entrants to date has been Liberty Mutual, which moved into this area a couple of years ago. Historically, Liberty had a problem dealing with the independent agency distributing system. However, after purchasing Wausau Insurance Company, they began to develop a strategy for estab­lishing a more formal relationship with the independent agents that would not conflict with their overall direct writing approach at the corporate level.

After much soul searching, however, Liberty made the strategic decision to abandon the Wausau brand, preferring instead to form Liberty Mutual Middle Market, LLC. A key component to this strategy has been the introduction of the “Package Solutions,” a specifically designed product line based on the requirement of various industry segments. Once this was completed, they made independent agents the sole means of distributing this product.

The Hartford is another insurer that has pursued this middle market segmenting—revamping its entire product segment approach in favor of a middle market one. In effect, The Hartford has rearranged its organization to better adapt to the specific needs of the middle market.

As was mentioned earlier, historically as hard market conditions return and commission revenue increases, the large, international brokers have shown less interest in middle market accounts. However, this appears unlikely today. Marsh’s middle market unit, Marsh & McLennan Agency LLC, for example, appears set to not only boldly enter this market, but also to stay actively involved. Within the past few months, they have made several key acquisitions including Virginia-based Thomas Rutherfoord, Inc., NIA Group of Paramus, New Jersey and Houston-based Insurance Alliance.

Further to the point, Marsh recently agreed to sell its Kroll security consulting operation. It was reported that the sale was in the $1.13 billion price range, and that according to Marsh, they have earmarked the majority of the proceeds for additional acquisitions of regional U.S. brokers. Their stated purpose was an attempt to improve profits. Thus it’s highly unlikely they will be leaving the middle market anytime soon.

Middle market agents and brokers need to be aware of this emerging competitive landscape. The fact is that competition for the next renewal of their favored middle market accounts may not be from the local broker down the street. It may be from Marsh, or one of the other large international brokers.