REGIONAL TARGET MARKETS
By James Surrago
Good things do tend to come in small packages. This may be particularly true for the U.S. insurance industry when it comes to book, stationery, hobby and gift shops.
Countrywide, this market segment--Bookstores (5942), Stationery stores (5943), Hobby shops (5945) and Gift shops (5947)--represents 67,000 business establishments, employs 500,000 people, and accounts for almost $300 million in commercial lines written premium.
With an industry average loss ratio of 67%, the segment is attractive for insurers, particularly those targeting the small business market. The vast majority of these businesses are small, employ fewer than 20 people, develop an average premium per account of $2,800 and generate $172 million in premium volume.
In the five-year period from 1995 to 1999, the average premium growth countrywide for these businesses for all lines was 7%.
Particular market segments, measured by business size, show each of these business categories grew at a different pace. Mid-sized establishments, in particular, grew the most (17%) while small establishments grew only 2%.
Profitability for this market segment can be measured in part by analyzing loss ratios, especially where industry-specific loss ratios are available. ISO Market Profiler( provides two types of loss ratio measurement.
The annual loss ratio reflects losses for a specific year. The "formula loss ratio" is a five-year credibility weighted average that reduces the random fluctuations that could exist in a single year and recognizes, from an actuarial perspective, the extent of credence to be given to individual observations. The formula loss ratio strikes a balance between the systematic and random components of the industry's loss ratio and provides a better forecast of the future loss ratio.
The loss ratios for the SICs (Standard Industry Codes) in this article show a difference between the annual loss ratio and the formula loss ratio. The 1999 annual ratio is between 77% and 82%, while the formula loss ratio for the same SICs is about 10 points lower, indicating that the loss experience of the previous four years is lower than the current year's. Analysis of each individual year's experience will help in determining whether the profitability in 1999 was an anomaly in an individual year and therefore not to be used as a sole criterion for choosing target markets or whether 1999 is indicative of a trend.
The following loss ratios are the total for three major lines of insurance: general liability, commercial property and workers compensation.
An analysis of individual lines of business reveals that commercial property at $144 million represents the largest portion of the $300 million in written premium for commercial lines.
Over the five-year period from 1995 to 1999, the major lines of insurance show different levels of premium activity. Workers compensation premiums contracted by 5% (1999 premium at $48 million) while commercial property premiums at $144 million grew by 9%. Premium for the other major lines, commercial auto and general liability, each grew by 9%.
Looking forward to 2002, commercial property shows slightly lower forecasted growth than general liability, commercial auto and workers compensation.
In the Rough Notes Southwest region, 11,655 risks employ more than 82,000 and represent almost $40 million in premium volume. Average account premium in the region is 22% lower than the countrywide average.
Of these 11,655 risks, 10,700, or more than 91%, are small and account for over $22 million, or 55% of the total premium market. The average premium per small account is about $2,075. Almost 8% of the risks are mid-sized establishments that generate
$17 million, or more than 42% percent of the total premium market. The average premium per mid-sized risk is slightly more than $17,400.
Information on this and other niche markets is available from ISO by calling toll-free: (800) 888-4ISO (888-4476); email: info@iso.com.
James Surrago is vice president of Data Management & Information Services of the Insurance Services Office, Inc. (ISO).
Industry 5-yr Average Annual Premium growth
| 5942 | Book stores | 8% |
| 5943 | Stationery stores | -.5% |
| 5945 | Hobby, toy, and game shops | 10% |
| 5947 | Gift, novelty, and | 13% |
| souvenir shops |
SIC 59 Total 7%
Source: ISO Market Profiler
| SIC | Industry | 3 major lines | 3 major lines | |||
| Loss Ratios | Formula | |||||
| for 1999 | Loss Ratio | |||||
| 5942 | Book stores | 77% | 67% | |||
| 5943 | Stationery stores | 82% | 70% | |||
| 5945 | Hobby, toy, and game shops | 82% | 70% | |||
| 5947 | Gift, novelty, and souvenir shops | 77% | 67% | |||
Source: ISO Market Profiler
| SIC | Industry | $ DWP (000) | Establishments |
| 5942 | Book stores | $8,213 | 2,255 |
| 5943 | Stationery stores | $981 | 538 |
| 5945 | Hobby, toy, and game shops | $15,493 | 1,906 |
| 5947 | Gift, novelty, and souvenir shops | $15,249 | 6,956 |
| 59 | Total | $39,936 | 11,655 |
Source: ISO Market Profiler