Pay and Performance

This issue of Insurance Journal brings you the 8th Annual Agency Salary Survey results.

Nearly 2,000 agency owners, producers and agency staff responded to this year’s exclusive survey, all wanting to know who’s worth what in today’s independent agency system.

What we found is that compensation for all sectors – management/owners, producers and support staff – is up but not at the same rate.

There’s no question that part of those compensation increases can directly be attributed to more profitable times in agencies across the nation. Business is up in both commercial and personal lines in most firms, which led to long-overdue pay increases for many agency staff. And salaries and total compensation looks as if it might continue to trend upward in 2014 as well.

According to a survey of large and mid-sized agencies by Reagan Consulting, independent insurance agents and brokers posted new highs in revenue growth and profitability in the fourth quarter of 2013.

The consulting firm said agencies performed well in all three of the major value creation categories of the Reagan Consulting Organic Growth and Profitability (OGP) survey:

• Median organic growth for 2013 was 6.2 percent, beating 6.1 percent for 2012.
• EBITDA (earnings before interest, taxes, depreciation and amortization) margins jumped almost a point from 18.4 percent in 2012 to 19.3 percent in 2013.
• Rule of 20 scores were 16.5, while the top 25 percent of brokers all exceeded 20 for the first time.

Reagan Consulting uses the Rule of 20 to measure agency value creation. The Rule of 20 is the sum of an agency’s organic growth rate and one-half of its EBITDA margin; if the sum equals or exceeds 20, an agency is driving strong shareholder returns.

“Broker performance has progressed significantly in the last five years,” said Kevin Stipe, president of Reagan Consulting.

Stipe said it wasn’t too long ago, in 2009, when brokers were shrinking organically (-1.9 percent median organic growth) and posting mid-single-digit Rule of 20 scores (6.9).

While the performance results are impressive, Stipe wonders if they can be sustained. “We do not necessarily think that brokers will go backwards but we are wondering if brokers can maintain their impressive run of consistently improving results.”

Will agencies keep up the pace in growth and profitability in 2014? How will compensation be affected? Only time will tell.

Topics Agencies