Big ‘I’ 2013 Best Practices Study Finds Increases in Specializations, Profitability

November 15, 2013

The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) released its 2013 Best Practices Study which found an increase in agencies with specializations, expansion of technology investment and an increase in profitability across most of the study’s six revenue groups.

“The results of this year’s Best Practices Study reveal several positive findings for the independent agency system,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants have grown their business and invested in staff and technology.”

Other findings from the 2013 Best Practices Study include:

• Specialty or Niche Markets: Specialization has increased across agencies of all sizes.
Developing an expertise or proficiency in a certain industry or product has shown to facilitate targeted leads and referrals, improve retention and provide a competitive edge for an agency.

• Technology Investment: Many of the Best Practices agencies plan to invest in technology for the coming year. The top investment choice for agencies with revenue under $5 million will be in internet marketing and social media, while agencies with revenue over $5 million ranked investments in agency management systems first.

Internet marketing and social media investments ranked fourth for the larger agencies, perhaps because many of these firms have already ventured into these fields. Across all revenue groups, the average number of agency staff members who devote time to social media activities is 1.3 employees and that accounts for approximately 10 percent of their time.

• Service Staff Productivity: This year’s study took a new approach to measuring service staff productivity. Rather than identifying the average book of business serviced per account executive (AE) and customer service representative (CSR), the study combined all service positions — AE, CSR, processor, marketer/placer and claims — by line of business, and did not include administrative staff members like accountant or receptionist.

This change provided clearer access to the total number of people the typical Best Practices agency uses to service the revenue in its commercial, bonds, personal, group life-health and individual life-health books of business. The study also provides a salary range for each of the four service staff positions.

• Organic Growth: As expected, organic growth has continued to improve dramatically since last year’s study. The average growth rate in total commission and fee revenue was 9.4 percent (up from 2.1 percent) for agencies with net revenue of less than $5 million, and 9.8 percent (up from 4.5 percent) for agencies with net revenue of more than $5 million.

• Growth Strategies Worked: Between 2007 and 2010, when the soft market and an extremely weak economy made positive growth nearly impossible, Best Practices agencies continued to invest in growth strategies that would allow them to achieve organic growth and obtain a competitive edge as conditions improved. The results of those strategies — which include hiring new producers and equipping them with new tools and resources, enforcing more producer accountability, focusing on specialty/niche areas and expanding marketing/advertising activities — has paid off.

• Profitability: Strong revenue growth improved profitability. Although last year’s study results identified that growth was stronger than it had been in years, profit margins remained stubbornly flat thanks to waning contingent income growth.

That trend has now reversed. This year’s results show that contingent income has grown an average of 21.8 percent for agencies with revenue of less than $5 million, and an average of 10.7 percent for those with revenue of more than $5 million. At the same time, agencies did a much better job of controlling expenses so that operating profits grew faster than contingent income. The result? Smaller to mid-sized firms enjoyed an average Pro Forma EBITDA margin of 29.3 percent, while the larger firms averaged 22.7 percent.

• Value Creation: Last year proved to be a solid year of value creation. The “Rule of 20″ scores, a simple growth and profitability balancing equation that provides a quick way to determine whether or not agency is creating value for its shareholders, were the highest they’ve been in several years.

Small to mid-sized agencies earned an average score of 24.1, while agencies over $5 million earned 20.8. Generally speaking, an outcome of 20 or higher — regardless of growth and profitability — indicates that the agency’s shareholders can expect to earn 15-17 percent per year through stock price appreciation and/or shareholder distributions.

‘Insurance Agency System Remains Strong and Stable’

“The 2013 results indicate that Best Practices agencies continue to grow and increase profitability, the key components of agency value,” says Robert Rusbuldt, Big “I” president & CEO. “Overall, we are pleased, but not surprised, that the independent insurance agency system remains strong and stable.”

Every three years, the Big “I” collaborates with Reagan Consulting to select “Best Practices” firms throughout the nation for outstanding management and financial achievement in six revenue categories (less than $1,250,000; $1,250,000 to $2,500,000; $2,500,000 to $5,000,000; $5,000,000 to $10,000,000; $10,000,000 to $25,000,000; and more than $25,000,000).

Agencies are nominated by either a Big “I”-affiliated state association or an insurance company and become qualified based on operational excellence. Financial and benchmarking information for the participating agencies are also reviewed and updated.

The Best Practices Study was initiated by the Big “I” in 1993 as the foundation for efforts to improve agency performance and create higher valued agencies. The survey and study of leading independent insurance agencies documents the business practices of these “best” agencies and urges others to adopt similar practices.

Source: The Independent Insurance Agents & Brokers of America

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

Chart: 2013 Best Practices Study highlights, Independent Insurance Agents & Brokers of America & Reagan Consulting

 

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