Numbers Don’t Lie: Agency Best of the Best

May 5, 2014

Contingency and Overrides: Focus On It, but Don’t Rely On It


Contingency and override income can be a huge driver of agency value.

2013 was a strong year compared to 2011 and 2012 and according to the 2013-2014 MarshBerry Market & Financial Outlook, contingent income and override earnings were up considerably as a percentage of commission income. Unfortunately, far too many agencies are dependent on these streams of income to produce cash flow.

External dependency ratio is an industry metric that measures the relationship of agency cash flow to non-commission sources. It is desirable to maximize outside earnings, but the agency should not rely too heavily on these revenue streams to cover the cash flow needs of their business.

Simply put – contingents and overrides are controlled more by outside sources than by agency management.

A high external dependency ratio indicates that the agency is relying on non-commission income to offset poor performance of the actual profitability on core agency business (commissions).

Best of the Best agencies conservatively budget for non-core income and build a plan around driving margin on the core revenue stream of an agency – commission and fees.

Where do you stack up against the most balanced agencies in the business?

Best

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Insurance Journal West May 5, 2014
May 5, 2014
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