Independent Agency Population Holds Steady as Start-Ups Keep Pace with Mergers

December 7, 2010

The total number of independent agencies in the country remains stable at around 37,500 as start-ups have kept pace with agency mergers and closings, according to a new study of agencies. There are today as many agencies as there were in 2006.

Approximately 11 percent or 4,000 of today’s independent agencies were founded in 2008, 2009 or 2010, according to the 2010 Agency Universe Study (AUS) by Future One, a collaboration of the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) and independent agency companies.

There is a definite regional bias in the population of new agencies. Of agencies founded since 2005, 50 percent are located in the South, 24 percent in the South Atlantic states and 19 percent in the West South Central Census division.

The agents’ group says this regionalization of new firms may reflect independent agents stepping in to serve markets that many captive agency companies have abandoned. In contrast, only 8 percent of new agencies are located in the Northeast, compared to 18 percent of older independent agencies.

The study suggests some progress is being made in diversification of agency ownership. The results show a slight increase in the number of new small and medium small agencies with minority principals, according to Madelyn Flannagan, Big “I” vice president of agent development, education and research. She said the proportion of independent agencies with African-American principals grew from 1 percent in 2008 to just over 4 percent in 2010.

Ownership is also changing gender. “In addition to the increasing ethnic diversity of agency ownership, albeit from a very low base, these agencies are also solidifying the position of women as principals in over a third of agencies,” Flannagan said.

The study also outlines how independent insurance agencies have been hurt by the soft insurance market and, since 2008, the recession. While 55 percent of small agencies saw increased revenues from 2008 to 2009, 25 percent had decreased revenues. In all of the other size categories, agencies with decreased revenues have outnumbered those with increased revenues. The decline in revenues has been substantially worse in commercial lines than in personal lines. Consequently, it has hurt larger agencies, more dependent on commercial lines, hardest.

The soft market was in effect and the recession began just as the 2008 study was underway, according to Robert Rusbuldt, Big “I” president and CEO. “Despite all of these challenges, many new agencies are forming, typically with a more diverse and younger leadership, demonstrating the strength of the independent agency system and the potential for growth,” he said.

The study surveys a independent agencies operating in the U.S. about their numbers, revenue base and sources, number of employees, ownership, mix of business, diversification of products, technology uses, non-insurance income sources and marketing methods.

Some of the other findings:

Decline in commercial lines revenues hit the very largest brokers hardest. Among independent agencies and brokers decreases in commercial insurance revenues were significantly concentrated in the larger agencies.

The cost of technology has become a less important issue. Marketing the agency effectively on the Internet, security and ease of use of new real-time functionality are now the top three most important technology issues for agency owners. At the same time, carrier websites have gained ground as the preferred method for agency-carrier interactions.

The 2010 Agency Universe Study was first conducted in 1983. Subsequent studies were released in 1987, 1992, 1996 and 2000. Approximately 2100 agencies were included in the 2008 analysis.

In addition to the Big “I”, the Future One coalition includes the following company partners: Allied Insurance, Allstate, Amerisure Insurance, Central Insurance Companies, Chubb Group of Insurance Companies, CNA, Encompass, Erie Insurance, The Hanover Insurance Group, The Hartford, Hartford Steam Boiler, Liberty Mutual Agency Corporation, Progressive, Selective Insurance Group, Travelers, Westfield Insurance and Zurich North America.

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