In June of this year, MarshBerry launched its 28th Annual Market & Financial Outlook Survey in conjunction with Insurance Journal. The survey compiled anonymous general independent agency information along with financial, market, carrier and technology data. Initial data shows that 2012 and 2013 brought a much needed lift to the insurance distribution space creating optimism within the industry.
With dismal total commission growth over the past five years, property and casualty (P/C) estimated growth rates in 2012 and 2013 are more than 8 percent with continued growth forecasted into 2014. Survey results credit workers’ compensation, commercial property and homeowners insurance rates as the key drivers of P/C growth.
More than 90 percent of survey respondents also felt that the economy will remain flat or will improve in 2014.
Premium rate forecast echoes the industry’s expectation with anticipated growth averaging 5 percent, providing controllable market lift for many agencies and brokers.
Employee benefits commission averaged 4.1 percent growth in 2012 and mid-year projections are estimating rates in this key line of business to only grow at 2.5 percent in 2013.
Forecasts are difficult to calculate with all of the market ambiguity, but even if the Affordable Care Act implementation does not hinder account retention, a shift to fee-based compensation may become the norm for many brokers, which would negatively affect industry growth.
About one-third of survey respondents plan continued investment in their employee benefit value platform; while another 30 percent plan to do nothing regarding health care reform.
Most respondents grew organically while less than 8 percent of respondents indicated that they executed an acquisition in commercial lines, personal lines or employee benefits revenue during the past 12 months.
Overall growth in core revenues drove favorable supplemental income for the majority of respondents. Some 70 percent reported recognizing increased or consistent levels of contingency income, while 87 percent of respondents indicated enhanced or consistent override commissions over the prior year.
The survey revealed that 92 percent of respondents are expecting similar or enhanced profits in 2013. Amplified growth metrics have made way for increased owner return, driving agency values up 11.2 percent over the prior year.
The Perpetuation Challenge
Despite significant optimism in key market fundamentals, year-over-year agency valuation increases, and performance metrics contained in the MarshBerry 2013 Market & Financial Outlook Survey, the internal perpetuation challenge continues to be the biggest long-term threat to the independently-held distribution marketplace.
The survey revealed that in addition to industry-wide aging issues, most firms have not instituted an executable reinvestment plan needed to build the next generation of ownership. In addition to lackluster and often sporadic reinvestment, most independent agencies have not built the financial discipline, inclusive of an adequate balance sheet, to fund internal perpetuation.
The average balance sheet value in the independent agency sector actually dropped as a percentage of net revenues in 2012 despite the highest growth year in recent history and a high concentration of agency owners indicating higher profitability.
Without a dramatic shift in agency perpetuation preparedness, leadership development, financial management and reinvestment discipline, rapid consolidation will likely continue to reshape the competitive landscape across the country.
The MarshBerry 2013 Market & Financial Outlook Survey is now available for $199 at http://info.marshberry.com/marketfinancialoutlook. The report enables independent insurance agencies to highlight key agent and broker performance trends from 2007–2014. The five core chapters offer a market overview and outlook on:
1. External Environment Perspectives
2. Carrier Relationships
3. Growth and Profit Perspectives: By Revenue Size and By Region
- Total Commission Income – Overall, Organic and New Business Growth Rates (Property & Casualty; Life & Health; Fee Income)
- Non-Commission Income (Contingents; Overrides; Investments)
- Growth Strategy
- Profit
- Grofit
4. Operational Perspectives
- Expense Management
- Information Technology/Technology Investment
- Human Capital
5. Perpetuation
McDonald is a vice president at MarshBerry and is responsible for the company’s Peer Exchange Networks.
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