Most “Best Practices” independent insurance agencies have been able to either grow or maintain the value of their businesses while focusing on staff development and technology, according to the latest report by the Independent Insurance Agents and Brokers of America (Big “I”).
The group’s 2015 Best Practices Study also found modest declines in organic growth but steady profitability across the group of 196 Best Practices Agencies studied.
“The 2015 results indicate that Best Practices agencies continue to grow and build their businesses, and increase profitability, the key components of agency value,” said Robert Rusbuldt, Big “I” president and CEO. “We were not surprised that the independent insurance agency system remains stable and strong.”
Every three years, the Big “I” collaborates with Reagan Consulting to select “Best Practices” firms 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).
Some other findings and metrics from the 2015 Best Practices Study released by the Big “I” include:
- Service Staff Productivity: The study revealed that revenue per employee, a metric of productivity, increased approximately five percent over the three-year period. In similar positive trending, expenses as a percent of revenue have declined modestly over the cycle to a 2014 average level of 80.2 percent. Revenue per service staff member increased by approximately six percent in the commercial property/casualty line of business, and by approximately one percent in employee benefits. These relative results add up given the organic growth results in these lines of business.
- Productivity: New business per producer increased across all size firms for both commercial P/C and multi-line producers, growing by 5.5 percent and 5.0 percent, respectively, since 2012. Employee benefits producers saw an overall decline of 4.4 percent on the same measure for the period.
- NUPP and Perpetuation: The net investment in un-validated producer payroll (NUPP)–a measure of commitment to new producer development–has remained steady throughout the period, with an average NUPP of 1.8 percent for all firms.
- Profitability: Pro-forma profit margins–the actual profitability of an agency if non-reoccurring/extraordinary expenses and revenue, and excessive owner compensation and perks are normalized–remained strong. This was the case over the cycle period at approximately 26 percent, with smaller firms (those with under $5 million in revenue) outperforming their larger peers (firms with over $5 million in revenue) once again in 2014, posting results of 30 percent vs. 22 percent, respectively.
“The 2015 Best Practices Study results further exhibited the stability of the independent agency system despite some challenges,” said Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Overall, Best Practices firms continue to demonstrate their focus on operating excellence and the financial results it produces.”
The 2013 Best Practices Study 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. Also organic growth showed improvement compared to 2012.
Reagan Consulting reported that profitability reached 21 percent for 2014, a new record.
Seventeen insurance companies and three industry vendors provide financial support for the Best Practices study: Agency Business Solutions/Amerisure Insurance, Applied Systems, Beyond Insurance, Central Insurance Cos., Chubb, CNA, EMC Insurance Companies, Encompass Insurance, Erie Insurance, The Hanover Insurance Group, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corp., The Main Street America Group, MetLife Auto and Home, Nationwide, Travelers, Vertafore and Westfield Insurance.
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