ALEXANDRIA, Va., Nov. 1, 2012 —The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) announced the release of its 2012 Best Practices Study which found that organic growth improved, albeit modestly, and profitability held constant across most of the study’s six revenue groups.
“The results of this year’s Best Practices study indicate that organic growth continues to improve as the independent agency system faces the unusual combination of a hardening market and a continuing soft economy,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most Best Practices agencies confidently held their ground and have put resources and systems in place to move cautiously into a changing market.”
Other findings from the 2012 Best Practices Study include:
• Big Picture: Most study participants benefitted from the growth strategies deployed over the last few years when the recession suddenly amplified the pressure of a prolonged soft market. Organic growth continued to improve but profitability remained flat. The good news is that organic growth was the highest since the 2008-2009 economic downturn. Small to mid-size agencies grew their revenue by an average 2.1% while the larger agencies grew revenues by an average 4.5%.
• Cutting the fat: As with revenue growth, the agencies benefitted from steps taken over the last few years to control and lower expenses. Profitability was flat across the board in all study groups with an average Pro Forma EBITDA margin of 25.9% for agencies. Larger firms had an average of 19.3% margin.
• Rule of 20: In recent years, the Rule of 20 outcomes, a quick measure for determining whether an agency is creating value for its shareholders, have fallen significantly short of the desired score of 20 for most of the study groups. The 2012 results improved several points but fell short of the desired outcome of 20. The smaller firms averaged a score of 15.9 while the larger firms averaged 14.9.
• New hires: Many of the study’s agencies continued to invest in new producers as a strategy to drive growth. Those hiring, however, brought on fewer new producers than in the previous two years. One third of the smaller agencies hired an average of 1.3 new producers while three-fourths of the larger firms hired an average of 6.6 producers.
• More carriers represented: In both the large and small agency study groups, the number of both personal and commercial property-casualty carriers increased by a few carriers after years of decreasing the number of carriers. The number of life-health carriers remained flat.
“The 2012 results are not stellar but they do indicate that Best Practices agencies are still rebounding from the devastating effects of the recession and soft market, and are poised for new growth and stronger 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 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.
Twelve insurance companies and four industry vendors provide financial support for the research and development of the Best Practices Study – Applied Systems, Addis Intellectual Capital, Central Insurance Cos., Chubb, EMC Insurance Companies, Encompass Insurance, Erie Insurance, Great American Insurance Group, The Hanover Insurance Group, Harleysville Insurance, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Insurance, Ohio Mutual Insurance Group and Zurich. Founded in 1896, IIABA is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of approximately a quarter of a million agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.