ALEXANDRIA, Virginia, Oct. 2, 2014 —The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has released its 2014 Best Practices Study which found slowed revenue growth rates and an increase in profitability in some of the study’s six revenue groups.
“The results of this year’s Best Practices Study further demonstrate the stability of the independent agency system despite some challenges,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants have either grown their business or remained consistent. The industry is also continuing to invest more in staff and technology.”
Service Staff Productivity: This year’s study included several new staffing statistics including the number of remote worker and administrative staff (accounting and HR). The number of workers, total payroll and the payroll as a percentage of net revenues are included. Last year the service staff data was changed to offer salary ranges for the key service and sales support positions and to provide the total number of staffing needed to support each line of business. These updates reflect the changing workplace and should provide interesting data in the future.
Organic Growth: Last year’s study revealed the highest organic growth rates since 2008. This year’s study shows a different picture with only one study group achieving an increased growth rate of at least one percentage point ($1.25-5 million).
Growth Rates: In conjunction with the organic growth numbers, growth rates remained in the high single digits with two study groups ($1.25 to 5 and $10 to 25 million) achieving double digit growth rates.
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–were strong but again stagnant. As revenue growth rates slowed, profit margins were and will be under increased pressure, and may result in either no growth or negative growth in the coming year. Operating profit margins grew slightly. The operating profit is the pre-tax profit of an agency excluding supplemental income (contingent, bonus, and investment income). P-c contingent and life-health bonus income has historically contributed significantly to an agency’s profit margin. Over the last decade, however, that source of revenue has shrunk. Best Practices Agencies focused on becoming less dependent on it by reducing expenses, becoming more efficient and finding other sources of revenue. As a result, the operating profits continued to improve.
Value Creation: The Rule of 20 scores, a simple growth and profitability balancing equation that provides a quick way to determine whether or not agency is creating value for its shareholders, were down this year, reflecting the flat growth and profitability results. A score of 20 or more indicates that an agency is maintaining a healthy balance between its efforts to grow revenues and to sustain or enhance profitability. Typically, a core of 20 or more indicates that an agency will achieve, through profit distributions and/or stock appreciation, an industry standard rate of return on the investments it is making in the people, systems and activities needed to grow and operate the agency.
“The 2014 results indicate that Best Practices agencies continue to grow and build their businesses, and increase profitability, the key components of agency value,” says Robert Rusbuldt, Big “I” president & CEO. “We are pleased, but 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 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.
Sixteen insurance companies and four industry vendors provide financial support for the research and development of 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, Harleysville Insurance, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corporation, Main Street America Group, Ohio Mutual Insurance Group, Travelers and Westfield Insurance.
Founded in 1896, IIABA is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 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.