ALEXANDRIA, Virginia, Nov. 9, 2015 —The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has released its 2015 Best Practices Study which found modest declines in organic growth but steady profitability across the group of 196 Best Practices Agencies studied.
“The 2015 Best Practices Study results further exhibited the stability of the independent agency system despite some challenges,” says 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. Most of the study’s participants have either grown their business or remained steady. The industry continues to prioritize staff development and technology.”
Findings from the 2015 Best Practices Study include:
• Service Staff Productivity: The study revealed that revenue per employee, perhaps the best overall metric of productivity, increased approximately 5% 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%. Revenue per service staff member increased by approximately 6% in the commercial P&C line of business, and by approximately 1% in employee benefits. These relative results add up given the organic growth results in these lines of business.
• Productivity: New business per validated producer increased across all size firms for both commercial P&C and multi-line producers, growing by 5.5% and 5.0%, respectively, since 2012. Employee benefits producers saw an overall decline of 4.4% on the same measure for the period, likely due to the significant transformation that side of the business is experiencing right now.
• NUPP and Perpetuation: The net investment in un-validated producer payroll (NUPP)–a measure of commitment to future growth by way of new producer pipeline development–has remained steady and healthy throughout the period, with an average NUPP of 1.8% for all firms. This is particularly important as many agencies seek to maintain their independence and the outstanding investment private ownership continues to represent. Critical to the goal of private ownership is the ability to both develop high performers who serve as the next generation of owners and maintain strong performance that drives meaningful ownership opportunities. In an active market that continues to reflect a strong appetite for acquisition, planning for internal perpetuation is as important as ever. Focusing on the best practices that drive agency value remains one of the best tools available to firms of all sizes looking to achieve their long-term goals.
• 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%, with smaller firms (defined here as 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% vs. 22%, respectively.
“The 2015 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 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 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 for the following two years.
This is the 23rd edition of the annual benchmarking analysis and the final year of the current three-year study cycle.
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.
Seventeen insurance companies and three 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, Imperial PFS, InsurBanc, Kemper Preferred, Liberty Mutual Agency Corporation, The Main Street America Group, MetLife Auto and Home, Nationwide, Travelers, Vertafore and Westfield Insurance.
Founded in 1896, the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) 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.