Measures Large & Mid-Size Private Agencies and Brokerage Firms
According to Reagan Consulting’s latest look at agency growth and profitability, independent insurance agents and brokers have both shown positive gains in all three of the major value creation categories contained in the company’s Organic Growth and Profitability Survey. The survey, begun in 2008 and conducted on a quarterly basis uses the Rule of 20 to measure agency value creation. That is if the sum of an agency’s organic growth rate and one-half of its EBITDA margin equals or exceeds 20, then an agency can be said to be driving strong sharehold returns.
As for this quarter, the survey demonstrated that Median organic growth for both agents and brokers was 6.2 percent in 2013, up .1 from the 2012 numbers which was 6.1. As for earnings before, interest, taxes, depreciation and amortization (EBITDA), the margins also rose to 19.3 percent in 2013 up from 18.4 percent in 2012. Overall, however, the survey’s calculations using the Rule of 20 showed the strength of both agents and brokers with the score being 16.5. Brokers’ however demonstrated the growth of broker performance with the top 25 of brokers exceeding 20 for the first time.
“Broker performance has progressed significantly in the last five years,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. “It wasn’t too long ago, in 2009, when brokers were shrinking organically (-1.9 percent median organic growth) and posting mid-single-digit Rule of 20 scores (6.9). Agents and brokers have capitalized on a firming market, a recovering economy and new business initiatives to make large strides forward in performance and shareholder returns.”
Looking at the forecast for 2014, Reagan Consulting predicts a median organic growth rate of 6.1 percent this year based on the brokerage firms it surveyed. As for the brokers themselves, the consulting firms says that brokers are almost evenly split on the prospect of whether or not they believe organic growth will increase or decrease for their firm this year. “We do not necessarily think that brokers will go backwards, but we are wondering if brokers can maintain their impressive run of consistently improving results,” stated Stipe, noting that organic growth was up just 0.1 percent and Rule of 20 scores just 0.4 points.
140 mid-size and large agencies and brokerage firms participated in this quarter’s survey via confidential submissions. In addition, Reagan Consulting says approximately half of the industry’s 100 largest firms were included in the results. For those agencies or brokerage firms interested in participating here’s a few more details:
Each participating agency receives a customized, confidential report of its performance compared with the overall survey results, as well as Reagan’s quarterly commentary of industry trends impacting agents and brokers. For information on participating in the OGP survey, contact Michelle Appelbaum at (404) 233-5545 or by email to michelle@ReaganConsulting.com.