In the face of adversity and uncertainty, independent agents and brokers continue to persevere and grow, generating record profitability during the COVID-19 pandemic. According to the latest Q3 installment of Reagan Consulting’s Organic Growth & Profitability (OGP) Survey conducted by Reagan Consulting even as the pandemic pushes agents and brokers to change the way they do business, they have been able to sustain continued growth and record profitability.
“Brokers are evolving to succeed in the face of COVID-19,” says Mitchell Gentry, an associate of Reagan Consulting adding, “[L]arge and small firms have … grown at almost identical clips. He notes, however, while “the difference between the top and bottom quartile growth has decreased in each quarter.”
Quarterly Median Growth in Q3
While 2020 started off strong for agents and brokers with an organic growth of 6.6.% in Q1-2020, an expected dip in that rate occurred in Q2-2020 occurred with organic growth falling to 4.4%. In a sign of a more V-shape recovery, however, Q3-2020 bounced back with a 4.7%. While not at the level of the 6.6% growth seen in Q1, the average 4.6% growth did exceed the average quarterly OGP results from 2015 through 2017 notes Reagan Consulting. Taken together, explained Gentry in summarizing the results, “…those statistics defy the reasonable expectation that only the median growth would be relatively stable during the crisis while large firms would grow at the expense of smaller ones.”
Both Personal and Commercial Lines saw growth
Another promising sign of agents and brokers performance thus far during the pandemic is in the posted growth for individual insurance lines. According to the OGP Survey, Commercial lines saw growth of 5.5%. increasing from the 4.7% logged in Q2. Personal lines growth increased as well from 1.1% in Q2-2020 up to 2.1% in Q3-2020.
In another sign of strength, broker profitability has also soared in Q3-2020. “For the second consecutive quarter, EBITDA (earnings before interest, taxes, depreciation and amortization) and operating margins set OGP records for their respective quarter.” Attributing the increase to reduced selling expenses driven by entertainment and travel restrictions during the pandemic, Gentry states profitability may increase further in the coming months as agents and brokers “right-size their office footprints and eliminate discretionary expenditures, among other strategic initiatives,” summarized Mr. Gentry.
Cautiously optimistic heading into Q4-2020
Reagan Consulting states that based upon the above results and trends showing ‘stable growth’, independent agents and brokers should be cautiously optimistic as they head into Q4-2020. “The real impact of the pandemic on revenues won’t be known until Q4 for two reasons,” cautions Mr. Gentry, however. “First, the 2020 election results will begin to affect the economy; and second, the pandemic’s greatest financial punch was from March through June of this year, and broker growth tends to lag economic growth by six months.”
More about Reagan Consulting
Reagan Consulting is a management consulting firm providing strategic consulting, valuation, capital raising, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm’s services for insurance agents and brokers, bank-owned agencies, and other participants in the insurance distribution marketplace include: appraisals of fair market value, capital raise advisory, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation, and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Organic Growth & Profitability Survey.
