Agents and Brokers continue on a four-year growth trend
The Independent Agency Channel continues to grow in the face of a changing industry. According to the latest data from the Reagan Consulting’s quarterly Organic Growth and Profitability (OGP) Study, the Third Quarter of 2018 (Q3-2018) tied for the highest growth rate of the past 15 years, with an industry organic growth of 6.1%. Overall, 2018 data continues to contribute to a four-year growth trend for the IA channel as illustrated below:
“This strong Q3 performance is another confidence builder for the industry,” says Harrison Brooks, vice president of the consulting firm. “If history is any indication of future performance, strong GDP tailwinds are likely to continue to drive strong organic growth for agents and brokers.”
As for what sector increased the most, all major lines displayed growth in the Third quarter, says Reagan Consulting resulting in “the strongest nine-month growth performance since September 2013.” For example, Commercial Lines led with an industry growth of 6.8%, the first time since 2014. Group Benefits was a close second with 6.3% growth. Meanwhile, Personal Lines logged posted a 3.8% growth, its highest numbers in a Q3 period since the start of the OGP Survey in 2008.
As for Brokers, the OGP Survey sees them continuing to thrive throughout the rest of 2018, estimating an overall growth rate of 6.0% versus the 4.5% it logged in 2017.
Sustained growth is spurring industry innovation and consolidation
The consulting firm cites the”significant investment activity” brought into the insurance distribution space by the insurtech revolution as one of, if not the driving force behind this sustained growth pattern. Investments in Applied Systems announced by Google’s Capital G, as well as Salesforce’s ambitions to become the AMS of choice in the insurance industry are, but two, examples cited by the consulting firm.
“Sustained organic growth and healthy industry fundamentals,” notes Brooks, “have led to some big bets being placed on both the acquisition and insuretech fronts.”
In addition, Reagan Consulting also notes the increased consolidation of the independent agency system as evidence by the steady stream of merger and acquisitions announcements. For those interested in seeing the latest data on the Massachusetts insurance industry’s M&A activity, please refer to Agency Checklists October 2018 update entitled, “2018 Shaping Up As Second-Highest For Insurance Agency M&A Activity.”
With all of these strong factors pointing to increased growth, however, the consulting did express one note of caution with respect to agency profitability in the form of EBITDA margins. 
“It will be important to monitor EBITDA [earnings before interest, taxes, depreciation and amortization] margins, especially in larger agencies,” says Brooks. “EBITDA margins declined slightly in Q3 2018 from last year, and it appears that contingent income, which dropped from 8.6% of revenue in 2017 to 8.0% of revenue in 2018, was the primary driver.
