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Agencies Can Hold The Fort On Valuation Despite Recession

Revenue growth and profitability are the two key drivers of value for independent agencies and brokerages--and in 2008, both were difficult to come by.

By Brian McNeely, Angela B. Bemiss | Updated on August 02, 2009
Revenue growth and profitability are the two key drivers of value for independent agencies and brokerages–and in 2008, both were difficult to come by. But even though 2009 is not looking much better–thanks to the shrinking economy and persistently soft insurance market–there are ways for agents and brokers to hold the fort, protecting and even boosting the valuation of their firms going forward.

Looking back at why independent agencies and brokerages are struggling, an ongoing challenge hindering growth is the soft market–a major hurdle since 2004 that continues to put pressure on rates.

However, agents and brokers also had to deal with additional threats in a faltering economy. Agencies have seen some of their clients go out of business. Many others have struggled to stay afloat–as a result, reducing headcounts and exploring other ways to reduce costs. The resulting drop in insurable exposures has placed added pressure on agency revenue growth.

From a profitability perspective, the drop in revenue resulted in compressed margins. While many agents and brokers reacted by cutting personnel–their biggest expense–headcount reductions did not offset the revenue losses.

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