The 2014 Best Practices study from the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) revealed slowed revenue growth rates and an increase in profitability in some of the study’s six revenue groups.
“The results of this year’s Best Practices Study further demonstrate the stability of the independent agency system despite some challenges,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants have either grown their business or remained consistent. The industry is also continuing to invest more in staff and technology.”
While last year’s study revealed the highest organic growth rates since 2008, this year’s study shows a different picture, with only one study group achieving an increase growth rate of at least one percentage point ($1.25-5 million). Growth rates, in general, remained in the high single digits, with two study groups ($1.25 to 5 and $10 to 25 million) achieving double-digit growth rates.
Pro-forma profit margins, indicating the actual profitability of an agency if non-reoccurring/extraordinary expenses and revenue and excessive owner compensation and perks are normalized, were strong but stagnant, according to the study. While revenue growth rates slowed, profit margins were (and will be) under increased pressure, and may result in either no growth or negative growth in the coming year. Operating profit margins, however, grew slightly. Best Practices Agencies focused on becoming less dependent on P&C contingent and life/health bonus income, which has historically contributed significantly to an agency’s profit margins, by reducing expenses, becoming more efficient and finding other sources of revenue. As a result, the operating profits continued to improve.
“The 2014 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 are pleased, but 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.
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