It 'could be a historic year' for the independent channel
Independent agents and brokers have reported their best Q2 results since 2013.
A historic year could be ahead for independent agents and brokers, as the channel reported its best Q2 results since 2013.
Reagan Consulting’s “Organic Growth and Profitability (OGP) Q2 2019” survey revealed that the 6.4% organic growth rate of independent agents and brokers across all business lines coupled with “a red-hot mergers-and-acquisitions (M&A) market yield a healthy outlook for the future of the industry,” Mark Crites, vice president at Reagan Consulting, said in a news release. “2019 could be a historic year.”
Personal vs. commercial lines
Historically a low-growth/high-margin business, personal lines shows no signs of wavering after a banner year in 2018. The sector posted a 4.1% growth rate in Q2 — the second highest since the start of the OGP study in 2008.
According to the study’s results, the independent channel shouldn’t be concerned about InsurTech disruptors slicing into their marketplace, as Crites cited that InsurTech competitors are not impacting agents and brokers’ ability to compete in personal lines.
Thirty-seven percent of firms reported double-digit organic growth in commercial lines in the second quarter. However, the entire commercial lines sector experienced a slight decrease in its growth rate, with a reported rate of 6.4%, down from a historic high of 6.9% in Q1.
Growth factors
Crites pointed to rate increases as the primary driver behind personal lines’ growth. Nonetheless, a strong economy is helping foster growth in all insurance sectors, while the “hardening rate environment and a growing economy is a recipe for success,” particularly in commercial lines, said Crites.
Merger and acquisition (M&A) activity from the past few years has also experienced record-highs. In the first half of 2019, 328 M&A deals were announced in the insurance industry, a 6.5% increase over 2018. “Even at record-high valuations, buyers can still complete accretive deals,” explained Crites, adding that the “frenzy” continues. “We see no slowdown in M&A activity for the foreseeable future.”
There was one factor that didn’t experience growth in Q2: sales velocity, a metric used by Reagan Consulting as an indicator of future organic growth via new business production, which is calculated as a percentage by dividing current-year new business by prior-year commissions and fee revenue. If a firm consistently posts sales velocity figures in the top 25% of the industry (15.4% or higher in Q2 2019), it is likely the firm will show above-average growth. In a “surprising decline amidst heightened growth levels,” said Crites, Q2 sales velocity was “down slightly, year-over-year, to 12.1%.”
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