Independent agents, brokers face stable growth in 2020
A new survey shows optimism remains high among insurance agents and brokers, despite growth declines in 2019.
After an active 2019 with 649 M&A deals in the agent and broker channel, the segment’s outlook for 2020 is looking strong and stable, says a recent survey.
Reagan Consulting’s most recent Organic Growth and Profitability (OGP) survey shows agents and brokers predict a stronger year in 2020 with 7% organic growth, despite small setbacks in 2019.
In fourth-quarter 2019, median organic growth in the sector slightly declined to 5.9%, while the median year-end EBITDA (earnings before interest, taxes, depreciation and amortization) dropped slightly to 20.1% from the 2018 year-end EBITDA of 20.2%.
However, those declines are insignificant unless they prove to be the beginning of a trend, Bobby Reagan, CEO of Reagan Consulting, said in a release. On the flip side, “operating income rose from 12.5% in Q4 2018 to 13.1% in Q4 2019, proving that brokers were more efficient in controlling their expenses,” Reagan noted.
Maximizing efficiency
Survey data from Q4 2019 median and top quartile (75% percentile) firms show how small variances in organic growth and profitability can compound over time.
“Although the difference in the organic growth and profitability performance of these two firms shown above may seem relatively small, the implications of the differences in the performance over a period of years is significant,” Reagan said.
The data assumes both firms begin with $10 million in revenue in 2019, with consistent organic growth and EBITDA rates through 2029. Under those metrics, “the top-quartile firm will have revenues that are 31% higher, cumulative 10-year profits that are 52% higher, and an estimated valuation that is 68% higher. The top-quartile firm will have generated $14.5 million more profit and have a value that is $18.4 million higher,” Reagan said, concluding that by 2029, the top-quartile firm will be “$33 million ahead of the median firm.”
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