During the second quarter of 2013, mid-size and large privately held insurance agencies and brokerage firms experienced the most significant growth in median organic revenue since 2008, according to the Organic Growth and Profitability (OGP) survey just released by Reagan Consulting.
The OGP survey also found the agent-broker profitability margin to be the highest recorded since the survey’s inception in 2008.
Kevin Stipe, president of Reagan Consulting, attributes the lift to a rare “virtuous cycle” of industry trends, which he says has occurred only once every five years over the last couple decades. “Between 2008 and 2009, we were in a soft p-c market and a bad economy,” Stipe says. “Now, we’ve seen a reversal of those.”
In the midst of a growing economy and a slightly firming p-c market, the survey’s reported annual organic growth rate of 6.9% and agent-broker profitability margin of 24% “reflects all the good stuff going on underneath,” says Stipe, who sees a direct correlation between organic growth upturns and profit margin expansion. “The secret is just that revenue growth numbers are strong enough, that with productivity increases and trimming expenses, agencies can really improve their profit margins.”
Although Stipe mentions that an agency’s size and location had “little or no impact” on results, the OGP survey did reveal a private sector advantage: based on reports from five publicly held brokerage firms, privately held firms are growing 1.6% faster than public brokers.
Stipe also notes that the lines of business covered in the survey represent varying rates of growth, with commercial lines, employee benefits and personal lines growing at 8.2%, 5.5% and 3.5%, respectively. As a result, agencies that earn a larger proportion of revenue from personal lines might be experiencing lower growth rates by comparison.
According to Stipe, that’s where geography might re-enter the playing field since personal lines revenue is tied more closely to location. “For the typical IIABA member, results may correlate more strongly with local economy performance,” he says.
Stipe adds that strong numbers from the survey might also reflect a specific subset of the industry that out-performs other agencies based on mindset. “At some level, the firms that consistently provide numbers to the survey are a little more concerned with benchmarks,” Stipe says. “They want to measure their results. The fact that they’re measuring results means they might be doing better than the average agency, simply because they’re more focused on growth.”
Reagan Consulting conducts the OGP survey by collecting self-reported confidential submissions from about 125 mid-size and large agencies and brokerage firms.
Jacquelyn Connelly is IA assistant editor.