From Status Quo to Strength
By: Russ Banham
| The economy isn’t recovering quickly from the biggest recession in decades. But apparently that isn’t stopping independent agents. Revolutionary transformations are underway in the independent insurance industry, including a significant increase in the number of U.S. agencies along with agency revenue and wide use of market access providers. Those are just a few of the many findings of the biennial Agency Universe Study sponsored by Future One, a cooperative effort of the Big “I” and independent agent carriers since 1983 (the survey has been conducted every two years since 2002). Study findings indicate that, on average, “Everything is going in the right direction,” says Courtney Robertson, research director at Zeldis, the AUS market research partner. “Compared to the 2010 study, revenues are up and the number of agencies is growing, despite the dour economy. Frankly, everything seems to be rebounding.” Agencies Get Traction According to the study, the number of independent agencies increased by roughly 3% (approximately 38,500 agencies) since the 2010 study, marking the first time in five years that agency ranks have increased. Interestingly, 18% of the survey respondents worked at agencies founded during this five-year period. Geographically, 44% of these new agencies are located in the South (compared with 36% of older independent agencies), showing a significant shift in concentration. Who are the people running these startups? Half of them (9%) are entrepreneurs who previously worked for exclusive carriers that winnowed their ranks or exited markets like the Southeast that the new agency owners now serve. “These new agency owners are well-trained, already have some traction and [are] ready to get started on building a book of business,” says Madelyn Flannagan, study manager for Future One and Big “I” vice president of agent development, education and research. The growth in the overall volume of independent agencies and in the number of startups struck Maynard Robison, president of Maynard Robison Consulting, by surprise. “This is happening despite gloomy economic times and continuing consolidation among independent agencies, although the latter is occurring primarily among the truly large or jumbo firms,” he says. “It is interesting, too, that there is a trend toward captive agents becoming independent agents, where they can own their own businesses and be true entrepreneurs. Compared to startups in the past, these are experienced people able to get traction fast.” Big and Bigger Another key finding of the survey is that many agencies that had previously characterized their businesses as small now describe them as medium-small. “Obviously, they’re doing well and getting more clients,” says Flannagan. “In the 2010 study, we saw that a lot of agencies that had been in business for five years or less had perpetuation plans, were well-run and well-staffed and making money. Those smaller agencies are now medium-small and are continuing to grow.” The study notes, “Compared to older agencies, new agencies appear to be better managed [and] following formal business planning steps more regularly. New agencies [also] tend to grow more rapidly. On the whole, new agencies founded since 2008 are much more dynamic than older small and medium-small agencies.” These and other developments appear to be driving higher agency revenue. Sixty percent of respondents said their agencies had generated revenue increases between 2010 and 2011, compared with 42% between 2008 and 2009. Only 26% had experienced decreases in agency revenue between 2010 and 2011, compared with 37% between 2008 and 2009. This rather robust revenue picture contrasts with declines in total direct written premiums for the property-casualty industry in 2010 (the last year of actual data). The industry recorded $459.8 billion in premiums, a 0.7% decline since 2009. In other words, agencies are building revenues despite industry premium declines and a sluggish economy. Says Flannagan, “Not all is doom and gloom.” Adding a Middle Man Another explanation for the revenue growth may derive from how agencies are representing insurance markets. Many new and small agencies in particular are working with intermediary market access providers to secure both personal lines and commercial lines insurance for customers. Last year, the survey indicates, small agencies earned 42% of their commercial lines revenue and 32% of personal lines revenue on business placed through the market access providers, up substantially from 29% and 16%, respectively, in 2009. Although the average number of insurance carriers represented for standard personal lines increased in the past two years, the average number for standard commercial lines decreased over that same period. “There are just not as many agencies having direct relationships with carriers for commercial lines, compared with previous surveys,” says Flannagan. Why are agencies turning to the market access providers? Robison says, “They simply make things very easy for agents—there’s no need to have or maintain licenses, and the provider essentially becomes the agency’s back office. This makes starting up an agency from scratch much less of a problem. It explains why some franchisors have literally hundreds of agencies hooked into them by computer.” Robertson notes that agencies of all sizes are using the intermediaries, which range from aggregators to franchisors, among other models. With regard to the higher use of the market access providers for commercial lines business, she presumes that many agencies have fewer direct commercial lines appointments these days to meet client needs. “The findings appear to be positive from an agency perspective, as it allows them to expand their reach and grow their businesses,” she says. “From a carrier perspective this may be viewed differently, as insurers typically like to have that direct connection [to agencies].” Technological Titans Not surprisingly, agencies are increasingly using a wide range of technology tools to reduce expenses, speed up processes and improve marketing. The days of relying on four-inch-thick Yellow Pages for advertising purposes are fast declining. The study indicates that between 2010 and 2012, traditional Yellow Pages advertising fell as a proportion of agencies’ overall marketing budgets, with only 36% of respondents still advertising in the printed books. Newer agencies established after 2007 invest less in Yellow Pages advertising (8%, on average) than older agencies (16%). On the other hand, they spend roughly twice as much on direct mail—18% and 8%, respectively. Sixteen percent of agencies’ marketing budgets went to website creation and maintenance in 2011, and an additional 4% was invested in website optimization for search engines. More money is invested in providing general information via the websites, as opposed to enabling Web-based transactions. Surprisingly, a scant 3% of the respondents’ marketing budgets is geared to social media marketing strategies (a percentage that is consistent across agencies of all sizes). This contrasts with the average staff time spent using social media—the study indicates that 26% of agency staff invests two to five hours a week in social media activities. Moreover, roughly one-quarter of the respondent population is using Facebook to keep in touch with prospects, and a slightly lesser number are leveraging LinkedIn. “We didn’t ask this question in the last survey, so it is hard to determine if these findings constitute a trend,” says Robertson. “Nevertheless, we assume in two years these percentages will be higher.” More agencies are using agency management systems, particularly smaller agencies. In 2010, 53% of the small agency respondents stated they did not use agency management systems, a proportion that has since declined to 32%. With regard to the use of all types of technology, the respondents ranked systems and data security as the most important technology challenges confronting their businesses. Interestingly, the increased efficiency brought about by wider technology deployment has not slimmed agency personnel ranks. “Seventy-five percent of respondents say that technology has enhanced their agencies’ efficiency and 74% say the same with regard to customer service,” says Flannagan. “One would think that as agencies do more with technology and jump off to carrier service centers, they’d need fewer people in-house. That hasn’t been the case.” When asked why, Flannagan provides a telling answer: “Machines don’t sell insurance. People do.” Russ Banham is an IA senior contributing writer. | Where Did They Get That Number? The wide-ranging information in the 2012 Agency Universe Study offers rare insight into agency operations and business strategies, while presenting insurance companies with practical information on the challenges and opportunities facing agencies. A new market research partner—Zeldis Research, headquartered in Pennington, N.J.—was retained to conduct the 2012 survey, although Maynard Robison, who developed the questionnaire and had analyzed the survey data in the previous six studies, was recruited on an independent contractor basis to assist Zeldis. More than 51,000 invitations went out to agents to participate in the survey, and more than 2,500 responded, a “pretty robust sample and an above-average response rate for market research,” says Courtney Robertson, Zeldis research director. —R.B. The New America While the United States has always been a melting pot, never has the population been more diverse. The 2012 Agency Universe Study for the first time queried agencies regarding their marketing campaigns to win business from these diverse groups of people. Their responses indicate that jumbo, small and new agencies are generally more likely than agencies in other size categories to cite the importance of marketing to minority groups. In terms of the significance to personal lines business, survey respondents ranked the markets as follows: Women, Latino/Hispanic, African-American, Asian-American and lesbian, gay, bisexual and transgender. For commercial lines, the women and Latino/ Hispanic markets switched order. Certainly, very large agencies have the resources to capitalize on the marketing opportunities inherent in these groups. But what explains the interest among smaller and newer agencies? “Obviously, they’re responding to population trends that are becoming marketing opportunities,” says Courtney Robertson, research director at Zeldis, the AUS market research partner. “They’re recognizing the value of this changing landscape to their businesses.” As an example, she points out that double the number of newer agencies since 2008 now employ personnel, both principals and producers, who speak languages other than English and/or are members of these various, growing demographic groups. Maynard Robison, president of Maynard Robison Consulting, agrees. He attributes these developments in part to the Big “I” Diversity Task Force comprised of member Latin-American, African-American and Asian-American agents, as well as representatives from 10 leading insurance companies. “We’re trying to help agents reach out beyond what they thought was their ‘community’ because America is changing,” says Madelyn Flannagan, study manager for Future One and vice president of agent development, education and research at the Big “I”. She works closely with the task force. “There are record numbers of minorities that have migrated from the inner cities to the suburbs. Many agencies, in the past, weren’t ready to serve these markets. As the survey indicates, they are now much more diverse in their staff and marketing strategies, and are eager to learn how to better serve these markets.” —R.B. |
This month’s issue
The August issue is out now!
