In the first quarter of 2020, agents and brokers predicted 7% growth. In 2021, agents and brokers are predicting a bullish 6% growth.
In 2020, independency profits soared to record-breaking levels, according to the results of Reagan Consulting's Organic Growth and Profitability Survey.
In the first quarter of 2020, agents and brokers predicted 7% growth for the year but, due to pandemic-related shutdowns, organic growth slowed to 4.3% in the fourth quarter of 2020—the lowest in years. In 2021, agents and brokers have moderated expectations, predicting a bullish 6% growth.
Meanwhile, agency profits soared to 22.4%, shattering the previous record of 21% set in 2012. The report attributes 2020's gain at least in part to the drastic reduction in selling expenses resulting from lockdowns and social distancing.
Additionally, over the last several years, the independent agency channel's sales velocity has ranged between 10% and 14%. In 2020, the median sales velocity was 13.2% in the first quarter but dropped to 11.3% in the fourth quarter.
Some agents and brokers “figured out how to outsell and outgrow their competitors during COVID-19," says Kevin Stipe, president and partner of Reagan Consulting. “Firms that consistently achieve sales velocity of 15% or higher are regular members of the Top Quartile Club."
Sales velocity is Reagan Consulting's proprietary metric to benchmark an agency's new business results against those of other firms. It is calculated by dividing the new business written in the current year by the prior year's commissions and fees and Reagan Consulting considers it to be “the most important single differentiator between high-growth and low-growth brokers," Stipe says.
At 4.9% growth, commercial property-casualty was the top performer for agents and brokers in 2020, followed by personal lines at 3.2%.
However, growth of group health benefits was 3.3%—its lowest in the survey's 12-year history. Many agency principals believe client resource demands are draining employee benefits profit margins, according to Stipe. This downward trend has continued since 2016. “It will be interesting to see if this trend reverses in 2021," Stipe says.
Despite 2020 being “a year that many would describe as the bleakest in a generation," Stipe explains that “agents and brokers completed one of the greatest investment runs in history. They grow through nearly any market condition, and they do so profitably."
Reagan has tracked share price appreciation of about 30 of its annual valuation clients since the mid-1990s. Dubbed the “Reagan Value Index" (RVI), it is modeled after the Dow Jones Industrial Average. A comparison of the RVI against the S&P 500 and Nasdaq demonstrates that the independent agency channel is “king of the investment hill," Stipe says. “A dollar invested in the RVI in 1995 is worth nearly $14 today." That same dollar is worth $6.10 on the S&P 500 or $12.20 on Nasdaq, he notes.
In 1993, Reagan Consulting and the Big ‘I” created the Best Practices Study. The joint initiative has helped agencies by delivering critical financial and operational industry benchmarks and strategies to member agencies. For nearly 30 years, this comprehensive annual publication has helped agencies optimize their performance and built its reputation as one of the industry’s most consistently effective, reliable, and valuable information resources. Every three years a new group of Best Practices agencies is recognized, and a comprehensive study released based on their results.
Will Jones is IA editor-in-chief.