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Emerging Purchase Channels: Top Agent Concern in New Agency Universe Study

The new 2016 Agency Universe Study findings provide insight into the overall health and prosperity of the independent agent channel.
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While the number of independent agencies has remained relatively steady in favorable business conditions, agents cite emerging purchase channels as their top concern in the new 2016 Agency Universe Study (AUS).

Every two years, the Future One Coalition—a partnership between the Big “I” and 17 major insurance companies—conducts a study of the independent agency system. Released this week, the 2016 study findings provide insight into the overall health and prosperity of the channel. They address business conditions, agency perpetuation, marketing and social media use, as well as what agencies consider the biggest challenges to their business.

The study segments the agency population by size and provides a glance at agency technology, market access provider use and staff diversity. Based on the study data and several outside business and government resources, the 2016 AUS makes estimates about the agency population and how it is geographically dispersed.

Here are the top findings:

In 2016, the estimated total number of independent property-casualty agents and brokers in the U.S. stands at 38,000. This represents a small decrease relative to 2014 that presumably reflects the current M&A environment, as well as the relatively stable rates of exclusive agency conversions and new agency formation. Since 2004, the estimate has fluctuated between 37,500 and 39,000. Note: All estimates are rounded to the nearest 500.

Small agencies make up 21% of the population and jumbo agencies almost 2%. After a major decrease in the proportion of small agencies last wave—to 15% in 2014 from 28% in 2012—this year marks a reversal of that pattern, with small agency representation approaching that seen in 2012. The increase in jumbo agencies mainly reflects M&A activity.

Small agencies in particular are also gravitating towards large metro areas and away from small rural towns: 57% of small agencies are concentrated in large metro areas this year, compared to 50% in 2014.  

Business conditions remain favorable, as they have for the past several AUS waves. The 74% of agencies that saw revenue increases between 2014 and 2015 report higher percentage increases than in 2014, averaging a 23% increase, compared to just 19% in 2014.

Seventy-two percent of agencies continue to use market access providers, although usage has declined this wave, from 80% in 2014. The slightly lower use of market access providers may be due to a higher number of direct appointments with carriers reported in the 2016 survey. Agencies also seem to be spreading commercial lines business across a larger number of carriers, as evidenced by a decrease in percent of commercial lines premium placed with their top three carriers.

Aging of the independent agency universe may be slowing. At the same time, more than three-fourths of agencies have no plans for a significant change in agency ownership within the next three years. 2016 represents the first AUS wave since 2010 in which the average age of agency principals has not increased. This year, the average age of principals with 20% or more ownership is 55, with 17% age 66 and older. In 2014, 18% were 66+ with an average age of 56. In both 2014 and 2016, however, few agencies anticipate an imminent change in agency ownership.

Although perceived challenges associated with retention of experienced producers and staff members has declined relative to 2014, agents consider lack of available talent for succession a key impediment to future ownership plans. In most size categories, nearly two in 10 agencies are concerned they do not have the necessary talent pool for future ownership.

For smaller agencies, questions about agency net worth are also a key impediment to agency ownership plans—in most cases, a reliable net worth figure is essential for succession planning. Roughly two in 10 agencies would like more information and support regarding perpetuation tools associated with buying out principals’ interest or having family take over.

Agencies, particularly smaller ones, are more immediately concerned about the impact of emerging purchase channels than the impact of technological advancements or the sharing economy. One-third of agencies believe direct purchase through carriers will significantly impact their agency. Concern is highest among small agencies at 43%, but two in 10 jumbo agencies are also concerned. One-fourth of small agencies also believe non-insurance websites and retail stores will significantly impact their agency within the next two years. By contrast, less than two in 10 agencies—regardless of size—feel the sharing economy, driverless cars or drones will impact them in the next two years.

Non-white agency principals continue to be underrepresented in the independent agency universe. Agencies with one or more minority principals are younger—but not necessarily smaller—than agencies with only non-Hispanic white principals. Notably, minority-led agencies indicate lower membership in insurance and financial organizations and lower awareness of Big “I” programs, suggesting additional outreach and programming may be necessary.

Use of social media is on the rise, with lower reliance on print marketing strategies. Fifty-six percent of agencies included social media and digital marketing in their 2015 marketing activities, up from 48% in 2013. Facebook and LinkedIn are by far the social media channels used most frequently, although 9% of agencies use Google+ and 6% use Twitter “often,” respectively. Digital strategies appear to be particularly prominent among newer agencies, and include social media outreach, paperless communication and texting with clients.

At the same time, agencies continue to face challenges in marketing themselves effectively on the internet. Fifty-seven percent of agencies report that marketing their agency effectively online is among their top three technological challenges—a significant increase over the 46% of agencies that cited the same challenge in 2014. Sixty-three percent of small agencies feel particularly challenged, perhaps because they have fewer resources and receive less carrier support than larger agencies.  

The Management Summary of the 2016 AUS is now available for purchase.

Katie Butler is IA editor in chief.

Tuesday, June 2, 2020
Agency Operations & Best Practices