While agency performance remains strong, there are indications in the 2014 Best Practices Study that a more challenging environment has emerged for the top-performing agencies. 

 

The study, first conducted 1993 and updated every year since, provides the year-end results of the country’s top performing independent insurance agencies in six revenue categories ranging from less than $1.25 million to more than $25 million.  

 
The 2014 Study compilations are based on 12/31/13 FYE results, although 10% of the participating firms submitted data based on fiscal year-ends within the first two quarters of 2014.

 

Organic growth rates, pro-forma profitability margins, and the Rule of 20 scores were flat or fell slightly across all revenue categories. These results reflect the continued softening of the property-casualty market during 2013. Maintaining robust performance levels in the near future may become more difficult if these market conditions continue.

 

Last year’s study revealed the highest organic growth rates since 2008. This year’s study shows a different picture with only one study group achieving an increased growth rate of at least one percentage point. Nevertheless, growth rates remained in the high single digits with two study groups achieving double digit growth rates.  

 

 

Pro-forma profit margins–the actual profitability of an agency if non-reoccurring/extraordinary expenses and revenue, and excessive owner compensation and perks are normalized–were also strong but again stagnant. As revenue growth rates slowed, profit margins were and will be under increased pressure, and are likely to result in either no growth or negative growth in the coming year.  

 

Operating profit margins grew slightly. The operating profit is the pre-tax profit of an agency excluding supplemental income (contingent, bonus, and investment income). P-C contingent and life-health bonus income has historically contributed significantly to an agency’s profit margin. Over the last decade, however, that source of revenue has shrunk. Best Practices Agencies focused on becoming less dependent on it by reducing expenses, becoming more efficient and finding other sources of revenue. As a result the operating profits continued to improve.

 

The Rule of 20 scores were down this year, reflecting the flat growth and profitability results. A score of 20 or more indicates that an agency is maintaining a healthy balance between its efforts to grow its revenues and to sustain or enhance its profitability. Typically, a core of 20 or more indicates that an agency will achieve, through profit distributions and/or stock appreciation, an industry standard rate of return on the investments it is making in the people, systems and activities needed to grow and operate the agency.

 

 

The 2014 study contains several new staffing statistics including the number of remote worker and administrative staff (accounting and HR). The number of workers, total payroll and the payroll as a percentage of net revenues are included.

 

Last year the service staff data was changed to offer salary ranges for the key service and sales support positions and to provide the total number of staffing needed to support each line of business.

More information on all the Best Practices products and resources can be found on the Best Practices Gateway and orders for the 2014 Update can be placed online. For questions, contact Shirley Lukens or 404-233-5545. Lukens, senior vice president of Reagan Consulting and a founder of the Best Practices is set to retire at the end of 2014. Although she will continue as a consultant while transitioning duties, Reagan Consulting is now advertising for the open position.