Remember the golden years of the 1990s, when commercialinsurance rates fell by only about 5 percent per year? Those werethe days! When second-quarter statistics are released in about 30days, it is expected they will reveal that we've just completed ourseventh-straight quarter of double-digit commercial pricingdeclines. While that might be great news for insurance buyers, itis extremely painful for insurance brokers, whose compensation isnormally based on a percentage of those declining commissions.

Like in the 1990s, dire predictions about the future of theinsurance brokerage business are beginning to take hold. Financialhardships, free-falling valuations and massive consolidations on ascale and pace never before seen are being forecast.

It is reminiscent of 1995, when the Texas insurance commissionermade headlines by proclaiming insurance brokers the “buggy-whipmakers” of the late 20th century.

Well, if you're trying to sort through the hyperbole andattempting to get a read on the future prospects for insuranceagents and brokers, history says: “DON'T PANIC.”

Yes, these are difficult times. And yes, agents and brokers mustrespond aggressively to market conditions by doing everythingpossible to grow their business, even while streamlining theiroperations to maintain profitability.

With that said, be careful not to get too swept up in thepessimism. If you followed the advice of the Texas insurancecommissioner and dumped your insurance agency holdings back in1995, you missed a great run. During the 12.5 years since he madehis famous proclamation, the buggy whip makers did pretty well,thank you.

Both the publicly traded insurance brokers and ReaganConsulting's index of private brokers outperformed the stock marketby more than a 2-to-1 ratio, as shown in the accompanying chart.(The Reagan Value Index–or RVI–is a proprietary database ofapproximately 30 privately held agencies whose valuations aretracked annually by Reagan Consulting.)

But, one might object, that is the past. What about the future?Given how difficult the market is, what will happen to agencyvalues if pricing remains soft not just for one or two more years,but for several?

Good question. History provides comfort here as well.

Consider this: Over the past 20 years, 16 of them (80 percent)have been soft pricing years, in which one would expect extremelymodest growth in agency value.

Surprisingly, however, our review of our valuation clients overthat 20-year period indicates that the average firm in the ReaganValue Index has increased in value by more than 10 percent peryear–for 20 years!

As counterintuitive and surprising as this seems, the way theseresults have been accomplished is pretty simple: These firms havefocused on building value by executing a handful of straightforwardstrategies. They are the very strategies that today's topperformers are executing to grow their value even in thismarket.

What are these strategies?

In our consulting practice, we have the privilege of working ina variety of ways with many of the industry's top performers. Basedon that exposure, here are five keys to value creation beingdeployed by today's most successful agencies.

o Sales culture enhancement.

In recent years, our industry has rightfully focused itsattention on organic growth as perhaps the single most importantmeasure of an agency's effectiveness (with profitability running aclose second). Believe it or not, there are still firms out there,even in today's environment, that are growing organically bydouble-digits. How is this possible?

Developing a powerful sales culture certainly doesn't happenovernight. It comes through a combination of attracting andretaining motivated relationship-developers, and then equippingthem with industry-leading sales and support resources to ensurethey can continue to grow without upper limits.

Benchmarking and then creatively rewarding new business as wellas growth in a producer's book of business are typically the twohighest priorities of these firms.

o Productivity improvement.

Over the past decade, agency productivity (measured by revenueper employee) has nearly doubled for Best Practices agencies.

In the mid-1990s, revenue per employee of $100,000 was a stretchgoal for many. Today, those same agencies are targeting a goal of$200,000 or more.

The leap in productivity over the past decade has been the keyto driving higher agency profitability and, in turn, higher agencyvaluations–even during soft market years.

o Industry specialization.

The maturing U.S. economy is in the midst of a long-term trendtoward specialization. Rather than trying to be generalists,businesses compete for customers based on a tailored approach tothe needs and desires of a particular industry or customertype.

The move toward specialization has been especially pronounced inthe insurance brokerage industry. When a generalist competes withan industry specialist, the playing field is rarely level!

Based on our research, agencies that specialize grow faster andare more profitable than generalists. This growth and profitabilityadvantage equates to a significant valuation advantage. In onerecent study we conducted, we found that specialty business can be55 percent more valuable than general business.

o Consistent growth investment.

Reinvesting profits is relatively easy when insurance pricing ishard–or even flat. But when pricing is in the tank, the number offirms capable of–and willing to–invest significantly in newproducers and resources declines significantly.

Is your firm investing heavily in your future? Today'sdouble-digit growth agencies have been investing back in theirbusiness consistently year-in and year-out, and are now reaping therewards of their discipline. And they are hiring in 2008.

o Culture is King.

The best agencies are those that recognize their real client isthe insurance professional of tomorrow. These firms understand thatthe mission of their owners is to build an organization thatdelivers a compelling value proposition to the best and brightesttalent in the market. Such talent will have no problem attractingcustomers!

Many agency principals accept this, but believe the key toattracting this talent is high compensation. It is not. Competitivepay levels are certainly important, but the defining issue inwinning the battle for talent seems increasingly to be the qualityof a firm's work environment.

Agency principals who foster an environment that is fun, honest,transparent, exciting, demanding, creative and competitive willcontinue to win the battle for talent.

Yes, these are challenging times for our industry, but thestrength of the value proposition offered by the professionalinsurance adviser has never been stronger.

For agents and brokers who continue to adopt and implementindustry best practices, we think the future remains very brightindeed!

For table:

Flag; By The Numbers