The number of independent insurance agencies has stabilized over the past two years, ending a trend of fewer agencies due to mergers and acquisitions, according to a study sponsored by the Independent Insurance Agents & Brokers of America, which also found the agency system still dominated by white males.
The Alexandria, Va.-based IIABA's "2008 Agency Universe Study"--a collaboration of the IIABA and leading independent agency companies--found that the total number of independent agencies in the United States remained constant over the past two years at 37,500.
That total is still nearly 15 percent down from when the study first began in 1996, when the number of agencies stood at some 44,000.
The survey data--primarily gathered via the Internet, with a small sampling of agencies participating by fax--consisted of approximately 1,900 agencies in the analysis.
Madelyn Flannagan, IIABA's vice president for education and research, called the stabilization in the number of agencies a "happy story" that shows being an independent agency is "still a good business to be in."
She noted that besides the decrease in acquisitions--which she said was a product of the reduced number of sellers and the deepening economic crisis--younger people are coming into the industry, along with experienced principals whose non-compete agreements have expired, allowing them to re-enter the business.
Eleven percent of the agencies that participated in the study were new geographically concentrated. A third of these new agencies were primarily in the South Atlantic states, while the West-South-Central states accounted for 20 percent. Twenty-one percent of the new agencies were in the Mountain region, East-North-Central and West-North-Central states.
While most of the agencies are small, they are growing rapidly, the report found--with 80 percent citing growth over the two-year period.
The newer agencies are also headed by younger principals, the report revealed--with an average age of 47, compared to all agencies surveyed, with an average age of 52.
The proportion of small agencies ($150,000 or less in revenue) grew from 12 percent in 2006 to 17 percent of the survey total in 2008.
The percentage of medium-small agencies ($150,000-to-$500,000 in revenue) and medium-sized agencies ($500,000-to-$1.25 million in revenue) dropped slightly but still made up the bulk of agencies surveyed at 51 percent, compared to 54 percent in 2006.
The proportion of medium-large agencies ($1.25-to-$2.5 million in revenue) remained unchanged at 13 percent, while large agencies ($2.5-to-$10 million) saw a drop in their proportion of the overall agency number by one point to 14 percent. Jumbo agencies (more than $10 million in revenue) also saw a one-point drop to 6 percent of the total.
While the number of agencies is on the rise, the revenue picture is not as rosy.
The report said 57 percent of agencies saw an increase in revenues between 2006 and 2007, compared to 73 percent that reported gains between 2005 and 2004. The average increase was 17 percent over the 2006-2007 period, while it stood at 16 percent for the 2004-2005 period.
Ms. Flannagan noted that the decreases do not come as a surprise in the face of the continuing soft market. However, she added, it was encouraging to see that agencies continue to obtain their revenues from traditional sources.
Personal lines commissions remain the largest source of revenue for independent agents--45 percent for the 2008 report, compared to 44 percent in 2006. Commercial lines commissions were also virtually unchanged, dropping one point to 39 percent of agency revenue.
Meanwhile, agents say the relationship with their underwriters has improved significantly. In 2008, when it came to writing business, dealing with customer service, making markets available and ease of quoting, more than 60 percent of agencies reported improvements, compared to 50 percent in 2006.
Personal lines carriers received the highest marks from agents, while commercial lines carriers saw improvement--especially in the area of remaining in the marketplace, with numbers in the high 60s.
Companies are finding more ways to support their agents, according to Ms. Flannagan, who said technology has helped by enabling carriers to offer more help through Web seminars and getting more value from their company.
Most agencies--77 percent--still do not use customer service centers set up by carriers to handle business, little changed from the past. Those that do are split almost evenly between using the centers for either personal lines, commercial lines, or both.
The primary reason agencies cited for not using insurer call centers is because they want to remain close to their customers. Those that do use them said they do so for customer convenience.
Staffing levels have also decreased in most size categories. Only medium-large and large agencies reported bigger staffs.
The agency business is still very much a man's world--at least at the top of the profession--with men drastically outnumbering women. Eighty-seven percent of agencies surveyed said they had at least one male principal versus 35 percent of those surveyed who said they had at least one female principal. Women dominated customer service representative positions, with 76 percent of agencies saying at least one woman occupied their CSR positions and 18 percent saying they had at least one male in the position.
In addition, minorities continue to make up a very small portion of the agency universe, the study found, with whites dominating all categories of the business--accounting for 95 percent of principals, 35 percent of non-principal managers, and 59 percent of non-principal producers--this despite the fact that insurance companies and associations have ongoing efforts to recruit more minorities into the industry, according to Ms. Flannagan.
While most agencies report technology has improved their business tremendously, half say the overall cost of tech remains their biggest challenge.
One area that has improved, the report found, is dealing with multiple-carrier interface and security protection. Only 36 percent, in both areas, found this to be a major challenge--a drop from 53 percent and 42 percent, respectively, in the 2006 study.
(This story was updated on Dec. 16 at 10:22 a.m.)
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