The independent agency system is showing signs of continued stabilization in numbers as agencies display greater diversification in ownership, a study from the Independent Insurance Agents & Brokers of America found.
The biannual 2010 Agency Universe Study–a collaboration between IIABA and Future One, a coalition of insurance company partners–indicates that the number of independent agencies remains stable at approximately 37,500 after a steady decade-long decline that ended in 2006. When the decline began in 1996, there were 44,000 agencies, the study said.
“The 2010 Agency Universe Study reflected the combined effect of the recession, which began just as the 2008 study was underway, a prolonged soft insurance market and declining revenues,” said Robert Rusbuldt, IIABA president and chief executive officer, in a statement. “Despite all of these challenges, many new agencies are forming, typically with a more diverse and younger leadership, demonstrating the strength of the independent agency system and the potential for growth.”
“As the [IIABA] continues to increase its diversity efforts, the 2010 Agency Universe Study found some progress, with an increase in the number of new small and medium small agencies with minority principals,” said Madelyn Flannagan, IIABA vice president of agent development, education and research.
“In addition to the increasing ethnic diversity of agency ownership, albeit from a very low base, these agencies are also solidifying the position of women as principals in over a third of agencies. Most strikingly, the proportion of independent agencies with African-American principals grew from 1 percent in 2008 to just over 4 percent in 2010,” she said.
The study of independent agency operations in the United States delves into such issues as revenue base and sources, number of employees, ownership, mix of business, product diversification, technology usage, non-insurance income and marketing methods.
The latest report is the 10th in a series of studies on independent agencies that dates back to 1983.
Approximately 2,100 agencies were included in the study, which was conducted over the Internet.
Among the key findings on the study, IIABA found that:
o Eleven percent, or roughly 4,000, of the 37,500 agencies existing today were founded between 2008-2010.
That figure is equal to the number of agencies lost through mergers and acquisitions.
o Since 2005, 50 percent of new agencies are located in the South; 24 percent were founded in the South Atlantic states, which includes Florida, and 19 percent in the West South Central portion of the country that includes Louisiana and Texas.
By contrast, only 8 percent of new agencies are located in the Northeast, compared to 18 percent of older independent agencies.
IIABA said the result may reflect the flexibility of the agency system that allows it to serve markets that captive agency companies have abandoned.
o The combination of the soft market and Great Recession of 2008 has seen a decrease in revenue overall for independent agencies, particularly in commercial lines, hurting larger agencies the most, given their greater dependence on commercial lines business.
Still, 55 percent of small agencies saw increases in revenue from 2008 to 2009, while 25 percent suffered revenue declines.
o The cost of technology is a less important issue than in the past.
Marketing the agency effectively over the Internet, security and ease of use of new real-time functionality have become the top three technology issues for owners. Carrier websites have also gained ground as the preferred method for agencies and companies to do business.
In an interview with NU, Ms. Flannagan said results overall were not surprising, but it is still too early to know if this is a trend that will continue.
Part of that stabilizing trend in the number of agencies reflects the continued abandonment of some markets by captive agent writers. The former agents have turned to the independent agent system to fill that void.
There is also the fallout from the Great Recession where people who have lost their jobs in one industry decided to start their own business “and thought insurance would be a nice place to go,” Ms. Flannagan said.
“The entrepreneurial spirit is still out there,” she said. “We’ll see if this will continue.”
As independent agents fill the gaps created when captive writers leave the market, mixes of business at small-sized agencies show significant amounts on the personal lines side, she noted.
The small agency is filling a void in the community while also remaining financially viable. Many small towns do not have access to direct writers or there is not enough market for them to remain viable as direct writers concentrate on urban areas. The important step now, she said, is that the independent agency carriers support these agents and those markets.
Another result of the report worth noting relates to agents’ satisfaction with carriers, which has dropped over the years. Ms. Flannagan said there are two major reasons for this decline in satisfaction. First, carriers are cutting commissions. Second, they are increasing agency workloads.
In part, she said, the shift in workload has to do with the increased reliance on technology that is creating more of a burden on agency staffs. Agencies must input more information from their end into the carrier’s system–a shift from the past–and the cost of that technology remains an issue.
Agencies, however, are resisting pushing their workloads onto customer service centers because “they do not want to lose touch with their clients,” she said.
Another contributing factor in agency dissatisfaction with carriers is the continued soft market that is pressuring the agency system, Ms. Flannagan said. Historically, she noted that as markets soften, agency dissatisfaction with carriers appears to grow.
In 2011 and 2012, there is evidence that the agencies will begin hiring but that they may be targeting different skill sets, she noted. The aim could be toward those who are more technologically adept, concentrating on social networking and other technological market tools to drive business, she said.
“Money may not be the big driver,” she said of an agency universe where the average age is shifting ever lower–now down to 52 years of age from 54 in the last study. New, younger hires “will be looking for perks”–the type of environment that promotes creativity and flexibility in time management, she said.
One alarming statistic coming out of the survey relates to the development of agency perpetuation plans–with almost half of survey respondents saying there is no plan in place.
“I’m always surprised that successful business people do not insure their success,” she said. “Part of it has to do with that they don’t want to deal with it, especially if it is internal perpetuation. It can be a touchy point that some can’t face.”
Copies of the study can be ordered by visiting the IIABA’s website at www.independentagent.com or going directly to the ordering website (http://www.iiaba.net/cbsupx/education/evtpreview.aspx?evt=10880).