Decline In Independent Agencies Stops, But Revenue Growth Harder To Come By

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 and credit 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.

Indeed, newer agencies are being headed by younger principals, the report found–with an average age of 47, compared to all agencies surveyed, with an average of 52.

However, while new agencies are being launched, the revenue picture is not as rosy.

The survey found 57 percent of agencies citing 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.

Twenty-three percent of those surveyed reported revenue decreases, compared to only 10 percent two years ago. Of those reporting revenue drops, the average decline was 10 percent. This is not a surprising trend, according to Ms. Flannagan, given the soft market dominating the past two years.

Meanwhile, the agency business is still very much a man's world–at least at the top of the profession–with men drastically outnumbering women (87 percent versus 13 percent) in the number of principals, while women dominate customer service positions (76 percent to 24 percent).

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. This is the case despite the fact that insurance companies and associations have ongoing efforts to recruit more minorities into the industry, according to Ms. Flannagan.

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, with the remainder coming from a variety of sources, including sales of group health and other employee benefits.

Meanwhile, agents say their relationship with underwriters 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 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 assistance through Web seminars.

However, most agencies–77 percent–still do not use customer service centers set up by carriers, with little change from the past. 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 agency size categories. Only medium-large and large agencies reported bigger staffs.

While most agencies report technology has improved their business tremendously, half say absorbing the overall cost of tech remains their biggest challenge.

One area that has improved, the report found, is dealing with multicarrier 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.