Independent Agencies See Sahreholder Returns Plummet

Thanks to a poor economy and lingering soft market, independent agencies have seen their return to shareholders deteriorate significantly over the past two years, the “2009 Best Practices Study” revealed.

The report–prepared by Atlanta-based Reagan Consulting in cooperation with the Independent Insurance Agents and Brokers of America–calculates returns to shareholders, among many other benchmark results.

A score of 20 translates into a shareholder return of 15-to-16 percent–the expected rate of return for a well-run agency. The score has fallen significantly from 2007, the study found.

Agencies with less than $5 million in revenue saw their score drop from 25.6 to 14.4. For agencies with revenue of more than $5 million, the score dropped from 24.2 to 13.4.

While a drop in the score was expected because of the economic turmoil, the degree of fall-off was surprising, according to Madelyn Flannagan, IIABA's vice president of agent development, education and research.

However, she added, it does indicate that well-run agencies are continuing to be profitable despite the economic fallout.

She also noted that despite the recession, no “Best Practices” agency has gone out of business–although about a dozen are no longer around because they were either acquired or merged with others.

“It's a very positive study to see that well-run agencies are maintaining their status,” said Ms. Flannagan.

In addition, despite the current soft market and economic challenges confronting the independent agent community, the larger, best-run insurance agencies are still hiring new personnel and increasing their staff size, the study found.

At agencies with annual revenue of over $5 million, the number of employees increased by four people. However, for agencies with revenue under $5 million, the total number of employees remained steady, the “Best Practices” report found.

“This year's study indicates that the 'Best Practices' agencies, overall, continue to perform well despite facing some challenges in soft market conditions,” said Ms. Flannagan.

“As expected, overall organic growth was down significantly again this year, but was buoyed by positive growth in both personal [property and casualty] and group [life and health insurance]. This trend continues from 2007, when we began to study the current group of 'Best Practices' Agencies,” she added.

In an interview with National Underwriter, Ms. Flannagan said that while the number of people working at independent agencies might have increased or held steady from last year's survey, workloads have increased tremendously across the board.

Indeed, producers are working harder to keep their accounts by doing more research and becoming creative in finding new risk management solutions for their clients, she added.

Competition among agencies has also increased as the pool of commercial clients in some places has shrunk because many firms have gone out of business in the face of the economic crisis, have closed facilities or have laid off a significant number of employees, all cutting into insurable exposures, she noted.

“They are doing more in these troubled times,” said Ms. Flannagan.

The “Best Practices Study” originated in 1993. It is a three-year analysis of agencies deemed qualified to be designated as “Best Practices Agencies.”

A total of 195 agencies participate and must complete a detailed survey each year. This is the last year for the current group, and a new three-year study will begin next year.

The purpose of the study, Ms. Flannagan emphasized, is to give independent agents a benchmark to strive for in improving themselves.

IIABA, she said, supplies resources on its Web page for agents to use–both to make comparisons, as well as tools to run their agencies more efficiently and profitably. Ms. Flanagan also suggested that agents contact their carrier partners to help make their firms more efficient.