Organic revenue growth among brokers and agencies fell to its lowest rate since 2011 last year, but brokers remain optimistic, according to a survey from Reagan Consulting – a consulting and advisory firm for the insurance distribution system.
Growth fell to 4.2% in 2016, but the year ended on a positive note, with fourth-quarter organic growth outpacing the 3.6% recorded in the third quarter.
Brokers are remaining optimistic for 2017, driven in part by a new administration widely perceived to be business-friendly and intent on driving faster economic growth, Kevin Stipe, president of Reagan Consulting, said in a release.
The fourth-quarter uptick is also contributing to the sentiment among brokers that better days are ahead, he explained.
“In fact, brokers participating in Reagan Consulting's Organic Growth and Profitability (OGP) Survey are projecting 6.0% organic growth in 2017,” Stipe said.
With property and casualty prices expected to remain soft for at least another year, faster economic growth will likely be necessary for brokers to achieve their expectations, he added.
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“Since 2013, broker organic growth has been levitating above weak GDP growth and declining p-c pricing,” Stipe commented.
“Organic revenue growth can't continue to defy gravity, so GDP will need to increase if brokers are going to achieve their growth goals.”
The data from the study, which Reagan conducts each quarter using submissions from over 150 mid-size and large agencies and brokerage firms, shows an interesting divergence when it comes to lines of business.
Group benefits growth, which accelerated to 6.8% versus 5.5% in 2015, outstripped commercial P&C growth, which fell to 3.3% from 5.3% the year before.
Agency profit margins, which are measured by earnings before interest, taxes, depreciation and amortization (EBITDA), saw virtually no change in 2016, at 20.0%.
Operating margins continued a three-year decline, falling to 12.2% in 2016.
Stipe cautioned that profit margins could shrink if contingent income returns to historical levels in the 7.0%-7.5% range.
