It’s an age-old question in the independent distribution channel: Who has the edge with a consumer—a large brokerage with specialized experts and expansive resources, or a small agency that can take the time to develop real, personal relationships?
The question may be of more importance as a recent report from Reagan Consulting reveals that median organic growth for large and mid-size private agencies and brokerages slowed during 2014’s second quarter.
According to the group’s Organic Growth and Profitability (OGP) survey, independent agents and brokers reported median organic growth of 5.8% in the second quarter—a decrease of 6.9% compared to the year-earlier period.
Reagan Consulting President Kevin Stipe pointed at that although organic growth remains healthy, this is the fourth straight quarter of a flat or falling trajectory. He attributes it primarily to “softening P&C marketplace.”
According to MarketScout, that growth—and larger brokerages in general—may help employees get clients a better price thanks to their typically lower commission rates. Small agents, meanwhile, cost a bit more to the client but provide what the group calls “a more personal experience with the agency ownership and upper management.”
Due to their small size, such agency producers are able to spend greater time with small businesses—the majority of businesses in America—despite a comparatively low $100,000 premium. That may give them an advantage, says MarketScout CEO Richard Kerr, especially when it comes to perpetuation through selling.
“It’s no secret smaller agencies generally produce more profitable business,” Kerr said. “That’s one of the reasons there are so many buyers of small agencies. The big aggregators wisely use the acquired profitable premium base to their benefit.
“Smart buyers are carefully examining a seller’s loss ratio. Some will even adjust the purchase valuation based upon the seller’s loss ratio with their top insurers.”
In July, the composite rate for commercial insurance for both small and large agencies was plus 1.5%, down from plus 2% in June, MarketScout found.
