The soft market is beginning to impact the independent insurance agency sector.
According to a survey released Friday by Reagan Consulting Inc., median organic growth and profitability among insurance agencies and brokerages both fell in the third quarter of 2015. The regular quarterly survey found that median organic growth dropped from 6.0% in the same period last year to 4.4% this year. Profitability, meanwhile, declined from 22.4% in Q3 2014 to 21.9%.
The results represent the slowest growth rate since late 2011 and the first time in 14 quarters that agency/brokerage growth rates fell below 5%, the Atlanta-based consulting group said.
“Agent/broker organic growth is slowing – for privately-owned and public broker – because commercial property/casualty insurance rates are officially in a soft market,” said Reagan Consulting President Kevin Stipe. “Profit margins tend to increase during times of strong organic growth and decrease when growth rates slow.”
Stipe pointed to the softening of property/casualty rates for the past four quarters, as recorded by the Council of Insurance Agents and Brokers, as well as the fact that commercial insurance rates typically account for between 60% and 70% of revenue for the 130 midsize and large agencies included in the survey.
Agencies and brokerages may need to adjust to the market conditions as they “may witness further deceleration of growth rates until P/C pricing stabilizes,” Stipe said.
The report also revealed that sales velocity – total written new business as a percentage of the previous year’s total commissions and fees – is the biggest driver of organic growth for agencies, and firms with the highest sales velocity more than doubled the growth of those with the lowest sales velocity in the third quarter.
Reagan Consulting, which advises independent insurance firms on mergers/acquisitions and other matters, has conducted its quarterly survey of agency growth and profitability since 2008. It is based on submissions from midsize and large agencies with a median revenue of $18 million.
