Independents break profitability record in Q1

Insurance agents and brokers have cause to celebrate as organic growth reaches record levels despite strong challenges.

Insurance News


Despite an onslaught of challenging market conditions, independent agents and brokers managed to post an all-time high for first-quarter profitability in 2014. Measured by the Reagan Consulting Organic Growth and Profitability (OGP) survey, independents have grown 6.2% in the first months of the year—up from 6.1% in the same period last year—with benefits growth at 5% and commercial property/casualty growth up for the third consecutive year at 8.4%.

Contingent income also experienced a surge, jumping a “surprising” 15.2% in the first quarter.

Kevin Stipe, president of insurance consulting firm Reagan Consulting, noted that the results came despite some industry concern over slowing commercial line premium growth.

“Brokers in our OGP survey generally seem to remain optimistic, despite some of the recent troubling signs,” Stipe said. “In addition to their confidence in continued growth, brokers also believe profit levels will remain strong, or perhaps even stronger than, those in recent years.”

Indeed, the OGP survey found a median growth projection of 7.0% for 2014. Profitability as measured by pro forma EBITDA margins also jumped 200 basis points to a record of 29.9% in 2014’s first quarter—that’s up from 27.9% in the same period last year.

Reagan Consulting did point out, however, that EBITDA margins are inflated by “cash-basis contingent income and tend to decline throughout the year.”

The survey was conducted as part of Reagan Consulting’s quarterly survey of agency growth and profitability, drawing on submissions from roughly 140 mid-size and large agencies and brokerage firms with a median revenue of $15 million.

The results come as the agent/broker sector is within sight of its pre-2008 employment numbers. As of March 2014, the sector was just 2,400 jobs shy of the previous peak of 684,500 reached in July 2007.

Dr. Steven Weisbart, chief economist with the Insurance Information Institute, noted that the growth trend is continuing despite “some forecasts that people would be buying insurance over the internet.”

“That’s not true at all—at least at the moment,” he said.

The only potential flaw in the system that Weisbart foresees is a major change in technology that would replace the function of agents and brokers. However, he concedes that while it is a possibility, “given what’s happening recently, it’s an unlikely possibility.”

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