What's behind the reducing growth and profitability of independent agents, brokers?

Growth rate the slowest since 2021

What's behind the reducing growth and profitability of independent agents, brokers?

Insurance News

By Terry Gangcuangco

After experiencing record highs, 2024 has begun with the slowest growth rate for independent insurance agents and brokers since 2021.

According to Reagan Consulting’s quarterly growth & profitability survey (GPS), the independent insurance agent and broker channel reported an 8.4% organic growth rate for the first quarter of 2024 – the lowest growth rate in 11 consecutive quarters.

Despite expectations of continued high growth following a strong 2023, the latest results indicate a shift.

“Although growth and profitability are still strong by historical standards, we may be seeing the first indications that our industry, which has been red hot since 2021, is beginning to cool,” Reagan partner Tom Doran said.

Recent downward pressures on property and casualty rates have contributed to the slowed growth. Commercial P&C, which generates the most revenue for many agencies, saw its organic growth rate drop to 8.5% in Q1, down from 11.7% in the fourth quarter of last year.

Notably, for the first time in GPS history, personal P&C growth surpassed both commercial P&C and employee benefits. Typically, brokerages struggle to achieve 3% organic growth in personal lines. However, personal P&C grew by 9.9% in Q1 2024, a slight decline from Q4’s 10.3%.

Doran commented: “Even though personal lines is one of the smallest revenue categories for most brokerages – typically 10-12% for GPS firms – these impressive growth numbers were welcome news in light of cooling commercial P&C growth.”

Employee benefits, meanwhile, saw a robust performance, achieving a 7.5% growth rate in the quarter, the second-strongest Q1 result in over 10 years, driven by strong new business and rising health insurance premiums.

Similarly, as growth slowed, profitability posted a decline as well. Profitability, which typically peaks in the first quarter due to the timing of contingent income receipts, was 28.7%, down over two points from Q1 2023. The decrease was largely due to lower margins in contingent/override income.

“Carriers are having to account for increased losses due to storm activity, nuclear jury verdicts, a meteoric spike in replacement costs, and the 2022-2023 supply chain fiasco," Doran noted. “Since contingent income is the single largest driver of bottom-line profitability for a brokerage, this downward trend is worth monitoring.”

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