Brokers

Agent and Broker Profitability Hits Milestone

Broker profitability due to contingent commissions reflects carrier profitability, with P&C lines leading.
By: | August 4, 2014 • 2 min read

Major insurance brokers and independent insurance agents reached an earnings milestone during the first quarter of this year, according to Atlanta-based Reagan Consulting.

Profitability, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), jumped 200 basis points to reach 29.9 percent of revenue during the first quarter of 2014 — up from 27.9 percent during the same period last year, according to producers that were surveyed.

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That is the highest margin reported in the six years since Reagan Consulting has been conducting its survey, said Kevin Stipe, president of the firm, which offers management consulting to independent agents and brokers.

The primary driver of the improvement was a 15.2 percent median jump in contingent income, Reagan reported.

The figures reflect the fact that “insurance carriers really made money last year,” which they shared with top producers in the form of contingent commissions, Stipe told Risk & Insurance®.

“Those contingency bonuses are also driven in part by agents and brokers meeting their sales goals as well as providing profitable business for the carriers,” he said.

The survey results are based on the responses of roughly 140 mid-size and large agencies and brokerage firms with median revenue of roughly $15 million. About half of the industry’s 100 largest producers participated, Reagan said.

“The economic climate is markedly better than in the 2008 and 2009 recession years.” — Tim Cunningham, managing director, OPTIS Partners

Agents and brokers surveyed were more optimistic about the future as well, projecting that organic commission and fee growth — excluding the impact of merger and acquisition activity — will be 7 percent during 2014, up from 6.1 percent projected by respondents at year-end 2013.

Commercial property and casualty growth was a major driver of performance for the third year running, Reagan said.

Other significant survey findings included:

  • Median organic growth — excluding M&As — was 6.2 percent, nearly identical to the 6.1 percent in Q1 2013.
  • Commercial property and casualty growth led the way for the third consecutive year, with a first quarter growth rate of 8.4 percent — up from last year’s 6.8 percent.
  • Benefits growth, at 5 percent, was up significantly from a 3.7 percent growth rate during the first quarter of 2013.
  • Privately held brokerages continue to grow faster than public brokerages, which reported organic growth of just 3.6 percent, on average.

“Private companies tend to grow a little bit faster organically than the public brokers which are inclined to do more acquisitions,” said Stipe.

Not every firm will necessarily see the reported levels of improvement, said Tim Cunningham, managing director with insurance M&A consulting specialist OPTIS Partners in Chicago.

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Still, most agents and brokers are experiencing revenue and profit margin growth, he agreed, noting that P&C rates are “broadly up” and, that insurance broker clients have experienced better sales and increasing payrolls.

“The economic climate is markedly better than in the 2008 and 2009 recession years,” he said.

Workers’ compensation and commercial auto insurance rates are up reflecting deteriorating loss experience, for instance.

“Coastal property capacity and rate continues to be an issue,” he said. The same is true for many property exposures in the heartland states prone to hail and tornadoes,” Cunningham said.

Janet Aschkenasy is a freelance financial writer based in New York. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]