Increasingly Tough Market for Brokers

Growth for independent insurance agencies is slowing.
By: | December 10, 2014

Brokers are facing an increasingly tough market, according to the latest best practices study by the Independent Insurance Agents & Brokers of America (IIABA).

The study, which the IIABA — or Big “I” — has been carrying out over the past 22 years, looked at the results of America’s top performing independent insurance agencies in six revenue categories, ranging from less than $1.25 million to more than $25 million.

The study showed that growth is continuing, but has slowed across the board in all sectors — especially compared to last year, when the review found some of the highest growth rates since 2008.

Madelyn Flannagan, vice president of agent development, research and education at the organization, said the “challenging environment” is affecting all agents.

“The CL [commercial lines] P&C market has softened again and the economy in many parts of the country remains sluggish, making it hard to achieve organic growth,” she said.

“New and different competitors entering the industry will always be a challenge, especially those with huge advertising budgets and the technology platforms to support their competitive edge.

“Independent agents have to be able to bridge that resource gap by offering significant value, which is harder to do for the more traditional, independent agencies. The world is changing rapidly but those that adapt are doing very well,” she said.

The IIABA study found that brokers earning less than $1.25 million saw increased net revenue organic growth of 4.6 percent in 2014, a decrease of 2.3 percent, from 6.9 percent in 2013. Similarly, agents in the $2.5 million to $5 million category saw 7.8 percent growth in 2014, which was a decrease of 1.7 percent, from 9.5 percent growth in 2013.

Brokers in the $10 million to $25 million category saw slight year-over-year growth, from 10.4 percent in 2013 to 10.8 percent in 2014.

“The independent brokerage market is being affected by several factors,” said Jeffrey Rieder, partner at Ward Group, which provides benchmarking and best practices studies for insurance companies.

“Price increases have slowed down and the rate of growth itself has slowed — brokers have been seeing price increases of 3 to 4 percent, where they’d previously seen 5 to 6 percent or more in some sectors.

“There’s also been a lot of mergers and acquisitions activity and this has led to a lot of consolidation that has seen the core force [of brokers] dwindling.

“The consolidation,” he said, “has been driven by the retirement of agency principals, agencies trying to maximize contingent commission payments and also trying to achieve economies of scale in the back offices.

“The low interest rate environment has also had an impact, with much more focus on underwriting profits, as opposed to 15 to 20 years ago, when there was an emphasis on cash flow to be used for investment purposes.

“While the cost of reinsurance is more affordable at the moment, many companies are able to keep more of the risks on their books due to very strong surplus positions,” he said.

Marc Jones is a freelance writer based in London. He can be reached at [email protected].

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