When asked if the insurance agency industry is “healthy” we often don’t know how to answer that question. We respond with, “in terms of what measurement?”
Are there more of less agencies in the U.S? There continues to be a consolidation of the agency industry. Why? There are many possibilities; however, some could be accounted for poor internal succession planning or just poor business practices than because of our competitors outside of the agency industry. What is a fact, our owners are ‘aging out’ without properly preparing their successors. And some owners who cannot bear to control their costs are forced to merge in order to continue in the business because 1) they took too much out of the agency every year, and 2) they couldn’t say no (to employees, to producers, and to vendors). Instead of learning how to become more productive and doing with less, they run themselves right out of business.
How do we know that these are the reasons? We are directly involved in many consolidations, succession plans and perpetuation plans every year and, because of our Composite Groups, we learn about many more every year.
There are fewer agencies out there but the survivors are doing ever more business. Our Composite Groups are growing in such numbers that we will soon have to change them (probably next year) to accommodate the scale to which the agents are growing.
This year, as we were preparing our data sets for this issue, we added some of the gross revenue numbers, something about which we don’t usually pay attention because it is irrelevant to our purpose for the study. This year we reached over 4700 participating agents generating revenues over $9 BILLION. That seems like an astonishing number considering our modest start in 1987 when we only measured $2 Billion in total revenues in 1400 participating agents. Obviously there are fewer agents in the industry, but they are larger and more professional than their predecessors.
When we directly consult with agencies and help them with Strategic Planning, Organizational Development, compensation programs for employees and for producers and the active buying, selling and merging of agencies, we can easily tell which will be the survivors and which will reap the benefits of their asset values when they retire.
So our answer to the question about whether the agency system is ‘healthy’ is a resounding YES! Not only is it healthy, but it is building very sound businesses locally, regionally and nationally, urban, suburban and rural in scope.
As I write this article, I am in an airplane headed for a rural Midwestern agency that is in its second generation and planning for its third. The agency has grown regularly through the tenure of its second generation owners with several acquisitions of books of business and the adoption of young producers who fully expect to become the next generation of owners. This agency does not ‘fear’ the direct writers or bank agencies or regional and national brokers. They are too busy serving the insurance needs of their clients and gathering new clients from old ones at a steady clip. While they are not the most profitable agency in the country, they maintain a conservative approach to expenses and would rather spend their money building their business one client at a time and through book acquisitions. They INVEST in their futures and, thereby, they will have a strong future and will cash out this generation of owners and continue for at least another generation.
The common indicators that Agency Consulting Group see in Survivor Agencies is:
1. They invest in their future. They buy the best people they can, and they pay them fairly.
2. They are continuously looking for producers.
3. They are making friends with older agents through their association membership and continuously “market” to them for the eventuality of their retirements. They are often using our Contingency Buy/Sell Agreements to provide a no obligation means of securing a fair price in the event that something happens to the older agents.
4. They do not sit in their offices every day. They are either selling insurance or are visiting their clients to keep them close to the agency.
Look at our Composite Group for your own agency to see how you stack up with the averages for your size agency. Look at your own agency to determine if you are established to be a survivor, yielding you the right value for your business when it’s time to retire, giving your clients and employees the stability, and giving your successors the chance to create their own equity.
If your agency needs help re-establishing itself or forming a Succession or Perpetuation Plan, call us (800 779 2430).