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Soft market slows growth for independent insurance agents & brokers

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Median organic growth and profitability for independent insurance agents and brokers both fell in the third quarter of this year compared with the same period a year earlier, according to a survey released Friday by Atlanta-based Reagan Consulting Inc.

Reagan Consulting's “Organic Growth and Profitability” quarterly survey found that agents and brokers registered median organic growth of 4.4% in the third quarter, down from 6.0% during the same period of 2014.

Profitability also declined, although not nearly as dramatically, according to the survey. The survey found that profitability — as measured by earnings before interest, taxes, depreciation and amortization, or EBITDA — was 21.9% in the third quarter of this year, down from 22.4% during the same period a year earlier.

Reagan Consulting said that the third-quarter results marked the slowest growth rate since late 2011.

"Agent/broker organic growth is slowing — for privately-owned and public brokers — because commercial property/casualty insurance rates are officially in a soft market,” Reagan Consulting President Kevin Stipe said in a statement accompanying the survey results. He added that property/casualty rates have softened for four consecutive quarters, as measured by the Council of Insurance Agents and Brokers.

“Profit margins tend to increase during times of strong organic growth and decrease when growth rates slow,” said Mr. Stipe in the statement.

Reagan Consulting pointed out that commercial insurance rates typically make up 60% to 70% of revenue for the approximately 130 midsize and large agencies and brokerage firms in the survey group, adding that rates are “substantial drivers” of organic growth.

“Brokers may witness further deceleration of growth rates until P/C pricing stabilizes,” said Mr. Stipe.

Reagan Consulting is a management consulting and merger-and-acquisition advisory firm for the insurance industry.