2004 Best Practices Study

2004 Best Practices Comprehensive Study

Includes a Comprehensive Analysis of: Agencies with revenues under $500,000

Agencies with revenues between $500,000 and $1,250,000 Agencies with revenues between $1,250,000 and $2,500,000 Agencies with revenues between $2,500,000 and $5,000,000 Agencies with revenues between $5,000,000 and $10,000,000 Agencies with revenues between $10,000,000 and $25,000,000 Agencies with revenues over $25,000,000

Conducted by: Independent Insurance Agents & Brokers of America, Inc. and Reagan Consulting

2004 BEST PRACTICES STUDY

SPECIAL ACKNOWLEDGEMENT

We wish to thank the following companies for their sponsorship which has funded the development of the 2004 Best Practices Study and the Best Practices Gateway website.

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2004 BEST PRACTICES STUDY

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2004 BEST PRACTICES STUDY

TABLE OF CONTENTS

Introduction

Analysis of Agencies with Revenues Less than $500,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Analysis of Agencies with Revenues Between $500,000 and $1,250,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

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2004 BEST PRACTICES STUDY

Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149 Analysis of Agencies with Revenues Over $25,000,000 Executive Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .162 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173 Appendix Observations of Bank-Owned Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . .175 Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .179 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181

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2004 BEST PRACTICES STUDY

INTRODUCTION The annual Best Practices Study originated in 1993 as an initiative to help independent agents build the value of their most important asset, their agencies. By studying the leading agencies and brokers in the country, the Independent Insurance Agents & Brokers of America (IIABA) hoped to provide member agents with meaningful performance benchmarks and business strate- gies that could be adopted or adapted for use in improving agency performance, thus enhancing agency value. The IIABA retained the principals of Reagan Consulting to create and perform the first study of The Best Practices of the Leading Independent Insurance Agencies in the United States . Today, the annual updates continue to provide important financial and operational benchmarks, and the study is recognized as one of the most thoughtful, effective and valuable resources ever made available to the industry. The leading agencies included in the annual study must be nominated for participation. Once every three years, the insurance companies participating in the IIABA's Council for Best Practices and the Executive Directors of IIABA's state association affiliates nominate the agencies they believe to be among the best. The nominated agencies are then invited to participate and asked to complete an in-depth survey detailing their financial and operational year end results. The agen- cies submitting data are then scored and ranked objectively for inclusion on the basis of Account Retention Rates, Revenue Growth, Productivity, Profitability, and Financial Stability. This year, 900 agencies from around the country were nominated in seven revenue categories. The categories range from "Under $500,000" to "Over $25,000,000" in agency revenues. Over 300 agencies accepted the invitation and submitted data. Only 195 agencies, the top 30 firms in the first six categories and 15 in the largest revenue category, were included in the study and earned the status of a "Best Practices agency." Participation in the Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in each of the seven size categories studied. Need More Best Practices Information? The 2004 Best Practices Study is available in two formats - hard copy and electronically. The hard copy can be purchased from the IIABA Education Department (800-221-7917). The electronic version can be accessed via the websites of IIABA (www.iiaba.com) and Reagan Consulting (www.reaganconsulting.com). From these sites, users can enter the Best Practices Gateway home page to view an HTML version of the study, download a Best Practices comparison spread- sheet to compare their year-end results with the study's results, and access the complete family of Best Practices resources. As in previous years, the update provides an analysis of agencies by revenue size, by region and by population density of the city in which they primarily operate. This year the study includes an analysis of bank-owned agencies.

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2004 BEST PRACTICES STUDY

Other Best Practices Studies and Tools In addition to providing benchmarks and documenting the business practices of leading agencies, the IIABA and Reagan Consulting periodically address specific business practices or focus on issues of critical importance to independent agencies. Such studies include The Best Practices of Leading Sales Organizations and The Best Practices for Perpetuation and Management Succession . Some of the tools designed to help agencies measure and improve their performance include the Agency Self-Diagnostic Tool and the Joint Agency Company Planner . These Best Practices studies and tools, which are part of a complete line of Best Practices products and serv- ices, can be ordered through the IIABA Education Department (800-221-7917).

Copyright © 2004 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

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REVENUE SIZE CATEGORY HERE AGENCIES WITH REVENU S UNDER $500,000

EXECUTIVE PERSPECTIVES

EXECUTIVE PERSPECTIVES

Keys to Their Success For decades industry pundits have predicted the demise of the small agency. Yet, agencies with revenues less than $500,000 continue to survive and thrive as evidenced by those in this year's

PROFILE

Best Practices Study. This study group achieved a net revenue growth rate of 10.4%, in spite of a softening market, and enjoyed a 26.0% Pro Forma Pre-Tax Profit. They most often attribute their success to their good customer relationships, the quality of their employees, and their use of technology. Because the majority of the agencies are located in smaller communities with populations under fifty thou- sand, relationships tend to be very personal. Customers are friends, neighbors, and business acquaintances. Employees are part of the agency "fam- ily" whose customer interactions reflect their commit- ment to service and mirror the trust, authority, and respect they are given by the agency principals.

Factors Most Critical to Agency's Success (Top 5 Listed in Order of Frequency Mentioned) 1. Personal service that results in strong customer relationships 2. Experienced, knowledgeable long- term employees 3. Use of technology and automated systems 4. Ability to satisfy and retain good carriers 5. Niche marketing

REVENUES/ EXPENSES

FINANCIAL STABILITY

EMPLOYEE OVERVIEW

Technology is used heavily to support personal customer interactions. Whether it is the use of their agency management systems or internet access to carrier systems, technology allows these agencies to be able to respond quickly and decisively to customers' needs. Challenges They Face

PRODUCER INFO

SERVICE STAFF INFO

75% of the agencies in this revenue cate- gory listed carrier relationships as their number one challenge. Although they cur- rently represent an average of 12 carriers, three more than the number reported in the 1993 Best Practices Study, the agencies in this study group find it increasingly diffi- cult to get markets, meet minimum vol- ume commitments, work with changing carrier appetites, and adjust to shrinking commission rates. The second most fre-

Top Challenges (Top 5 Listed in Order of Frequency Mentioned)

1. Meeting carriers’ minimum volume requirements 2. Attracting / keeping adequate number of stable and competitive markets 3. Adjusting to decreasing commission rates 4. Hiring and developing young producers 5. Increased competition

TECHNOLOGY

INSURANCE CARRIERS

quently mentioned challenge was finding and grooming new producers that could successfully take over the business. Facing this challenge may be the reason that 20.8% of the agencies indi- cated that they plan to sell their agencies to a third party within the next 10 years. Another 29.2% plan to sell to a third party in 11+ years.

APPENDIX

7

AGENCIES WITH REVENUES UNDER $500,000

Keys to Maximizing Productivity When asked to identify their keys to maximizing productivity the top three responses from these agencies were automation; cross- selling accounts; and experienced, well-trained employees. The

EXECUTIVE PERSPECTIVES

use of download and real-time interface were particularly important automation related keys as the use supported a "touch it once" and "get it done now" approach. Interestingly, a quarter of the agencies in this group reported that they did not utilize an agency management system. This is not to say that these agencies have not embraced technology. Instead, they rely on car- rier automation products and websites and other business software. As with other agencies in this group, the non-management system agen- cies also focus on standard procedures and the use of direct bill to help keep workflows stream- lined and efficient.

Keys to Maximizing Productivity (Top 5 Listed in Order of Frequency Mentioned)

PROFILE

1. Maximized use of automation 2. Good employees who know and understand our customers and products 3. Cross selling and/or niche marketing 4. Having standardized workflows and systems in place 5. Providing a good work environment

REVENUES/ EXPENSES

FINANCIAL STABILITY

Keys to Achieving a Competitive Advantage Because of the very personal relationships these agencies enjoy with their customers, most believe that the number of years they have been in business and their exposure through local community involvement provides their competitive advantage. Many agencies in this group have been in business for more than fifty years with long-term employees that bring a wealth of knowledge to the table. This longevity and involvement supports the agency’s ability to maintain a valuable net- work of personal and business contacts for referrals, as well as staying connected to evolving com- munity needs.

EMPLOYEE OVERVIEW

PRODUCER INFO

SERVICE STAFF INFO

In contrast to the "local agency" approach, several agencies in this group have gained a competitive advantage by offering very specialized products to a much broader marketplace than their local communities. One firm stated, "The seven national accounts we service also market products for us to their members which gives us warm leads regularly and, in essence, do much of our selling for us."

Keys to Achieving a Competitive Advantage (Top 5 Listed in Order of Frequency Mentioned)

1. Providing local, personal service 2. Longevity - number of years in business helps creates trust 3. Involvement in local community and industry groups 4. Experienced, knowledgeable employees 5. Up-to-date automation and use of technology

TECHNOLOGY

INSURANCE CARRIERS

APPENDIX

8

AGENCIES WITH REVENUES UNDER $500,000

PROFILE (of Agencies in this Study Group)

EXECUTIVE PERSPECTIVES

A.

Average Total Revenues: $357,377

B.

Corporate Structure

PROFILE

+25% Profit 56.7% 30.0%

+25% Growth 52.8% 33.3%

Average

C

62.5% 29.2%

S

REVENUES/ EXPENSES

Partnership

0.0% 0.0% 8.3%

0.0% 0.0%

0.0% 0.0%

LLC

Sole Proprietorship

13.3%

13.9%

FINANCIAL STABILITY

C.

Shareholders

+25% Profit

+25% Growth

Average

EMPLOYEE OVERVIEW

Number of Shareholders

1.7 4.0 1.0

1.3

1.3

High

Low

PRODUCER INFO

D.

Ownership Percentage

+25% Profit

+25% Growth

Average

SERVICE STAFF INFO

% Owned by Largest Shareholder

79.5%

89.2% 99.7%

High

100.0%

Low

35.0%

TECHNOLOGY

E.

Shareholder Age

+25% Profit

+25% Growth

Average

INSURANCE CARRIERS

Current Age of

Largest Shareholder

51.3

50.7

50.5

APPENDIX

9

AGENCIES WITH REVENUES UNDER $500,000

F.

Parent Corporation

Average

EXECUTIVE PERSPECTIVES

% of Participating Agencies

For more detail on bank-owned agency performance, see Observations of Bank-Owned Agencies on page 175 of this Study.

Owned by Another Corporation

0.0%

Description of Parent Corporation Financial Institution

PROFILE

0.0% 0.0% 0.0%

National Broker

Other

REVENUES/ EXPENSES

G.

Plans for Future Ownership of Agency

Average

Sell to Employees/Family

41.7%

FINANCIAL STABILITY

Sell to Third Party in 1 to 5 years

8.3%

Sell to Third Party in 6 to 10 years

12.5%

Sell to Third Party in 11+ years

29.2%

EMPLOYEE OVERVIEW

Merge with Privately-held Agency

0.0%

Uncertain at this point

8.3%

PRODUCER INFO

The significant number of agencies planning to sell to a third party in the future reflects the difficulty this group has in recruting and developing internal future owners. It also reflects the desire by many to retain close ownership until retirement, leaving a third party sale the only option available. Having made this strategic decision, they now face the challenge of building an organ- ization that will have value for and be attractive to a third party buyer when the time comes.

SERVICE STAFF INFO

H. Population Density of Metropolitan Area Where Home Office Is Located

TECHNOLOGY

+25% Profit

+25% Growth

Average

Less than 50,000

62.5%

60.0%

55.6%

INSURANCE CARRIERS

50,000 - 250,000

20.8%

23.3%

25.0%

250,000 - 1,000,000

16.7%

16.7%

19.4%

More than 1,000,000

0.0%

0.0%

0.0%

APPENDIX

10

AGENCIES WITH REVENUES UNDER $500,000

REVENUE ANALYSIS A.

EXECUTIVE PERSPECTIVES

% of Revenue by Source

+25% Profit 23.2% 68.5%

+25% Growth 34.2% 54.3%

Average

Commercial P&C

37.1% 51.7%

PROFILE

Personal P&C

P&C Service Fees

0.3% 5.4% 2.6% 1.8% 0.3% 0.9%

0.1% 2.7% 4.0% 1.2% 0.0% 0.2%

1.1% 6.1% 0.8% 3.2% 0.1% 0.2%

Contingent Group L&H

REVENUES/ EXPENSES

Individual L&H

Investments

FINANCIAL STABILITY

Miscellaneous

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Exp

2.6%

1.4%

0.6%

EMPLOYEE OVERVIEW

Net Revenues

97.4.%

98.6%

99.4%

70%

Average

60%

+25% Profit

PRODUCER INFO

50%

+25% Growth

40%

30%

SERVICE STAFF INFO

20%

% Total Revenue

10%

Commercial P&C

Personal P&C

P&C Service Fees

Contingent

Group L&H

Individual L&H

Investments

TECHNOLOGY

Future Revenue Sources % of Agencies Considering Line of Business as Very Important: Personal Lines 87.5% Small Commercial Lines 79.2% Individual Life & Health 12.5% Group Life & Health 12.5% Surety/Bonding 8.3%

INSURANCE CARRIERS

APPENDIX

11

AGENCIES WITH REVENUES UNDER $500,000

B1.

% of Revenues Derived from Largest Accounts

EXECUTIVE PERSPECTIVES

+25% Profit

+25% Growth

Average

Largest Commission Account

3.4% 3.7% 3.4%

High

11.0%

PROFILE

Low

1.1%

10 Largest Commission Accounts

11.1% 11.8% 10.7%

High

28.5%

REVENUES/ EXPENSES

Low

2.5%

B2.

% Providing Other Products and Services

FINANCIAL STABILITY

In addition to traditional P&C and L&H policies and support, Best Practices Agencies are providing their clients numerous other products and services.

+25% Profit

+25% Growth

EMPLOYEE OVERVIEW

Average

Loss Control/Engineering

0.0% 0.0% 0.0%

Workers Comp Claims Adjusting/Admin (TPA)

8.3% 33.3% 0.0%

PRODUCER INFO

Group Health Claims Adjusting/Admin (TPA)

0.0% 0.0% 0.0%

Self Insurance Programs

8.3% 0.0% 50.0%

Risk Management Consulting

8.3% 0.0% 0.0%

SERVICE STAFF INFO

Premium Financing

58.3% 33.3% 50.0%

Pension/Profit Sharing (401(k)

41.7% 100.0% 50.0%

Human Resource Consulting

0.0% 0.0% 0.0%

Employee Leasing Products & Services (PEOs)

0.0% 0.0% 0.0%

TECHNOLOGY

Investment Products (Securities, Stocks, etc.)

50.0% 66.7% 0.0%

Other* 8.3% 0.0% 0.0% *Includes banking, surety, service contracts, MyWave, 125 plan administration, fuel tax calculation and permits for truckers, outsourcing of value added services, actuarial/legal on claims

INSURANCE CARRIERS

APPENDIX

12

AGENCIES WITH REVENUES UNDER $500,000

C. Revenues Derived from Acquisitions Made in the Last 12 Months

EXECUTIVE PERSPECTIVES

% of Agencies Acquiring Avg. Total Commissions Acquired

% of Net Revenues

0%

$0

0%

PROFILE

What the Typical Transaction Looked Like:

Multiples of Revenue Paid Average N/A High N/A Low N/A

Revenues Acquired per Transaction Average N/A High N/A Low N/A

REVENUES/ EXPENSES

FINANCIAL STABILITY

EMPLOYEE OVERVIEW

D.

Group Life & Health Revenue Revenues from this line of business continue to increase in importance for most Best Practices agencies. 75% of the firms in this group have GLH revenues. Also see the Insurance Carriers section for the average number of GLH carriers represented.

PRODUCER INFO

+25% Profit 88.3%

+25% Growth

SERVICE STAFF INFO

Average

Health

65.0% 18.5%

52.7%

Life

6.5% 1.2% 0.3% 1.5% 0.0% 2.2%

7.3% 0.7% 0.0%

Disability

2.0% 0.2%

TECHNOLOGY

Dental

Retirement Products

11.3%

35.0%

Employee Benefits (TPA)

0.0% 2.9%

0.0% 4.3%

INSURANCE CARRIERS

All Other

APPENDIX

13

AGENCIES WITH REVENUES UNDER $500,000

E. Revenue Growth by Source (stated as % of Prior Year’s Total Revenues)

EXECUTIVE PERSPECTIVES

+25% Profit

+25% Growth 102.2% 13.8%

Average

Commercial P&C

97.6% 15.0%

102.0% 20.1%

Renewals 1

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0%

0.0%

0.0%

12.6% 12.6%

22.2% 22.2%

16.1% 16.1%

PROFILE

Total Growth 5

Personal P&C

92.9% 14.6%

97.0% 15.8%

99.4% 10.9%

Renewals 1

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0% 7.5% 7.5%

0.0%

0.0%

REVENUES/ EXPENSES

12.8% 12.8%

10.3% 10.3%

Total Growth 5

P&C Service Fees

Renewals 1

* * * * *

* * * * *

* * * * *

New Business 2

FINANCIAL STABILITY

Acquired Revenues 3 Organic Growth 4

Total Growth 5

Group L&H

Renewals 1

86.6% 14.6%

94.2% 10.8%

95.9% 11.7%

EMPLOYEE OVERVIEW

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0% 1.3% 1.3%

0.0% 5.0% 5.0%

0.0% 7.7% 7.7%

Total Growth 5

Individual L&H

Renewals 1

60.9% 32.0% 0.0% -7.1% -7.1%

* * * *

73.4% 27.6%

PRODUCER INFO

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0% 1.1% 1.1%

Total Growth 5

*

SERVICE STAFF INFO

Total Commissions & Fees

Renewals 1

93.5% 16.3%

97.1% 17.2%

103.0% 15.7%

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0% 9.6% 9.6%

0.0%

0.0%

14.3% 14.3%

18.1% 18.1%

Total Growth 5

TECHNOLOGY

Contingent Income Growth Investment Income Growth

1.2%

* *

44.4% -32.8% 21.1%

-34.1% 10.2% -2.1% 10.4% 10.4%

Total Revenue Growth

14.7%

Brokerage Commission Expense Growth

*

*

INSURANCE CARRIERS

Net Revenue Growth (Organic) Net Revenue Growth (Total)

14.2% 14.2%

21.1% 21.1%

1 Renewal Revenues as a % of prior year’s total revenues for this line of business. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the %, the more favorable the results. 2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results. 3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % indicates the significance of acquired business.

APPENDIX

4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.

*Insufficient Data

14

AGENCIES WITH REVENUES UNDER $500,000

Net Revenue Growth

EXECUTIVE PERSPECTIVES

30%

Average

20%

+25% Profit

PROFILE

+25% Growth

10%

0%

-10%

% Total Revenue

REVENUES/ EXPENSES

-20%

-30%

Commercial P&C

Personal P&C

Group L&H

P&C Service Fees

Individual L&H

Total Commissions & Fees

FINANCIAL STABILITY

F.

Future Revenue Growth Strategies

Study participants were asked to indicate their three most important strategies for enhancing or achieving future revenue growth.

EMPLOYEE OVERVIEW

% of Total Responses* 1 2 3

Access to Better Carriers

26.1% 4.3% 13.0%

PRODUCER INFO

Advertising/Promotions

8.7% 0.0% 34.8%

Agency/Book of Business Acquisitions

0.0%

17.4% 4.3%

SERVICE STAFF INFO

Cross-Selling/Total Account Development

39.1% 21.7% 17.4%

Producer Recruitment/Development

4.3% 13.0% 0.0%

New Business Initiatives - Prog Dev/Niche Marketing

8.7% 17.4% 8.7%

New Business Initiatives - Referrals/Centers of Influence

8.7% 26.1% 17.4%

TECHNOLOGY

New Business Initiatives - Strategic Alliances

4.3% 0.0% 4.3%

Other

0.0% 0.0% 0.0%

INSURANCE CARRIERS

*With:

1 = Critically Important 2 = Very Important 3 = Important

APPENDIX

15

AGENCIES WITH REVENUES UNDER $500,000

EXPENSE ANALYSIS A.

Expenses Analysis (as a % of Net Revenues)

EXECUTIVE PERSPECTIVES

+25% Profit

+25% Growth

Average

Compensation Expense Total Payroll

41.3% 8.5% 49.8% 1.4% 2.3% 2.6% 6.3% 4.4% 1.9% 0.8% 1.7% 1.2% 1.8% 2.8% 1.0% 0.5% 0.2% 0.4% 2.0% 0.4% 0.7% 0.2% 2.5% 0.3% 0.6% 0.7% 4.3% 19.8% 80.2% 19.8%

26.7% 2.8% 29.5% 0.8% 3.4% 3.0% 7.3% 5.2% 1.5% 0.6% 2.1% 0.6% 1.8% 1.4% 1.7% 0.2% 0.0% 0.4% 1.4% 0.4% 0.8% 0.4% 1.7% 0.6% 0.4% 0.5% 3.6% 18.1% 58.4% 41.6%

37.1% 10.8% 47.9% 1.1% 2.1% 2.7% 5.9% 3.3% 1.8% 0.8% 1.3% 0.8% 1.8% 4.4% 0.8% 0.6% 0.0% 0.3% 1.3% 0.3% 0.8% 0.4% 2.7% 0.3% 0.3% 0.0% 3.7% 18.3%

Benefits

PROFILE

Total Compensation

Selling Expenses

T&E/Conventions

Automobile

Advertising/Promotions

Total Selling

REVENUES/ EXPENSES

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

FINANCIAL STABILITY

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Equipment Rental/Maintenance

Bad Debts

EMPLOYEE OVERVIEW

Outside Services

Information Technology Education/Training

Miscellaneous

Total Operating

PRODUCER INFO

Administrative Expenses Amortization

Depreciation Officer-Life

Interest

SERVICE STAFF INFO

Other

Total Administrative

Total Expenses Pre-Tax Profit

.4 75.8%

24.2%

TECHNOLOGY

60%

Average

50%

+25% Profit

40%

+25% Growth

INSURANCE CARRIERS

30%

20%

% Total Net Revenue

10%

APPENDIX

0%

Compensation Expense

Operating Expense

Administrative Expense

Selling Expense

16

AGENCIES WITH REVENUES UNDER $500,000

Revenue/Expense/Profit Summary

EXECUTIVE PERSPECTIVES

+25% Profit

+25% Growth

Average

Revenues (% by Source) Commercial Lines

37.1% 51.7% 0.3% 5.4% 2.6% 1.8% 0.3% 0.9%

23.2% 68.5% 0.1% 2.7% 4.0% 1.2% 0.0% 0.2% 1.4% 98.6% 29.5% 7.3% 18.1% 3.6% 58.4% 41.6% 55.5% 36.5%

34.2% 54.3% 1.1% 6.1% 0.8% 3.2% 0.1% 0.2% 0.6% 99.4% 47.9% 5.9% 18.3% 3.7% 75.8% 24.2% 33.9% 11.5%

Personal Line

P&C Service Fees Contingent/Bonus Group Life & Health Individual Life & Health

PROFILE

Investments Miscellaneous

REVENUES/ EXPENSES

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Expense

2.6%

Net Revenues

97.4.%

Expenses (as % of Net Revenues) Compensation

49.8% 6.3% 19.8% 4.3% 80.2% 19.8% 26.0% 12.4%

FINANCIAL STABILITY

Selling

Operating

Administrative

Total Expenses

EMPLOYEE OVERVIEW

Pre-Tax Profit Pro Forma Profit 1

Operating Pre-Tax Profit 2

Pro Forma EBITDA 3

30.3%

59.1%

37.6%

PRODUCER INFO

1 Pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed (i.e., removing expenses that would not be incurred if a third party owned the agency). 2 Pre-tax profit minus contingents, bonus and investment income. 3 EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization

SERVICE STAFF INFO

Profitability

60%

Average

50%

+25% Profit

TECHNOLOGY

40%

+25% Growth

30%

20%

INSURANCE CARRIERS

% Total Net Revenue

10%

Pre-Tax Profit

Operating Pre-Tax Profit

Pro Forma Pre-Tax Profit

APPENDIX

17

AGENCIES WITH REVENUES UNDER $500,000

FINANCIAL STABILITY A. Current Ratio

EXECUTIVE PERSPECTIVES

A current ratio greater than 1:1 indicates that cash and assets with short-term maturities are sufficient to meet a firm’s short-term obligations.

Average

Top 25%

Liquidity/Current Ratio

1.39:1

2.10:1

PROFILE

B.

Tangible Net Worth The tangible net worth is an important measure as it represents the net value of the corporation if it were liquidated. A low or negative tangible net worth impacts a firm’s ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations .

REVENUES/ EXPENSES

Average

Top 25%

Tangible Net Worth (as % of Net Rev)

12.0% 27.5%

FINANCIAL STABILITY

C1.

Receivables The following ratio measures the collection practices of an agency, with a lower ratio representing more timely collections.

Average

Top 25%

Receivables/Payables Ratio

51.3% -11.4%

EMPLOYEE OVERVIEW

C2.

Aged Receivables

Average

Top 25%

Over 60 Over 90

43.1% 12.3%

PRODUCER INFO

41.8%

4.5%

D.

Receivables Management Practices Participants were asked to indicate which practices they utilized and to score the practices’ effectiveness where 1 = NOT EFFECTIVE and 5 = EXTREMELY EFFECTIVE .

SERVICE STAFF INFO

% Utilizing

Score

0%

100%

Management reviews receivables regularly Have strict collection policy Hold producers responsible for bad debts Encourage/require use of direct bill Encourage/require use of premium finance

TECHNOLOGY

Use pre-billing and binder billing Do not allow agency financing

INSURANCE CARRIERS

Centralize collections & remove producer involvement Provide clients with written copy of collection policies Other

0.0

1.0

2.0

3.0

4.0

5.0

APPENDIX

18

AGENCIES WITH REVENUES UNDER $500,000

EMPLOYEE OVERVIEW

EXECUTIVE PERSPECTIVES

A.

Employee Statistics

+25% Profit

+25% Growth

Average

Total Number of Employees*

4.3

3.9

3.3

PROFILE

Revenue per Employee

$90,167 $43,749 $46,418

$90,686 $107,155 $25,984 $53,257 $64,703 $53,899

Compensation per Employee

Spread per Employee

*Full-time Equivalents

REVENUES/ EXPENSES

Productivity

$200,000

Average

FINANCIAL STABILITY

+25% Profit

$150,000

+25% Growth

$100,000

EMPLOYEE OVERVIEW

$50,000

Compensation per Employee

Spread per Employee

Revenue per Employee

PRODUCER INFO

"I would say a large part (of our success) is attempting to retain good employees and not being timid to relieve poor employees."

SERVICE STAFF INFO

B.

Benefits Provided to Agency Employees

Fully Paid by Agency

Partially Paid by Agency

Fully Paid by Employee

Benefit Not Provided

Accident & Health Insurance (Employees)

62.5% 16.7% 4.2% 16.7%

If answer is “2”, $ amount paid/mo by employee

$325

TECHNOLOGY

Accident & Health Insurance (Dependent)

8.7% 13.0% 21.7% 56.5%

If answer is “2”, $ amount paid/mo by employee

*

Dental Coverage

16.7% 0.0% 0.0% 83.3% 50.0% 8.3% 4.2% 37.5% 21.7% 4.3% 8.7% 65.2% 20.8% 4.2% 8.3% 66.7% 21.7% 34.8% 0.0% 43.5% 4.5% 4.5% 0.0% 90.9% 0.0% 0.0% 0.0% 100.0% 4.3% 8.7% 0.0% 87.0% 9.1% 4.5% 0.0% 86.4% *Insufficient Data

Group Life Insurance Long Term Disability Short Term Disability

INSURANCE CARRIERS

Pension Plan Profit Sharing

ESOP 401(k)

APPENDIX

125 Cafeteria Plan

19

AGENCIES WITH REVENUES UNDER $500,000

PRODUCER INFORMATION A. New Producer Hiring

EXECUTIVE PERSPECTIVES

+25% Profit

+25% Growth

Average

"The biggest chal- lenge we face is find- ing qualified produc- ers and then training them without taking away from the day-to- day process of run- ning the agency."

% of Agencies that Hired a New Producer During Last Fiscal Year

PROFILE

8.3%

*

*

Number of New Producers Hired

1.0

*

*

REVENUES/ EXPENSES

Average Annual Compensation Per New Producer

$29,564

*

*

FINANCIAL STABILITY

Where New Producers Were Found

EMPLOYEE OVERVIEW

“Successful” New Producers 100.0% of producers hired over the last 5 years have met their production goals.

Insufficient Data - Chart Not Applicable

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

Future Hiring Plans

+25% Profit

+25% Growth

Average

% of Agencies that Plan to Hire a New Producer During Current Fiscal Year

INSURANCE CARRIERS

16.7% *

33.3%

Number of New Producers to be Hired

1.0

*

1.0

APPENDIX

*Insufficient Data

20

AGENCIES WITH REVENUES UNDER $500,000

B.

Validated Producer Results 1.

EXECUTIVE PERSPECTIVES

Typical Producer Productivity

Commercial P&C

Group L&H

Personal P&C

Multi- Lines

1.2 2.0 0.3

*

1.4 3.0 0.3

1.9 3.0 0.1

Average

Number of Validated Producers

1.0 0.1

High Low

PROFILE

$17,516

*

$17,727 $23,111

Average

New Commissions Produced Annually

$29,777

*

$30,500 $35,000

Top 25%

REVENUES/ EXPENSES

$93,746

*

$107,532 $170,758

Average

Total Commissions in Producer’s Book

$194,427

*

$195,008 $260,062

Top 25%

Annual Pay per Producer

FINANCIAL STABILITY

$47,857

*

$44,293 $47,833

Annual Pay as % of Producer’s Book

51.0%

*

41.2% 28.0%

EMPLOYEE OVERVIEW

2.

Most Successful Producer Productivity

Commercial P&C

Group L&H

$32,589 $22,167

Average

PRODUCER INFO

New Commissions Produced Annually

$60,165

*

Top 25%

$193,886 $113,161

Average

Total Commissions in Producer’s Book

SERVICE STAFF INFO

$302,500

*

Top 25%

$1,813

$1,950

Average

Average Commissions per Account

$4,350

*

Top 25%

TECHNOLOGY

*Insufficient Data

How Most Successful Producers Spent Time

Commercial P&C Producer

Group L&H Producer

Soliciting New Business 27.7%

Soliciting New Business 47.5%

Management/ Personnel/Agency Administrative 21.3%

INSURANCE CARRIERS

Management/ Personnel/Agency Administrative 7.5%

Personal Training/ Education/

Personal Training/ Education/

Servicing Existing Accounts 44.8%

Servicing Existing Accounts 40.0%

Professional Development 6.2% %

Professional Development 5.0% %

APPENDIX

21

AGENCIES WITH REVENUES UNDER $500,000

Producer Summary

Average Commissions in Book

Average New Commissions Produced

EXECUTIVE PERSPECTIVES

$1,200,000 $1,000,000

$300,000 $250,000 .$200,000 $150,000 $100,000 $50,000

$800,000 $600,000 $400,000 $200,000

PROFILE

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Average Top 25%

Average Top 25%

REVENUES/ EXPENSES

C.

Commission Practices

+25% Profit

+25% Growth

Average

% of agencies paying Personal Lines renewal commissions to Commercial Producers % of agencies with Minimum Threshold for paying Commercial Lines renewal commissions

FINANCIAL STABILITY

44.4%

20.0%

75.0%

18.8%

0.0%

25.0%

EMPLOYEE OVERVIEW

$ Amount of Minimum Threshold

*

*

*

*Insufficient Data

D.

Producer’s Ownership in Their Book of Business

PRODUCER INFO

+25% Profit

+25% Growth

Average

All producers share in ownership of books Some producers share in ownership of books

4.3% 0.0% 0.0% 4.3% 16.7% 16.7% 34.8% 33.3% 16.7% 0.0% 50.0% 56.5%

SERVICE STAFF INFO

None share in ownership of books

Have no producers except agency owners

TECHNOLOGY

Use and Enforceability of Restrictive Covenants 21.7% of the respondents in this study group indicated that all non- owner producers in their agencies have signed a Restrictive Covenant. 56.5% of this group believes that the enforceability of such agreements remains stable, while 8.7% believe their enforceability is decreasing. None of the respondents believe they are becoming more enforceable, while an additional 34.8% are unsure either way. 31.8% of the respon- dents also require CSRs to sign Restrictive Covenants.

INSURANCE CARRIERS

APPENDIX

22

AGENCIES WITH REVENUES UNDER $500,000

SERVICE STAFF INFO

EXECUTIVE PERSPECTIVES

A.

Service Related Personnel

Service Related Personnel are defined in the study as typically non-commissioned employees who have responsibility -- either directly (e.g., Account Executives (AE), Account Managers (AM), Customer Service Representatives (CSRs), Assistant CSRs, etc.) or indirectly (e.g., Claims Specialist, Placer/Marketer, etc.) -- to provide or support the delivery of service to the agency’s clients.

PROFILE

"My clients like the fact that a 'real' person answers the phone or when they come in, we know their name. The 'home town' service we offer is what gives us an edge over the big guy up the road!"

+25% Profit

+25% Growth

REVENUES/ EXPENSES

Average

Total Number of Service Related Personnel

2.6 2.4 2.0

FINANCIAL STABILITY

Service Structure

+25% Profit

+25% Growth

% of Agencies Having:

Average

Separate/Dedicated Marketing Department Separate/Dedicated Claims Department Assistants for CSRs/Account Managers

4.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

EMPLOYEE OVERVIEW

B.

CSR Productivity by Line of Business In the following charts the number of CSRs includes Account Executives (non-producer position) , Senior CSRs, CSRs, Account Managers, Assistant CSRs, etc. (i.e., positions with main responsibility for client service or main responsibility to support the AE, CSR/AM in providing client services) . It also includes the department managers who spend a portion of their time servicing clients. Respondents were instructed to use decimals to accurately represent the actual number of full-time equivalent client service positions.

PRODUCER INFO

SERVICE STAFF INFO

How Time Was Spent

Commercial P&C CSRs

Average Top 25%

Selling New Business (New or Acct Rounding) 11.3%

Number

1.1 2.0 0.5

Administration 10.0%

TECHNOLOGY

High Low

Marketing (Placement) 13.8%

Average Commissions Serviced Average Pay ($) Average Pay (as % of Book Serviced)

$139,096 $211,672

INSURANCE CARRIERS

Customer Service 58.2%

$31,442

Claims Processing 6.8%

22.6%

APPENDIX

23

AGENCIES WITH REVENUES UNDER $500,000

How Time Was Spent

Group L&H CSRs

EXECUTIVE PERSPECTIVES

Average Top 25%

Number

* * *

High Low

Insufficient Data - Chart Not Applicable

Average Commissions Serviced Average Pay ($) Average Pay (as % of Book Serviced)

PROFILE

*

*

*

*

REVENUES/ EXPENSES

*Insufficient Data

FINANCIAL STABILITY

How Time Was Spent

Personal P&C CSRs

Average Top 25%

Selling New Business (New or Acct Rounding) 23.2%

Number

1.7 5.0 0.5

Administration 6.6%

High Low

EMPLOYEE OVERVIEW

Marketing (Placement) 10.7%

Average Commissions Serviced Average Pay ($) Average Pay (as % of Book Serviced)

$117,299 $193,364

$28,670

Customer Service 51.9%

Claims Processing 7.6%

PRODUCER INFO

24.4%

SERVICE STAFF INFO

Multi-Line CSRs

How Time Was Spent

Average Top 25%

Number

1.6 3.0 0.5

Selling New Business (New or Acct Rounding) 10.0%

Administration 12.9%

High Low

TECHNOLOGY

Marketing (Placement) 11.4%

Average Commissions Serviced Average Pay ($) Average Pay (as % of Book Serviced)

$152,870 $281,550

$25,857

Claims Processing 8.6%

INSURANCE CARRIERS

Customer Service 57.1%

16.9%

APPENDIX

24

AGENCIES WITH REVENUES UNDER $500,000

CSR Summary

Average Book Serviced/CSR (Commissions)

EXECUTIVE PERSPECTIVES

Average Pay as a % of Book Serviced

30%

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $700,000 $800,000

20%

10%

PROFILE

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Average

Average

REVENUES/ EXPENSES

Top 25%

C.

Information Technology (IT) Personnel Because technology plays such an important role in supporting the agency’s Customer Service activities and efforts, they might be considered part of the service team. However, for the study they were NOT included in the overall service head count.

FINANCIAL STABILITY

IT Full-Time Employee Equivalents Average Number of IT Employees

Average

Top 25%

0.8 2.0 0.3

EMPLOYEE OVERVIEW

High Low

Total IT Payroll Expenses

$20,100

$43,333

IT Payroll as % of Net Revenues

6.3%

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

APPENDIX

25

AGENCIES WITH REVENUES UNDER $500,000

TECHNOLOGY

EXECUTIVE PERSPECTIVES

A.

Agency Management System Utilized

% Utilizing

AMS

Sagitta

0.0% 21.7% 17.4% 30.4% 0.0% 0.0% 0.0% 4.3% 0.0% 0.0% 0.0% 0.0% 0.0% 26.1%

Information Technology Staffing Agencies in this study group had an average of 0.8 employees (FTE) dedicated to managing/supporting their agency’s IT solutions with total payroll expense of $20,100 .

PROFILE

AfW

Prime

Applied Systems

The Agency Manager (TAM)

Vision

REVENUES/ EXPENSES

Doris ebix InStar

irs-aims

Strategic Insurance Software (SIS)

FINANCIAL STABILITY

MI Assistant

VRC Insurance Systems XDimensional Technologies

Other*

*No agency management system, custom, etc.

EMPLOYEE OVERVIEW

B.

Information Technology Expense (as % of Net Revenues)

+25% Profit

+25% Growth

Average

PRODUCER INFO

Total IT Expense for Fiscal Year 1

2.7% 1.7% 1.7%

1 Includes hardware/software leasing, supplies, maintenance & maintenance contracts, training, data communications, website development/maintenance, computer depreciation and software amortization.

SERVICE STAFF INFO

C. Impact of Technology and Business Process Improvements on Agency

Impact Scoring*

1

2

3

4

5

Very Negative

Somewhat Negative

Neutral Impact

Somewhat Positive

Very Positive

TECHNOLOGY

Impact on:

Impact Score*

INSURANCE CARRIERS

Agency Productivity Agency Profitability

4.29 4.21 4.46 4.04

Agency Customer Service Management Information

APPENDIX

26