2011 Best Practices Study
REACHING NEW HEIGHTS
2011 BEST PRACTICES STUDY UPDATE Conducted by Independent Insurance Agents & Brokers of America, Inc. and Reagan Consulting, Inc.
2011 Best Practices Study
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2011 Best Practices Study
Special Acknowledgement We wish to thank the following companies for their sponsorship which has funded the development of the 2011 Best Practices Study and the Best Practices Gateway website.
2011 Best Practices Study
Copyright©2011 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.
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2011 Best Practices Study
TABLE OF CONTENTS
Introduction
Analysis of Agencies with Revenues Under $1,250,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
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Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Management Perspectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Employee Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Service Staff Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Insurance Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Analysis of Agencies with Revenues Over $25,000,000 Management Perspectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .152 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Employee Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Service Staff Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Insurance Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Appendix Population Density Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Regional Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Glossary / Definitions / Formulas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .186
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INTRODUCTION Since 1993 the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a “must have” for those agencies that want to become the best they can be. The 2011 Best Practices Study provides critical performance benchmarks in six agency revenue categories ranging from Under $1,250,000 to Over $25,000,000 . Agencies can measure, evaluate, and compare results for agency operations including: • Income & Expense Distribution • Revenue & Profitability Growth • Sales & Service Staff Compensation/Productivity • Technology Expenses • Property & Casualty and Life & Health Carrier Representation • And much more The agencies that participate in the annual study are selected for inclusion once every 3 years. This year’s study continues to look at the performance of those agencies selected in 2010, the start of a new 3-year cycle. While it updates key financial and operational benchmarks, users of the 2011 update may wish also to purchase a copy of the 2010 Best Practices Study which provides additional information on the agencies’ business practices and philosophies. The comprehensive 2010 study can be purchased from the Independent Insurance Agents & Brokers of America (Big “I”) Education Department. Order forms can be downloaded at http://bp.reaganconsulting.com or at www.independentagent.com. For more information please call 1-800-221-7917.
About The Study The History
The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (Big “I”) to help its members build and maintain the value of their most important assets, their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide members agents with meaningful performance benchmarks and business strategies that could be adopted or adapted for use in improving agency performance, thus enhancing agency value. The Big “I” retained the principals of Reagan Consulting to create and perform the first Best Practices Study . Annual updates conducted by Reagan Consulting 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 Process Once every three years the Big “I” asks insurance companies, state association affiliates, and other industry organizations to nominate for each of the studies’ revenue categories those agencies they consider to be among the better, more professional agencies in the industry. The nominated agencies are then invited to participate. They must be willing to share key business practices/ philosophies and to complete an in-depth survey detailing their financial and operational year-end results. Those results are then scored and ranked objectively for inclusion on the basis of operational excellence. In 2010, the beginning of the current three-year study cycle, more than 1,200 independent agencies throughout the U.S. were nominated to take part in the annual study. More than 320 submitted the extensive data, but only 224 qualified for the honor. To be chosen, the agency had to be among the 30-40 top-
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Other Best Practices Studies and Tools In addition to the annual Best Practices Study, many other useful studies, resources, and tools are available to help agencies improve their performance and enhance the value of their businesses. Two of the most frequently used tools are The Agency Self- Diagnostic Tool and the Joint Agency Company Planner . These Best Practices tools are part of a complete line of Best Practices products and services. Order forms can be downloaded from http:// bp.reaganconsulting.com or can be purchased online at www.independentagent.com. If You Have Questions If you have questions about the information published in the 2011Best Practices Study please contact the Big “I” Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.
performing agencies in one of six revenue categories. Their year-end results and business practices were compiled to create the Best Practices benchmarks. Those benchmarks are updated annually. Taking part in the Best Practices Study has become a prestigiousrecognitionofthesuperioraccomplishments of the top insurance agencies in the country. Those agencies that believe they have the qualities of a Best Practices Agency and wish to be nominated in 2013 for the next study cycle should contact their state association.
About the Best Practices Gateway Website
The electronic version of this study can be accessed via the websites of the Big “I” (www. independentagent.com) and Reagan Consulting (www.reaganconsulting.com). From the Best Practices Gateway home page users can do the following: • View an HTML version of the current and past Best Practices Study Executive Updates • Download a Best Practices comparison spreadsheet to compare their year-end results with the study’s results • Access other Best Practices studies, tools and products • Download order forms
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2011 Best Practices Study
2011 Best Practices Study
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2011 Best Practices Study
Agencies with Revenues Under $1,250,000
$1,250,000
$2,500,000
$5,000,000
$10,000,000
$25,000,000
2011 Best Practices Study
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Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Key Benchmarks at a Glance
Average
+25% Profit
+25% Growth
Growth Organic Growth By Line of Business** Commercial P&C
-6.9%
-8.4% 7.9% 0.7%
7.7% 7.7% 5.5%
Personal P&C
5.5%
Group Medical All Other Group
-1.1% -0.4% -1.9%
*
*
Total Organic Growth Profit Pro Forma Pretax Profit
0.5%
9.1%
26.0% 28.5%
44.6% 45.2%
27.6% 28.2%
Pro Forma EBITDA
Rule of 20 Score
12.9
24.3
26.3
Financial
Average
Top 25%
Current Ratio
1.18:1
1.98:1
Receivable/Payable Ratio
65.1% 46.2% 17.2%
0.5% 9.7% 2.0%
Accounts Receivables > 60 Days Accounts Receivables > 90 Days
Productivity
Average
+25% Profit
+25% Growth
Revenue per Employee
$116,963 $64,086 $52,877 Average $41,133 $22,083 $27,167
$146,713 $62,710 $84,003 Top 25% $88,692 $38,292 $50,375 Top 25% $355,518 $323,938 $251,286
$118,983 $54,248 $64,735
Compensation per Employee
Spread per Employee
Annual New Commission Generated per Validated Producer
Commercial P&C
Personal P&C
Life & Health/Financial
2011 Best Practices Study
Commissions Serviced per Service & Sales Support Staff
Average
Agencies with Revenues Under $1,250,000
Commercial P&C
$188,682 $158,720 $183,316
Personal P&C
Life & Health / Financial
* Insufficient Data **Excludes any acquired revenue
2
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Profile (of Agencies in this Study Group)
A. Average Total Revenues: $783,786
B. Population Density of Metropolitan AreasWhere Home Office is Located Average
+25% Profit
+25% Growth
Less than 50,000 50,000 – 250,000 250,000 – 1,000,000 More than 1,000,000 C. Corporate Structure C
48 48.6%
42.6% 27.7% 17.0% 12.8%
43.9% 28.1% 17.5% 10.5%
27.0% 13.5% 10.8%
36.1% 50.0%
34.8% 50.0%
34.5% 47.3%
S
Partnership
2.8% 8.3% 2.8%
2.2%
3.6%
LLC
10.9%
12.7%
Sole Proprietorship
2.2%
1.8%
Average Number of Agency Locations (Main Offices and Branch Offices)
1.4
1.1
1.6
# of States Offices are Located in
1.0
1.1
1.1
Agency has an ESOP
0.0% 0.0%
0.0% 0.0%
0.0% 0.0%
% of Stock Owned by ESOP
D. Shareholders Number of Shareholders (excluding ESOP)
1.9 6.0 1.0
2.3
2.0
High
Low
E. Ownership Percentage % Owned by Largest Shareholder
79.2%
71.6%
86.3%
High
100.0%
Low
30.0%
F. Shareholder Age Current Age of Largest Shareholder
52.2
51.6
51.6
G. Parent Corporation
Average
% of Agencies Owned by Another Corporation
5.6%
2011 Best Practices Study
Description of Parent Corporation Financial Institution
“Other” included Holding Company.
50.0%
Agencies with Revenues Under $1,250,000
National Broker
0.0%
Other
50.0%
H. Member of Group % of Agencies Belonging to a Franchise, Cluster, Alliance/Network or Aggregator Group
“Groups”consisted of Georgia Agency Partners, 3-S Group, Smart Group, LLC, Shared Agency Services, Consolidated Agencies, LLC, Northern New England Insurance Group, Iroquois, Stateline Group, SIAA, and Pacific Interstate Insurance Brokers.
32.4%
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Analysis of Agencies with Revenues Under $1,250,000
Revenues (% by Source)
Key Benchmarks Profile
Average
+25% Profit
+25% Growth
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Property & Casualty Commercial Commissions & Fees
43.8%
38.4%
37.8%
Bonds
0.9%
0.6%
0.4%
Personal Commissions Value Added Services
39.7%
45.1%
50.1%
0.7% 6.2%
0.0% 6.1%
2.3% 5.4%
Contingent/Bonus
Total P&C
91.4%
90.2%
96.0%
Life & Health/Financial Group Medical Commissions & Fees All Other Group Commissions & Fees Individual L&H Commissions & Fees
5.5% 0.2% 2.6% 0.1% 8.4% 0.1% 0.1%
5.2% 0.2% 4.3% 0.1% 9.8% 0.0% 0.0%
1.3% 0.1% 2.2% 0.0% 3.6% 0.0% 0.3%
Bonus/Overrides
Total L&H/Financial
Investments
Miscellaneous
Gross Revenues
100.0%
100.0%
100.0%
Brokerage Commission Expense
0.1%
0.1%
0.0%
Net Revenues
99.9%
99.9%
100.0%
Revenue by Source (% of Gross Revenues)
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
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Analysis of Agencies with Revenues Under $1,250,000
Revenue by Acquisition
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Acquired Revenues
Average Commissions Acquired
% of Agencies Acquiring
Percentage of Net Revenues
Acquisitions Made in Last 12 Months
8.1%
$110,910
11.8%
What the Typical Transactions Looked Like Revenues Acquired per Transaction
Multiples of Revenue Paid
Average
$172,293
Average
1.1x
High
$294,000
High
0.2x
Low
$70,000
Low
2.0x
Revenue by Account Concentration Average
+25% Profit
+25% Growth
% of Revenue Derived from: Largest Account
3.7%
3.3%
2.5%
High Low
10.5%
1.2%
10 Largest Accounts
13.7% 43.7%
11.9%
9.4%
High Low
1.5%
Average
+25% Profit
+25% Growth
“Other” Group Revenue* (% from source) Life
53.9% 15.0% 13.1%
59.7% 23.3%
99.7%
Disability
0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.0%
Dental & Vision
2.3% 0.0% 1.7%
Retirement/Pension
0.0%
Worksite/Voluntary/Supplement
13.1%
Long-Term Care
4.9% 0.0% 0.0%
13.0%
Employee Benefits TPA
0.0% 0.0%
2011 Best Practices Study
All Other
*Excludes Group Medical
Agencies with Revenues Under $1,250,000
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Analysis of Agencies with Revenues Under $1,250,000
Revenue by Account Size (as measured by Comm. & Fees – not premium)
Key Benchmarks Profile
Average
+25% Profit
+25% Growth
Commercial P&C Total Commissions & Fees in Book
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
$321,347
$346,160
$336,537
Greater than $25,000 % of Book
12.3%
20.5%
16.8%
# of Accounts Total Revenue
2.4
2.8
2.7
$104,607 $43,073
$177,800 $64,655
$187,985 $70,494
Revenue per Account
Between $10,000 and $25,000 % of Book
14.4%
17.1%
14.4%
# of Accounts Total Revenue
6.8
8.7
8.2
$81,417 $12,041
$98,728 $11,392
$97,042 $11,834
Revenue per Account
Between $5,000 and $10,000 % of Book
19.2%
23.4%
16.9%
# of Accounts Total Revenue
14.5
17.6
11.4
$88,028 $6,071
$115,857
$81,271 $7,111
Revenue per Account
$6,593
Less than $5,000
% of Book
54.1%
38.9%
51.9%
# of Accounts Total Revenue
531.7
333.8
485.7
$229,531
$168,378
$249,615
Revenue per Account
$432
$505
$514
(as measured by Comm. & Fees – not premium)
Average
+25% Profit
+25% Growth
Group L&H/Financial Total Commissions & Fees in Book
$47,527
$92,118
$16,157
Greater than $25,000 % of Book
19.7%
15.5%
18.6%
# of Accounts Total Revenue
1.7
1.3
*
$57,595 $34,557
$47,667 $35,750
* *
Revenue per Account
Between $10,000 and $25,000 % of Book
16.4%
15.6%
18.6%
# of Accounts Total Revenue
3.1
3.3
*
$41,317 $13,146
$48,000 $14,400
* *
Revenue per Account
Between $5,000 and $10,000 % of Book
2011 Best Practices Study
21.3%
18.8%
28.2%
# of Accounts Total Revenue
5.6
9.0
4.0
$37,392 $6,677
$57,667 $6,407
$22,800 $5,700
Agencies with Revenues Under $1,250,000
Revenue per Account
Less than $5,000
% of Book
42.4%
50.1%
39.0%
# of Accounts Total Revenue
30.2
33.4
27.8
$41,378 $1,369
$65,883 $1,971
$12,593
6
Revenue per Account
$453
*Insufficient Data
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Revenue Growth by Source
Average
+25% Profit
+25% Growth
Commercial P&C Renewals 1
83.3% 9.8% 1.3% -6.9% -5.6%
82.0% 9.6% 1.9% -8.4% -6.5% 47.5% 51.7% 0.0% -0.8% -0.8%
93.8% 13.9%
New Business 2
Acquired Revenues 3
0.8% 7.7% 8.5%
Organic Growth 4
Total Growth 5
Bonds
Renewals 1
76.8% 32.0%
86.5% 24.9%
New Business 2
Acquired Revenues 3
0.0% 8.8% 8.8%
0.0%
Organic Growth 4
11.4% 11.4%
Total Growth 5
Personal P&C
Renewals 1
91.0% 14.5%
87.5% 20.4%
84.1% 23.5%
New Business 2
Acquired Revenues 3
2.4% 5.5% 7.9%
2.6% 7.9%
1.9% 7.7% 9.5%
Organic Growth 4
Total Growth 5
10.5%
Value Added Services Renewals 1
61.3% 46.4%
* * * * *
66.8% 48.3%
New Business 2
Acquired Revenues 3
0.0% 7.7% 7.7%
0.0%
Organic Growth 4
15.2% 15.2%
Total Growth 5
*Insufficient Data
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.
4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
7
Analysis of Agencies with Revenues Under $1,250,000
Revenue Growth by Source (continued)
Key Benchmarks Profile
Average
+25% Profit
+25% Growth
Group Medical L&H Renewals 1
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
87.5% 11.4% 1.1% -1.1% 0.0% 91.6% 8.0% 0.0% -0.4% -0.4% 47.4% 47.4% 0.0% -5.2% -5.2% 85.2% 13.2% 1.5% -1.9% -0.4%
91.6%
98.3%
New Business 2
9.1% 2.0% 0.7% 2.7%
7.1% 0.3% 5.5% 5.8%
Acquired Revenues 3
Organic Growth 4
Total Growth 5
All Other Group L&H Renewals 1
* * * * *
* * * * *
New Business 2
Acquired Revenues 3
Organic Growth 4
Total Growth 5
Individual L&H
Renewals 1
44.3% 54.0% 0.0% -1.7% -1.7%
52.3% 53.0%
New Business 2
Acquired Revenues 3
0.0% 5.2% 5.2%
Organic Growth 4
Total Growth 5
Total Commissions & Fees Renewals 1
84.5% 16.0%
91.1% 18.0%
New Business 2
Acquired Revenues 3
1.8% 0.5% 2.3%
1.4% 9.1%
Organic Growth 4
Total Growth 5
10.4%
P&C Contingent Income Growth L&H Bonus Income Growth Investment Income Growth
-13.4%
-9.9%
2.0%
*
* *
*
-17.9%
-28.8% 11.4%
Total Revenue Growth
-0.6%
1.9%
Brokerage Commission Expense Growth
*
*
*
Net Revenue Growth (Organic) Net Revenue Growth (Total)
-2.0% -0.6%
0.4% 1.9%
10.0% 11.4%
*Insufficient Data
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.
4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
Future Revenue Sources
% of agencies considering line of business as very important:
Surety-Bonding
29.7% 78.4% 86.5%
Individual Life & Health
35.1% 27.0% 10.8%
8
Personal P&C
Group Medical/Health Insurance
Small Commercial P&C
All Other Group Benefits
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Organic Growth
The soft market and depressed economic environment continued to make organic growth difficult to achieve. The MEDIAN organic growth rate, which is the midpoint of the data when results are ranked in descending order, gives a more complete picture of the growth achieved by this study group.
MEDIAN Organic Growth Rate: 0.0%
Organic Growth by Line of Business
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
9
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile
Expenses (as % of Net Revenues)
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Average
+25% Profit
+25% Growth
Compensation Expenses Payroll: Employee
43.4%
36.0%
38.4%
Payroll: “Non-Employee” - 1099 Producers/Temp Help
2.3%
1.1%
0.6%
Total Payroll
45.7%
37.1%
39.1%
Benefits: Payroll Taxes Benefits: Retirement Benefits: Insurance
4.1% 1.9% 3.7% 0.2% 9.9%
3.0% 1.0% 2.7% 0.0% 6.8%
4.0% 2.3% 3.7% 0.4%
Benefits: Other
Total Benefits
10.3% 49.3%
Total Compensation
55.6%
43.9%
Selling Expenses T&E/Conventions Auto Expenditures Auto Depreciation
1.3% 1.6% 0.3% 1.9% 1.5% 4.7% 5.3% 0.2% 5.5% 0.4% 0.1% 0.6% 2.0% 0.3% 2.3% 1.5% 0.7% 1.7% 1.0% 0.4% 1.8% 0.6% 0.1% 0.3% 0.4% 0.8%
1.0% 1.3% 0.1% 1.3% 1.7% 4.0% 4.4% 0.0% 4.4% 0.6% 0.1% 0.6% 1.1% 0.0% 1.1% 1.4% 0.6% 1.9% 1.1% 0.6% 1.5% 0.5% 0.0% 0.1% 0.3% 0.4%
1.5% 1.6% 0.3% 2.0% 1.5% 5.0% 4.8% 0.0% 4.9% 0.4% 0.1% 0.5% 2.0% 0.1% 2.1% 1.2% 0.6% 2.2% 0.9% 0.4% 1.8% 0.6% 0.0% 0.3% 0.3% 0.7%
Total Auto
Advertising/Promotions
Total Selling
Operating Expenses Occupancy Expenditures
Occupancy Depreciation/Amortization
Total Occupancy
Office Equipment Expenditures Office Equipment Depreciation
Total Office Equipment
IT (Information Technology) IT Depreciation/Amortization
Total IT
Telephone
Postage
Supplies/Printing
Dues/Subscriptions/Contributions
Taxes/Licenses
Insurance
Professional Fees
2011 Best Practices Study
Bad Debts
Outside Services Education/Training
Agencies with Revenues Under $1,250,000
Miscellaneous
Total Operating
17.5%
14.6%
16.5%
continued on next page
10
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Expenses (as % of Net Revenues) — continued
Average
+25% Profit
+25% Growth
Administrative Expenses Amortization of Intangibles
0.7% 0.2% 0.9% 0.0% 1.9%
0.1% 0.2% 0.3% 0.0% 0.6%
0.0% 0.1% 0.0% 0.0% 0.1%
Officer Life
Interest
Other
Total Administrative
Total Expenses
79.6% 20.4% 22.8%
63.1% 36.9% 37.5%
70.9% 29.1% 29.6%
Pre-Tax Profit (Loss)
EBITDA
Average
+25% Profit
+25% Growth
Expense Growth Over Prior Year Compensation Expense
-0.7% -1.2% 0.9% 8.0%
-0.6%
7.6%
Selling Expense
1.9%
-4.8% -1.1%
Operating Expense
-2.0% -5.8%
Administrative Expense
*
* Insufficient Data
Expenses (as % of Net Revenues)
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
11
Analysis of Agencies with Revenues Under $1,250,000
Profit/Loss Summary
Key Benchmarks Profile
Average
+25% Profit
+25% Growth
Revenues (as % of Gross Revenue) Commercial Lines
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
43.8%
38.4%
37.8%
Bonds
0.9%
0.6%
0.4%
Personal Lines
39.7%
45.1%
50.1%
Value Added Services Contingent/Bonus
0.7% 6.2% 5.5% 0.2% 2.6% 0.1% 0.1% 0.1%
0.0% 6.1% 5.2% 0.2% 4.3% 0.1% 0.0% 0.0%
2.3% 5.4% 1.3% 0.1% 2.2% 0.0% 0.0% 0.3%
Group Medical All Other Group Individual L&H Bonus/Overrides Investments Miscellaneous
Total Revenues
100.0%
100.0%
100.0%
Brokerage Commission Expense
0.1%
0.1%
0.0%
Net Revenues
99.9%
99.9%
100.0%
Expenses (as % of Net Revenues) Compensation
55.6%
43.9%
49.3%
Selling
4.7%
4.0%
5.0%
Operating
17.5%
14.6%
16.5%
Administrative
1.9%
0.6%
0.1%
Total Expenses
79.6%
63.1%
70.9%
Profit/Loss (as % of Net Revenues)
Pre-Tax Profit
20.4% 26.0% 10.8% 22.8% 28.5%
36.9% 44.6% 22.4% 37.5% 45.2%
29.1% 27.6% 12.3% 29.6% 28.2%
Pro Forma Pre-Tax Profit 1 Operating Pre-Tax Profit 2
EBITDA 3
Pro Forma EBITDA
1 Pre-tax Profits if discretionary expenses are eliminated and all owners compensated as employees
2 Pre-tax Profits excluding contingents, bonus and investment income
3 EBITDA—Earnings Before Interest Taxes Depreciation and Amortization
Profitability
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
12
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
“Rule of 20” Score
The Rule of 20 is a simple growth and profitability balancing equation that provides a quick way to determine whether or not an agency is creating value for its shareholders. It states that an agency will drive industry-standard shareholder returns if the sum of (a) its organic growth rate and (b) 1/2 of its EBITDA margin equals or exceeds 20.
Rule of 20 Outcome
Organic Growth
EBITDA Margin
Rule of 20 Outcome
Public Brokers
Willis Group
4.0% 27.3% 17.7
Aon
0.0% 21.1% 10.6
Organic Growth Rate
1/2 of EBITDA Margin + =
Rule of 20 Score
Brown & Brown
-4.6% 34.9% 12.9
Arthur J. Gallagher -2.1% 18.8% 7.3 Marsh & McLennan 2.0% 17.4% 10.7 2010 was a year of continued soft pricing which prevented the public brokers from achieving an outcome of 20, as shown in the table above.
Generally speaking, an outcome of 20 or more, regardless of the different combinations of growth and profitability, indicates that the agency’s shareholders can expect to earn 15% -17% per year through stock price appreciation and/or shareholder distributions.
Because organic growth is such a key input into the Rule of 20, the persisting soft market and the current depressed economic environment have made it harder to achieve a score of 20. A good rule of thumb is that an agency, while always striving for as high a Rule of 20 score as possible, will combine solid organic growth with an EBITDA margin that is at least twice as high as its growth rate.
Average
+25% Profit Average +25% Growth Average
“Rule of 20” Score
12.9
24.3
26.3
Financial Stability
Average
Top 25%
Balance Sheet Current Ratio
1.18:1
1.98:1
Tangible Net Worth (% of Net Revenue)
9.0%
27.7%
Receivables/Payable Ratio
65.1%
0.5%
Aged Receivables
% Receivables Aged Past 60 Days % Receivables Aged Past 90 Days
46.2% 17.2%
9.7% 2.0%
2011 Best Practices Study
Accounts Receivable
Average
+25% Profit
+25% Growth
Agencies with Revenues Under $1,250,000
Agency Billed vs. Direct Billed by Carrier % of P&C Revenues that are Agency Billed
12.2% 87.8%
2.0%
7.2%
% of P&C Revenues that are Direct Billed
98.0%
92.8%
13
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile
Employee Productivity
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Average
+25% Profit
+25% Growth
Total Number of Employees (FTE)
7.0
6.1
6.8
Revenue Per Employee
$116,963
$146,713
$118,983
Compensation Per Employee
$64,086
$62,710
$54,248
Spread Per Employee
$52,877
$84,003
$64,735
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
14
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Validated Producer Productivity
Average
Top 25%
Commercial P&C Producers Average Validated Producers # Validated
1.4 3.0 1.0
High Low
Average New Commissions Produced Annually
$41,133 $190,087 $76,362
$88,692 $326,202
Average Book Serviced (Commissions)
Average Pay ($)
Average Pay (% of Book Serviced)
40.2%
Group Life & Health Producers Average Validated Producers # Validated
1.0 1.0 0.5
High Low
Average New Commissions Produced Annually
$27,167 $133,247 $85,304
$50,375 $177,493
Average Book Serviced (Commissions)
Average Pay ($)
Average Pay (% of Book Serviced)
64.0%
Personal P&C Producers Average Validated Producers # Validated
1.1 2.0 0.5
High Low
Average New Commissions Produced Annually
$22,083 $165,733 $53,533
$38,292 $284,624
Average Book Serviced (Commissions)
Average Pay ($)
Average Pay (% of Book Serviced)
32.3%
Multi-Line Producers Average Validated Producers # Validated
1.9 5.0 1.0
High Low
Average New Commissions Produced Annually
$40,961 $221,771 $79,080
$73,002 $349,741
2011 Best Practices Study
Average Book Serviced (Commissions)
Average Pay ($)
Average Pay (% of Book Serviced)
35.7%
Agencies with Revenues Under $1,250,000
T&E Reimbursement
Average
+25% Profit
+25% Growth
% of Agencies That Reimburse All/Part T&E Expense
67.6%
70.0%
80.0%
15
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile
Most Successful Producer Productivity
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Most Successful Producer Productivity
Commercial P&C
Group L&H
Average Top 25% Average Top 25% Average Top 25%
$52,020
$45,822
New Commissions Produced Annually
$83,479
$88,583
$323,783
$216,370
Total Commissions in Producer’s Book
$501,200
$393,333
$2,644
$3,945
Average Commissions per Account
$6,229
$9,575
How Most Successful Producers Spent Time
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
16
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Net-investment in Unvalidated* Producer Pay
Average
+25% Profit
+25% Growth
The NUPP
Expressed as a percentage of Net Revenue, the NUPP is the difference between what an agency pays its unvalidated producer(s) and what the producer(s) would earn under the agency’s normal commission schedule. A NUPP of 1.5% is considered a healthy level of investment.
0.5%
0.7%
1.0%
High
6.2%
Low
0.0%
*An unvalidated producer is one whose production does not yet cover his/her wages
Understanding the NUPP
One of the most important investments an agency can make in organic growth is in the hiring and developing of new producers. By measuring pure payroll costs , the NUPP benchmark allows an “apples-to-apples” comparison with other agencies regarding the amount of direct investment an agency is making in new producers. The NUPP benchmark is intended to be simple and is not designed to measure all other ancillary expenses that accompany the hiring and developing of new producers. While the NUPP provides a general investment guideline, an agency should also consider the success rate of its new producers, i.e. the percentage of new producers hired during the past 5 year period that have achieved the sales goals set before them. By multiplying the NUPP by the producer success rate, an agency can further determine the effectiveness of its NUPP . High performing agencies typically achieve an Effective NUPP between 1.0% - 1.5%.
New Producers
Average
+25% Profit
+25% Growth
New Producer Hiring % of Agencies that Hired New Producers Last Year
10.8%
20.0%
20.0%
# of New Producers Hired Last Year
1.3
1.5
1.5
2011 Best Practices Study
Average Annualized Wages per Producer Hired
$51,667
$40,000
$40,000
Agencies with Revenues Under $1,250,000
78.7% of producers hired over the last 5 years have met their production goals
“Successful” New Producers:
17
Analysis of Agencies with Revenues Under $1,250,000
Key Benchmarks Profile
Service Staff Productivity
Service Staff is defined in the study as typically non-commissioned employees who are responsible for providing service to the agency’s clients and/or supporting producers in the sale of new business and the retention of existing business. (Some service positions may earn commission income but a majority of their pay is fixed.) Senior level service staff is referred to as Account Executives (AEs) . All others including Account Managers, Customer Service Reps (CSRs), Assistant CSRs, Processors, Claims Specialists, Placers/Marketers, etc. are referred to as Service/ Sales Support Staff .
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Service Staff Overview
Average
+25% Profit +25% Growth
Total # of Service Staff:
(as defined above; excludes any TPA service staff)
4.1
3.3
4.6
% of Agencies Having:
Separate/Dedicated Marketing Department
10.8%
20.0%
30.0%
# of Marketing Staff
1.1
1.0
1.2
Separate/Dedicated Claims Department
2.7%
0.0%
0.0%
# of Claims Staff
*
*
*
*Insufficient Data
TPA Service Staff
Average
+25% Profit
+25% Growth
% of Agencies Having: Workers Comp TPA
0.0%
0.0%
0.0%
# of Service Staff
*
*
*
Total TPA Revenues Serviced
*
*
*
Group Benefits TPA
0.0%
0.0%
0.0%
# of Service Staff
*
*
*
Total TPA Revenues Serviced
*
*
*
*Insufficient Data
Average # of Licensed Employees:
5.8
(includes sales and service/support staff)
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
18
Analysis of Agencies with Revenues Under $1,250,000
Service/Sales Support Staff
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Average
Top 25% Average
Top 25%
Commercial P&C
Personal P&C
Number
1.8 4.0 0.5
1.8 3.3 0.5
High Low
Average Book Serviced (Commissions)
$188,682 $355,518
$158,720 $323,938
Average Pay ($)
$36,101
$32,176
Average Pay (% of Book Serviced)
19.1%
20.3%
L&H/Financial
Multi-Line
Number
1.0 1.0 0.5
1.8 5.0 1.0
High Low
Average Book Serviced (Commissions)
$183,316 $251,286
$207,308 $364,884
Average Pay ($)
$34,361
$35,675
Average Pay (% of Book Serviced)
18.7%
17.2%
Account Executives
Average
Top 25%
The Account Executive is defined as a senior level service position whose responsibility is to manage the overall service plan/activities for an existing book of business. Although the AE may have limited sales responsibilities, for the purposes of
Commercial P&C Account Executives Number
1.3 2.0 0.5
High
Low
Average Book Serviced (Commissions)
$270,145
$454,466
Average Pay ($)
$56,007
Average Pay (% of Book Serviced) Personal P&C Account Executives Number
20.7%
the study, they are classified as Service Staff. The position is often created to support and enable a producer to focus on new business production.
1.3 3.0 0.5
High
Low
Average Book Serviced (Commissions)
$161,458
$233,264
Average Pay ($)
$39,678
2011 Best Practices Study
Average Pay (% of Book Serviced) L&H / Financial Account Executives Number
24.6%
Agencies with Revenues Under $1,250,000
0.7 1.0 0.5
High
Low
Average Book Serviced (Commissions)
$135,250
*
Average Pay ($)
$43,093
19
Average Pay (% of Book Serviced)
31.9%
*Insufficient Data
Analysis of Agencies with Revenues Under $1,250,000
Technology
Key Benchmarks Profile
Average
Top 25%
Information Technology Employees (FTE) Number
Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
0.6 2.0 0.1
High Low
Total IT Payroll Expense ($)
$14,202
$32,917
As % of Total Compensation Expense
3.2% 1.7%
As % of Net Revenues
Average
+25% Profit
+25% Growth
Total IT Expenses 1 (as % of net revenues)
2.5%
2.3%
2.6%
1 Includes hardware/software leasing including offsite applications, supplies, maintenance & maintenance contracts, training, data lines, internet providers, website development/maintenance, outside consulting fees, computer depreciation, software amortization, and any non-depreciated hardware/software.
Agency Management System Utilized
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
20
Analysis of Agencies with Revenues Under $1,250,000
Carriers
Key Benchmarks Profile Revenues Expenses Profitability Employee Overview Producer Info Staff Service Info Technology Insurance Carriers Appendix
Average
+25% Profit
+25% Growth
Carrier Representation Personal Lines P&C National
4.1 4.1 8.1 4.4 4.3 8.6
3.8 3.9 7.7 4.8 4.1 8.9
4.0 5.7 9.7 3.8 4.1 7.9
Regional
Total
Commercial Lines P&C National
Regional
Total
Group L&H / Financial Total
5.2
6.6
3.3
Revenue from Top Carriers
Average
+25% Profit
+25% Growth
Commission Income Derived from Top Carriers % of Net Rev from Top P&C Carrier
30.3%
34.8%
37.9%
% of Net Rev from Top 3 P&C Carriers
53.6%
60.3%
62.9%
% of Net Rev from Top L&H/F Carrier
5.1%
6.1%
2.1%
% of Net Rev from Top 3 L&H/F Carrier
7.8%
8.7%
3.1%
Revenues from Top P&C Carrier–Breakdown By Line of Business
2011 Best Practices Study
Agencies with Revenues Under $1,250,000
21
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