2017 Best Practices Study

It is no secret that the industry is growing older. Since 2008, Reagan Consulting has tracked the industry’s Weighted Average Producer Age (WAPA, shown in orange in the following graph) and its Weighted Average Shareholder Age (WASA, shown in teal). Recognizing the need for younger buyers to facilitate internal perpetuation, the trend is sobering.

54.5

54.4

53.3

53.3

52.9

52.5

51.9

51.9

51.1

49.5

49.4

49.3

48.7

48.4

48.0

47.8

47.0

46.6

2008

2009

2010

2011

2012

2013

2014

2015

2016

WASA

WAPA

This aging population demographic is placing stress on the industry’s ability to perpetuate itself internally. Simply put, the industry is not developing enough young producers, who represent the largest internal buying group by a wide margin. In fact, research has consistently shown that insurance agencies are hiring far too few producers to support their own growth and perpetuation objectives. Internal insurance agency perpetuation requires both sellers and buyers. The sellers are in place… and getting older by the day. But without enough buyers, agencies will have no choice but to perpetuate externally.

Reversing this trend and providing an ample supply of hungry buyers is based on executing a simple – but difficult – strategy:

1) Agency owners must sell equity to young, deserving producers and other employees along the way, rather than holding equity until retirement. Privately-held firms should try to keep WASA under 50, avoiding making worthy partnership candidates wait too long until they are permitted to buy-in. In our view, the insurance industry could learn a lesson from other professional services firms, such as CPAs and law firms, by simply developing a culture in which becoming a partner is a young professional’s highest aspiration. Agencies best positioned to perpetuate internally create a partnership track for their producers and other employees and ensure that talented employees are moving along that track. 2) Privately-held firms must recruit and develop young producers - over and over again. This second step is easily stated but especially challenging to implement. That said, Reagan Consulting’s research shows that agencies that have built a vibrant producer recruiting and development platform are far more likely to generate the buyers necessary for internal perpetuation to work.

Best Practices agencies can rely on three tools to help gauge their investments in young producers to ensure they are at an appropriate level to fuel growth and internal perpetuation.