2021 Best Practices Study

Adapting to a Rapidly Changing Environment

Introduction

A most remarkable 2020 … b ut there is more to the story than COVID-19

2020 proved to be one of the most consequential years for our world, country, and industry. COVID-19, which erupted onto the world stage in early 2020, has yet to be resolved as we go to press for this 2021 Best Practices Study (August 2021). The second wave of COVID misery, in the form of the Delta strain, ensures that COVID will continue to stay front and center on the world stage well into 2022. Despite the early fears regarding the impact of COVID on the overall economy and the insurance industry, we fared remarkably well. After a horrific drop in GDP early in 2020, the U.S. economy rebounded magnificently in the second half of the year. Agency growth rates in 2020 were strong. Agency profitability hit all-time highs. Agencies transitioned to remote work virtually overnight and customer care and retention levels remained remarkably steadfast. Agency valuations, both internally and externally, have reached the highest levels ever achieved in our industry. All this … in the midst of a global pandemic. If nothing else, 2020 demonstrated, yet again, the enormous value and resiliency of the independent insurance broker. Although the final COVID story is still unwritten, we have much to be grateful for and have every reason to be optimistic regarding the future of our industry. That said, many events outside of COVID-19 continue to shape our industry and must be addressed for Best Practices agencies to thrive in the future. Two of the most fundamental areas warranting close attention are internal agency perpetuation and InsurTech. Over the past decade, pressures on internal perpetuation have ratcheted up materially. Our industry has gone through massive M&A consolidation over the past decade, unlike anything ever before seen. Whereas 25 years ago, only five national firms were competing to buy insurance agencies, the number of buyers competing for deals today exceeds 40. Basic supply and demand pressures have pushed agency valuations, both internal and external, to all-time highs. This is great news, but does require adapting internal perpetuation strategies to account for current realities. In the next section of this year’s Best Practices whitepaper, we will address how Best Practices agencies are rethinking their internal perpetuation strategies. Another trend requiring close attention is InsurTech. Without question, technological innovations have driven many of the monumental improvements in agency operations and profitability over the past few decades. The impact of this convergence of technology and insurance brokerage operations acceleration is difficult to overstate. A flood of investment capital is driving change at a pace and scope unimaginable just a handful of years ago. Many believe that the insurance brokerage space is ripe for technological disruption (think 1990’s -era travel agencies and stock brokerages). Agencies who do not monitor and adapt to the rapid technological innovations bombarding our industry will, without question, struggle to meet their full potential in the future. The second section of this year’s whitepaper will address the key trends in Insurtech that Best Practices leaders need to know to continue to excel. Internal Perpetuation InsurTech

| 11