The independent agency channel posted an exceptionally strong first quarter (Q1) of 2020, which will help them maintain momentum through the troubled COVID-19 economy, according to Reagan Consulting.
Agents and brokers logged organic growth exceeding 5.0% for the ninth consecutive quarter. At 6.6%, it's their highest Q1 growth since Reagan launched the Organic Growth and Profitability (OGP) survey in 2008. Meanwhile, since the close of Q4 2019 and the onset of shelter-in-place directives, agents and brokers lowered their expectations for organic growth this year by three percentage points to 4.1%, reports Harrison Brooks, Reagan Consulting partner.
"While it's too early to tell the ultimate impact of this global pandemic, OGP survey participants are signaling that they believe it will only pump the brakes on growth rather than bring it to a halt," says Brooks.
If agents and brokers prove correct in their predictions, "It would be an astonishing success and further illustrate the resilience of the insurance brokerage industry," he adds.
The organic growth of personal lines declined for the second consecutive first quarter to 2.8%, but commercial lines posted an organic growth rate of 8.4% -- "the largest since Q1 2014," says Brooks. Group benefits "increased materially," he adds, from 3.8% in Q1 2019 to 5.8% in Q1 2020 Agency profitability increased from 27.8% in Q1 2019 to 29.3% in 2020. At the same time, contingent income rose from 6.2% in Q1 2019 to 13.3% in Q1 2020.
In addition, operating profits in Q1 2019 were 11.6%, but rose to 12.8% in Q1 2020. These increases "could not come at a better time," observes Brooks, but he also notes some agencies have cut employee compensation to preserve profitability. As well, he cautions that "profitability results are always inflated by cash-basis contingent income during the first quarter of the year. Margins will decline throughout year."
Brooks advises agents and brokers to remember that the firms thriving after the Great Recession of 2008-2009 were those "that opportunistically invested in growth" during the recession. "Moves made by agents and brokers in the coming months will likely dictate who prospers in the years ahead," he says.
For further observations and commentary on the unusual first quarter of 2020, contact Harrison Brooks at Reagan Consulting, 404.869.2537 or hbrooks@ReaganConsulting.com.
Each participating agency receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan's quarterly commentary of industry trends affecting agents and brokers. For information on participating in the OGP survey, contact Michelle Appelbaum at 404.233.5545 or michelle@ReaganConsulting.com.
About Reagan Consulting:
Reagan Consulting is a management consulting firm providing strategic consulting, valuation, capital raising and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm's services for insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, capital raise advisory, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Organic Growth & Profitability benchmark survey.