Even as the pandemic has forced changes to the ways in which they conduct business, independent insurance agents and brokers have continued to grow while generating record profitability. Pandemic growth is the primary finding of the third-quarter (Q3) Organic Growth & Profitability (OGP) Survey conducted by Reagan Consulting.
“Brokers are evolving to succeed in the face of COVID-19,” says Mitchell Gentry, associate of Reagan Consulting.
After posting organic growth of 6.6% in Q1, industry growth has slowed as a result of the pandemic. Q2 organic growth fell to 4.4% and Q3 inched upward to 4.7%. The two-quarter average of 4.6% exceeds average quarterly OGP results from 2015 to 2017, observes Gentry.
Furthermore, “large and small firms have … grown at almost identical clips,” Gentry says, while “the difference between top and bottom quartile growth has decreased in each quarter.” Taken together, Gentry explains, those statistics defy the reasonable expectation that only the median growth would be relatively stable during the crisis while large firms would grow at the expense of smaller ones.
Performance of individual lines
Commercial lines posted growth of 5.5% in Q3, an increase from 4.7% in Q2 2020. Personal lines posted growth of 2.1% in Q3, up from 1.1% in Q2 2020.
However, employee benefits posted the lowest Q3 growth rate since 2009, dropping from 4.2% in Q2 to 3.9% in Q3. Government premium moratoriums, declining headcounts and payrolls, and employee furloughs all could have caused the drop, observes Gentry.
Broker profitability at record levels
Gentry says, “For the second consecutive quarter, EBITDA (earnings before interest, taxes, depreciation and amortization) and operating margins set OGP records for their respective quarter.” Attributing the increase to reduced selling expenses driven by entertainment and travel restrictions during the pandemic, Gentry states profitability may increase further in the coming months as agents and brokers “right-size their office footprints and eliminate discretionary expenditures, among other strategic initiatives.”
Confidence mounts
As they continue to post stable growth, independent agents and brokers grow increasingly optimistic. But the real impact of the pandemic on revenues won’t be known until Q4 for two reasons, says Gentry. First, the 2020 election results will begin to affect the economy; and second, the pandemic’s greatest financial punch was from March through June of this year, and broker growth “tends to lag economic growth by six months.”
For further observations and commentary on the first three quarters of 2020, contact Mitchell Gentry at Reagan Consulting, 404.869.2539 or mitchell@reaganconsulting.com
Each participating agency in the OGP 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 survey, contact Michelle Appelbaum at 404.869.2541 or michelle@ReaganConsulting.com