2014 BEST PRACTICES STUDY UPDATE New Day, New Possibilities CCoonndduucctteedd bbyy :: Independent Insurance Agents && & Brokers of America, Inc. ® 2014 Best Practices Study 2014 Best Practices Study ii v011315 2014 Best Practices Study Special Acknowledgement We wish to thank the following companies for their sponsorship which has funded the development of the 2014 Best Practices Study and the Best Practices Gateway website. y. nl o e s u s e c cti a P r st e B or cil f n u o C d n a n o ati ci o s s a e at st or F 2014 Best Practices Study Copyright©2014 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved. i 2014 Best Practices Study TABLE OF CONTENTS Introduction Analysis of Agencies with Revenues Under $1,250,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 y. nl Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 o e Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .u . s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 s Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c. . e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. c. t.i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 P r Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .s .t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 e Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 or Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . .c i.l . f. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Producer Information. . . . . . . . . . . . . . . . . . . . u. . n. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 o Service Staff Information . . . . . . . . . . d. . .C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 n Technology . . . . . . . . . . . . . . . . . . . . a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 n Insurance Carriers . . . . . . .a .t i. . o. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ci o s s Analysis of Agena cies with Revenues Between $2,500,000 and $5,000,000 e Key Benchmaatrks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 st Profileo. r. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 F Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 2014 Best Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Practices Study Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 ii 2014 Best Practices Study Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Key Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129 y. Analysis of Agencies with Revenues Over $25,000,000 o nl e Key Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . u. s. . . . . . .133 s Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .c . e. . . . . . . . . . . .134 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .a . c.t .i . . . . . . . . . . . . . . 135 P r Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .s t. . . . . . . . . . . . . . . . . . . . . . . 142 e Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. . . . . . . . . . . . . . . . . . . . . . . . . . . 144 or Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .c i.l . .f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .u . n. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148 o Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d. . . C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151 n Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154 n Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a.t .i . o. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155 ci o s s Appendix a e Population Density Analysis . . . . . . . . . . . . .a .t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 st Regional Analysis . . . . . . . . . . . . . . . . . o. r. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161 F Glossary / Definitions / Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163 2014 Best Practices Study iii 2014 Best Practices Study INTRODUCTION performance, thus enhancing agency value. The Big “I” retained the principals of Reagan Consulting Since 1993 the annual Best Practices Study has served as to create and perform the first Best Practices Study. a tool to help agency owners and managers understand Annual updates conducted by Reagan Consulting how their business operations perform and measure continue to provide important financial and operational up to the top performing firms across the country. It is benchmarks, and the study is recognized as one of the a “must have” for those agencies that want to become most thoughtful, effective and valuable resources ever the best they can be. made available to the industry. The 2014 Best Practices Study provides critical performance benchmarks in six agency revenue The Process categories ranging from Under $1,250,000 to Over $25,000,000. Agencies can measure, evaluate, and Once every three years the Big “I” asks insurance compare results for agency operations including: companies, state association affiliates, and other industry organizations to nominate for each of the • Income & Expense Distribution study revenue categories those agencies they consider to be among the better, more professional agencies in • Revenue & Profitability Growth y. the industry. nl o • Sales & Service Staff Compensation/Productivity e s u • Technology Expenses The nomeins ated agencies are then invited to participate. c • Property & Casualty and Life & Health Carrier Thaeyct imust be willing to share key business practices/ Pprhilosophies and to complete an in-depth survey Representation st detailing their financial and operational year-end e B • And much more or results. Those results are then scored and ranked cil f objectively for inclusion on the basis of operational The 2014 study can be purchasedu n from the excellence. o Independent Insurance Agents & BroCkers of America d (Big “I”) Education Department. aOnrders can be placed In 2013, the beginning of the current three-year study at http://bp.reaganconsultoinn g.com or at www. cycle, nearly 1,200 independent agencies throughout independentagent.comci. aFtior more information please the U.S. were nominated to take part in the annual o call 1-800-221-791s7.s study. Although participation required extensive time a e and effort, 308 submitted their data; only 217 qualified at st for the honor and acquired the Best Practices status. Aboour t The Study F To be chosen, the agency had to be among the top The History 30-40 top performing agencies in one of six revenue categories. Their year-end results and business practices were then compiled to create the Best Practices The annual Best Practices Study originated in 1993 benchmarks. The agencies retain their Best Practices as an initiative by the Independent Insurance Agents status for the three-year study cycle as long as they & Brokers of America (Big “I”) to help its members submit their data each year so that the benchmarks build and maintain the value of their most important can be updated annually. The 2014 study continues to assets, their agencies. By studying the leading agencies examine the 2013 agencies. and brokers in the country, the association hoped to provide member agents with meaningful performance Taking part in the study has become a prestigious benchmarks and business strategies that could be recognition of the superior accomplishments of the adopted or adapted for use in improving agency top insurance agencies in the country. 2016 will mark 2014 Best Practices Study iv 2014 Best Practices Study the beginning of a new study cycle in which the Planner. These Best Practices tools are part of a nomination and qualification process will be repeated. complete line of Best Practices products and services. Those agencies that believe they have the qualities of Order forms can be downloaded from http:// a Best Practices Agency and wish to be nominated in bp.reaganconsulting.com or can be purchased 2016 for the next study cycle should contact their state online at www.independentagent.com. association or insurance carrier and ask that their name be submitted. If You Have Questions About the Best Practices If you have questions about the information published in the 2014 Best Practices Study please contact the Big Gateway Website “I” Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545. The electronic version of this study can be accessed via the websites of the Big “I” (www. independentagent.com) and Reagan Consulting y. (www.reaganconsulting.com). o nl e s u From the Best Practices Gateway home page, users can s e c do the following: cti a P r st • View an HTML version of the current and past Best B e Practices Study Executive Updates or cil f • Download a Best Practices comparison spreadsheet u n o to compare their year-end results with the study’s C d results n a n • Access other Best Practices studies, tools and atio products o ci s s • Order a copy of the study e a at st or F 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 2014 Best Practices Study v 2014 Best Practices Study y. nl o e s u s e c cti a P r st e B or cil f n u o C d n a n o ati ci o s s a e at st or F 2014 Best Practices Study 1 2014 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 y. nl o e s u s e c cti a P r st e B or cil f n u o C d n a n o ati ci o s s a e at st or F 2014 Best Practices Study 2 Analysis of Agencies with Revenues Under $1,250,000 Key Benchmarks Profile Revenues Key Benchmarks at a Glance Expenses Average +25% Profit +25% Growth Profitability Growth Employee Overview Organic Growth By Line of Business* Producer Info Commercial P&C 1.8% -12.7% 9.2% Personal P&C 4.1% 2.7% 9.0% Service Staff Info Group Medical -6.2% -28.4% -9.8% Technology All Other Group -9.3% * * Insurance Carriers Total Organic Growth 4.6% 1.4% 14.1% Appendix Profit o nly. Pro Forma Pretax Profit 26.1% s e 48.3% 27.1% u s Pro Forma EBITDA 29.0%c e 48.6% 30.1% cti a Rule of 20 Score P r18.2 24.1 23.5 st e Financial B or cil f Average Top 25% n u Current Ratio C o 1.53:1 2.82:1 d n Receivable/Payable Ratio a 62.4% 12.3% n o Accounts Receivables >a t6i0 Days 48.5% * ci o s Accounts Receivsables > 90 Days 4.2% 0.0% a e Producsttivaitty or F Average +25% Profit +25% Growth Revenue per Employee $135,346 $214,865 $135,198 Compensation per Employee $66,272 $78,802 $63,149 Spread per Employee $69,074 $136,063 $72,049 Annual New Commission Generated per Validated Producer Average Top 25% Commercial P&C $33,020 $64,733 Personal P&C $25,231 $43,224 2014 Best Life & Health/Financial * * Practices Study Service Staff Total Payroll as % of Line of Business Revenue Agencies Average # of Service Staff with Commercial P&C 25.5% 1.8 Revenues Personal P&C 25.8% 2.0 Under $1,250,000 Group Life & Health/Financial 29.7 0.5 *Insufficient Data 3 *Excludes any acquired revenue