2014 Best Practices Study

2014 BEST PRACTICES STUDY UPDATE New Day, New Possibilities

Conducted by :

Independent Insurance Agents & Brokers of America, Inc.

&

®

2014 Best Practices Study

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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.

2014 Best Practices Study

Copyright©2014 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

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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 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 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 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

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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 Analysis of Agencies with Revenues Over $25,000,000 Key Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Employee Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154 Insurance Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161 Glossary / Definitions / Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163

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INTRODUCTION Since 1993 the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a “must have” for those agencies that want to become the best they can be. The 2014 Best Practices Study provides critical performance benchmarks in six agency revenue categories ranging from Under $1,250,000 to Over $25,000,000 . Agencies can measure, evaluate, and compare results for agency operations including: • Income & Expense Distribution • Revenue & Profitability Growth • Sales & Service Staff Compensation/Productivity • Technology Expenses • Property & Casualty and Life & Health Carrier Representation • And much more The 2014 study can be purchased from the Independent Insurance Agents & Brokers of America (Big “I”) Education Department. Orders can be placed at http://bp.reaganconsulting.com or at www. independentagent.com. For more information please call 1-800-221-7917. About The Study The History The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (Big “I”) to help its members build and maintain the value of their most important assets, their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or adapted for use in improving agency

performance, thus enhancing agency value.

The Big “I” retained the principals of Reagan Consulting to create and perform the first Best Practices Study . Annual updates conducted by Reagan Consulting continue to provide important financial and operational benchmarks, and the study is recognized as one of the most thoughtful, effective and valuable resources ever made available to the industry. The Process Once every three years the Big “I” asks insurance companies, state association affiliates, and other industry organizations to nominate for each of the study revenue categories those agencies they consider to be among the better, more professional agencies in the industry. The nominated agencies are then invited to participate. They must be willing to share key business practices/ philosophies and to complete an in-depth survey detailing their financial and operational year-end results. Those results are then scored and ranked objectively for inclusion on the basis of operational excellence. In 2013, the beginning of the current three-year study cycle, nearly 1,200 independent agencies throughout the U.S. were nominated to take part in the annual study. Although participation required extensive time and effort, 308 submitted their data; only 217 qualified for the honor and acquired the Best Practices status. To be chosen, the agency had to be among the top 30-40 top performing agencies in one of six revenue categories. Their year-end results andbusiness practices were then compiled to create the Best Practices benchmarks. The agencies retain their Best Practices status for the three-year study cycle as long as they submit their data each year so that the benchmarks can be updated annually. The 2014 study continues to examine the 2013 agencies. Taking part in the study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in the country. 2016 will mark

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Planner . These Best Practices tools are part of a complete line of Best Practices products and services. Order forms can be downloaded from http:// bp.reaganconsulting.com or can be purchased online at www.independentagent.com. If You Have Questions If you have questions about the information published in the 2014 Best Practices Study please contact the Big “I” Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

the beginning of a new study cycle in which the nomination and qualification process will be repeated. Those agencies that believe they have the qualities of a Best Practices Agency and wish to be nominated in 2016 for the next study cycle should contact their state association or insurance carrier and ask that their name be submitted.

About the Best Practices Gateway Website

The electronic version of this study can be accessed via the websites of the Big “I” (www. independentagent.com) and Reagan Consulting (www.reaganconsulting.com). From the Best Practices Gateway home page, users can do the following: • View an HTML version of the current and past Best Practices Study Executive Updates • Download a Best Practices comparison spreadsheet to compare their year-end results with the study’s results • Access other Best Practices studies, tools and products • Order a copy of the study 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

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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

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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 Organic Growth By Line of Business* Commercial P&C

Employee Overview

1.8%

-12.7%

9.2%

Producer Info

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%

*

*

Total Organic Growth Profit Pro Forma Pretax Profit

4.6%

1.4%

14.1%

Insurance Carriers

Appendix

26.1%

48.3%

27.1%

Pro Forma EBITDA

29.0%

48.6%

30.1%

Rule of 20 Score

18.2

24.1

23.5

Financial

Average

Top 25%

Current Ratio

1.53:1

2.82:1

Receivable/Payable Ratio

62.4%

12.3%

Accounts Receivables > 60 Days

48.5%

*

Accounts Receivables > 90 Days

4.2%

0.0%

Productivity

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

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Life & Health/Financial

*

*

Service Staff Total Payroll as % of Line of Business Revenue Average

Agencies with Revenues Under $1,250,000

# of Service Staff

Commercial P&C

25.5%

1.8

Personal P&C

25.8%

2.0

Group Life & Health/Financial

29.7

0.5

*Insufficient Data

3

*Excludes any acquired revenue

Analysis of Agencies with Revenues Under $1,250,000

Profile (of Agencies in this Study Group)

Key Benchmarks Profile

Average Total Revenues: $810,333

Revenues

Population Density of Metropolitan AreasWhere Home Office is Located Average

Expenses

+25% Profit

+25% Growth

Profitability

Less than 50,000 50,000 – 250,000 250,000 – 1,000,000 More than 1,000,000 Corporate Structure C

62.1% 10.3% 17.2% 10.3%

42.9% 14.3% 28.6% 14.3%

57.1% 14.3% 14.3% 14.3%

Employee Overview

Producer Info

Service Staff Info

17.2% 69.0%

0.0%

14.3% 71.4%

Technology

S

71.4%

Insurance Carriers

Partnership

0.0%

0.0%

0.0%

Appendix

LLC

10.3%

28.6%

14.3%

Sole Proprietorship

3.4%

0.0%

0.0%

Average Number of Agency Locations (Main Offices and Branch Offices)

1.3

1.0

1.6

Total Square Footage of Office Space # of States in which Offices are Located

2,818

2,251

1,793

1.0

1.0

1.0

Agency has an ESOP

0.0%

0.0%

0.0%

% of Stock Owned by ESOP

0.0%

0.0%

0.0%

Shareholders Number of Shareholders (excluding ESOP)

2.2

1.7

1.0

High

13.0

Low

1.0

Ownership Percentage % Owned by Largest Shareholder

75.5%

70.0%

91.7%

High

100.0%

Low

33.3%

Shareholder Age

Current Age of Largest Shareholder

53.0

51.2

46.0

Parent Corporation

Average

2014 Best Practices Study

% of Agencies Owned by Another Corporation

3.7%

Description of Parent Corporation Financial Institution

Other included Independent Agency.

Agencies with Revenues Under $1,250,000

50.0%

National Broker

0.0%

Other

50.0%

Member of Group % of Agencies Belonging to a Franchise, Cluster, Alliance/Network or Aggregator Group

Other included Continental Insurance Agency Alliance, SIAA, Consolidated Agencies, ISU, Empire Spectrum Group, Combined Agents of America, Marketsource, TIA, Bainswest, and DCS Risk Management Group.

41.2%

4

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Revenues

Profile Revenues

(% by Source)

Average

+25% Profit

+25% Growth

Property & Casualty Commercial Commissions & Fees

Expenses

41.2%

27.0%

29.6%

Profitability

Bonds

0.4%

0.1%

0.2%

Employee Overview

Personal Commissions Value Added Services

45.2%

60.9%

57.6%

0.4% 6.2%

0.0% 6.8%

1.0% 8.1%

Producer Info

Contingent/Bonus

Service Staff Info

Total P&C

93.5%

94.8%

96.5%

Technology

Life & Health/Financial Group Medical Commissions & Fees All Other Group Commissions & Fees Individual L&H Commissions & Fees

3.0% 0.4% 2.6% 0.0% 6.1% 0.1% 0.3%

1.0% 0.1% 4.1% 0.0% 5.1% 0.0% 0.0%

1.4% 0.0% 1.6% 0.2% 3.3% 0.0% 0.2%

Insurance Carriers

Appendix

Bonus/Overrides

Total L&H/Financial

Investments

Miscellaneous

Gross Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

0.3%

0.2%

0.0%

Net Revenues

99.7%

99.8%

100.0%

Revenue by Source (% of Gross Revenues)

Average

+25% Profit

+25% Growth

60.0%

50.0%

40.0%

30.0%

2014 Best Practices Study

20.0%

% Total Revenue

Agencies with Revenues Under $1,250,000

10.0%

0.0%

P&C Commercial

L&H Group Medical Comm & Fees

L&H All Other

L&H Individual

L&H Bonus/ Overrides

Investments Miscellaneous

P&C Bonds Comm & Fees

P&C Personal

P&C VAS Fees

P&C Contingent/ Bonus

Comm & Fees

Group Comm & Fees

Comm & Fees

Comm & Fees

5

Analysis of Agencies with Revenues Under $1,250,000

Revenue by Acquisition

Key Benchmarks

Profile Revenues

Acquired Revenues

Average Commissions Acquired

% of Agencies Acquiring

% of Net Revenues

Expenses

Acquisitions Made in Last 12 Months

6.9%

$65,806

15.8%

Profitability

What the Typical Transactions Looked Like Revenues Acquired per Transaction

Employee Overview

Multiples of Revenue Paid

Producer Info

Average

* * *

Average

* * *

Service Staff Info

High Low

High Low

Technology

*Insufficient Data

Insurance Carriers

Appendix

Revenue by Specialty/Niche

Average

+25% Profit

+25% Growth

% of Agencies having an Industry and/or Product Specialty/Niche Total Commissions & Fees Generated from All Specialties/Niches Total Specialty/Niche Revenue as % of Net Revenues

37.9%

*

*

$160,853

*

*

21.4%

*

*

*Insufficient Data

Specialty/Niche Revenue as % of Net Revenue

25%

21.4%

20%

15%

2014 Best Practices Study

10%

Agencies with Revenues Under $1,250,000

5%

0%

Average

+25% Profit

+25% Growth

6

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Revenue by Account Concentration Average

Profile Revenues

+25% Profit

+25% Growth

% of Revenue Derived from Largest Account

Expenses

4.9%

1.5%

2.6%

Profitability

High Low

18.2%

Employee Overview

0.5%

10 Largest Accounts

13.2% 32.3%

9.4%

7.9%

Producer Info

High Low

Service Staff Info

1.7%

Technology

Average

+25% Profit

+25% Growth

Insurance Carriers

“Other” Group Life & Health* Revenue (% from source) Life 63.8%

Appendix

56.3% 15.7% 23.3%

* * * * * * * *

Disability

8.0%

Dental & Vision

16.1%

Retirement/Pension

0.6% 0.0% 0.0%

1.7% 0.0% 0.0% 3.0% 0.0%

Worksite/Voluntary/Supplement

Long-Term Care

Employee Benefits TPA

11.6%

All Other

0.0%

*Insufficient Data *Excludes Group Medical

2014 Best Practices Study

Agencies with Revenues Under $1,250,000

7

Analysis of Agencies with Revenues Under $1,250,000

Revenue by Account Size (as measured by Comm. & Fees – not premium)

Key Benchmarks

Profile Revenues

Average

+25% Profit

+25% Growth

Commercial P&C Greater than $25,000 % of Book

Expenses

17.9%

0.0%

6.6%

Profitability

# of Accounts Total Revenue

2.5

*

*

$161,874 $65,949

* *

* *

Employee Overview

Revenue per Account

Producer Info

Between $10,000 and $25,000 % of Book

13.1%

17.7%

5.7%

Service Staff Info

# of Accounts Total Revenue

4.4

4.7

*

Technology

$72,556 $16,325

$84,027 $18,006

* *

Revenue per Account

Insurance Carriers

Between $5,000 and $10,000 % of Book

Appendix

12.2%

21.9%

7.8%

# of Accounts Total Revenue

9.0

17.0

5.0

$54,897 $6,069

$103,948

$27,759 $5,552

Revenue per Account

$6,115

Less than $5,000 % of Book

56.8%

60.4%

80.0%

# of Accounts Total Revenue

518.2

346.5

377.8

$225,683

$215,090

$190,070

Revenue per Account

$435

$621

$503

(as measured by number of lives)

Average

+25% Profit

+25% Growth

Group L&H/Financial Over 100 Lives % of Book

20.4%

0.0%

0.0%

# of Accounts Total Revenue

1.3

*

*

$34,186 $27,349

* *

* *

Revenue per Account

50 - 100 Lives

% of Book

1.6%

0.0%

0.0%

# of Accounts Total Revenue

*

*

*

* *

* *

* *

2014 Best Practices Study

Revenue per Account

25 - 50 Lives

% of Book

23.9%

21.5%

19.4%

Agencies with Revenues Under $1,250,000

# of Accounts Total Revenue

2.9

1.3

*

$22,878 $8,007

$9,544 $7,158

* *

Revenue per Account

Under 25 Lives

% of Book

54.1%

78.5%

80.6%

# of Accounts Total Revenue

32.7

42.3

28.3

8

$24,151

$34,764

$15,807

Revenue per Account

$738

$821

$558

*Insufficient Data

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Revenue Growth by Source

Profile Revenues

Average

+25% Profit

+25% Growth

Commercial P&C Renewals 1

Expenses

85.2% 16.5%

59.9% 27.5%

94.7% 14.6%

Profitability

New Business 2

Employee Overview

0.4% 1.8% 2.2%

0.0%

0.0% 9.2% 9.2%

Acquired Revenues 3

-12.7% -12.7%

Organic Growth 4

Producer Info

Total Growth 5

Service Staff Info

Bonds P&C

71.4% 26.8% 0.0% -1.7% -1.7%

* * * * *

49.9% 56.7%

Renewals 1

Technology

New Business 2

Insurance Carriers

0.0% 6.7% 6.7%

Acquired Revenues 3

Appendix

Organic Growth 4

Total Growth 5

Personal P&C

85.8% 18.3%

75.3% 27.4%

91.7% 17.3%

Renewals 1

New Business 2

0.2% 4.1% 4.4%

0.0% 2.7% 2.7%

0.0% 9.0% 9.0%

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Value Added Services P&C Renewals 1

69.7% 21.5% 0.0% -8.8% -8.8%

* * * * *

* * * * *

New Business 2

*Insufficient Data

Acquired Revenues 3

Organic Growth 4

Total Growth 5

*Insufficient Data

1 Renewal Revenues as a % of prior year’s total revenues for this line of business. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the %, the more favorable the results.

2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results.

3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % indicates the significance of acquired business.

4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.

2014 Best Practices Study

Agencies with Revenues Under $1,250,000

9

Analysis of Agencies with Revenues Under $1,250,000

Revenue Growth by Source (continued)

Key Benchmarks

Profile Revenues

Average

+25% Profit

+25% Growth

Group Medical L&H Renewals 1

86.6% 7.1% 0.0% -6.2% -6.2% 84.7% 6.1% 0.0% -9.3% -9.3% 44.1% 49.6% 0.0% -6.3% -6.3%

70.5%

76.3% 13.9% 0.0% -9.8% -9.8%

Expenses

1.2% 0.0%

New Business 2

Profitability

Acquired Revenues 3

-28.4% -28.4%

Organic Growth 4

Employee Overview

Total Growth 5

Producer Info

All Other Group L&H Renewals 1

* * * * *

* * * * *

Service Staff Info

New Business 2

Technology

Acquired Revenues 3

Insurance Carriers

Organic Growth 4

Total Growth 5

Appendix

Individual L&H

29.0% 85.4%

55.2% 24.5%

Renewals 1

New Business 2

0.0%

0.0%

Acquired Revenues 3

14.4% 14.4%

-20.3% -20.3%

Organic Growth 4

Total Growth 5

Total Commissions & Fees (P&C, L&H) Renewals 1

86.0% 17.6%

73.3% 26.5% 0.0% -0.2% -0.2%

92.1% 16.4%

New Business 2

2.3% 3.7% 6.0%

0.0% 8.5% 8.5%

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Brokerage Commission Expense Growth Net Commissions & Fees Growth (Organic) 6 Net Commissions & Fees Growth (Total) 7

*

*

*

3.7% 6.0%

-0.2% -0.2%

8.5% 8.5%

*Insufficient Data Other Income P&C Contingent Income Growth L&H Bonus Income Growth Investment Income Growth Gross Revenue Growth Net Revenue Growth (Organic) 8 Net Revenue Growth (Total) 9 1 Renewal Revenues as a % of prior year’s total revenues for this line of business. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the %, the more favorable the results. 2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results. 3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % indicates the significance of acquired business.

1.5%

1.8%

* * *

*

* *

-7.5% 6.9% 4.6% 6.9%

2014 Best Practices Study

1.4% 1.4% 1.4%

14.1% 14.1% 14.1%

Agencies with Revenues Under $1,250,000

4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues. 6 Growth in Total Commissions & Fees ( less Brokerage Commission Expense) from prior year excluding acquired revenues. 7 Growth in Total Commissions & Fees ( less Brokerage Commission Expense) from prior year including acquired revenues.

8 Growth in Net Revenues ( Gross Revenue less Brokerage Commission Expense ) from prior year excluding acquired revenues. 9 Growth in Net Revenues ( Gross Revenue less Brokerage Commission Expense ) from prior year including acquired revenues.

10

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Revenue Growth by Source (continued) Historical Organic Growth (in Net Revenue)

Profile Revenues

Expenses

Average

+25% Profit

+25% Growth

40%

Profitability

30%

Employee Overview

24.6%

21.2%

20%

19.2%

Producer Info

14.1%

12.0%

12.3%

11.6%

16.8%

10.0%

10%

9.2%

7.9%

6.9% 7.4%

5.7%

5.4%

4.6%

Service Staff Info

2.2%

2.0%

1.4%

1.9%

0.4%

0%

–0.5%

–1.5%

–2.0%

Technology

–10%

2007

2008

2009

2010

2011

2012

2013

2014

Insurance Carriers

Appendix

Future Growth Percentage of agencies considering line of business as very important to growing agency’s revenue over the next 3 years

Surety-Bonding

10.3%

Personal P&C

79.3%

89.7%

Small Commercial P&C

Individual Life & Health

24.1%

Group Medical/Health Insurance

24.1%

All Other Group Benefits

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2014 Best Practices Study

Agencies with Revenues Under $1,250,000

11

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Expenses (as % of Net Revenues)

Profile

Revenues Expenses

Average

+25% Profit

+25% Growth

Compensation Expenses Payroll: Employee

39.7%

31.9%

40.5%

Profitability

Payroll: “Non-Employee” - 1099 Producers/Temp Help

4.3%

0.8%

3.8%

Employee Overview

Total Payroll

44.0%

32.7%

44.3%

Benefits: Payroll Taxes Benefits: Retirement

3.9% 1.4% 3.0% 0.3% 8.6%

2.7% 1.3% 0.7% 0.9% 5.6%

3.0% 1.5% 3.2% 0.2% 7.9%

Producer Info

Service Staff Info

Benefits: Insurance

Benefits: Other

Technology

Total Benefits

Insurance Carriers

Total Compensation

52.5%

38.3%

52.2%

Appendix

Selling Expenses T&E/Conventions Auto Expenditures Auto Depreciation

1.2% 1.5% 0.4% 2.0% 2.0%

0.6% 0.9% 0.0% 0.9% 2.1%

1.0% 1.5% 0.5% 2.0% 2.5%

Total Auto

Advertising/Promotions

Total Selling

5.1%

3.5%

5.5%

Operating Expenses Occupancy Expenditures

4.7% 0.4% 5.0% 0.3% 0.1% 0.4% 2.6% 0.1% 2.7% 1.3% 0.5% 1.4% 1.2% 0.8% 2.1% 0.6% 0.0% 0.6% 0.3% 0.5%

4.1% 0.1% 4.2% 0.2% 0.0% 0.2% 1.8% 0.0% 1.8% 1.0% 0.3% 1.2% 0.9% 0.5% 1.4% 0.5% 0.0% 0.0% 0.2% 0.1%

4.1% 0.1% 4.3% 0.0% 0.1% 0.1% 2.2% 0.1% 2.4% 1.2% 0.5% 1.6% 0.9% 1.7% 1.7% 0.8% 0.1% 0.9% 0.2% 0.2%

Occupancy Depreciation/Amortization

Total Occupancy

Office Equipment Expenditures Office Equipment Depreciation Total Office Equipment IT (Information Technology) IT Depreciation/Amortization

Total IT

Telephone

Postage

Supplies/Printing

2014 Best Practices Study

Dues/Subscriptions/Contributions

Taxes/Licenses

Agencies with Revenues Under $1,250,000

Insurance

Professional Fees

Bad Debts

Outside Services Education/Training

12

Miscellaneous

Total Operating

17.3%

12.4%

16.5%

continued on next page

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Expenses (as % of Net Revenues) — continued

Profile

Revenues Expenses

Average

+25% Profit

+25% Growth

Administrative Expenses Amortization of Intangibles

0.9% 0.2% 1.0% 0.2% 2.3% 77.3% 22.7% 25.6%

0.2% 0.1% 0.0% 0.0%

1.0% 0.3% 0.9% 0.0%

Profitability

Officer Life

Employee Overview

Interest

Other

Producer Info

Total Administrative

0.3%

2.3%

Service Staff Info

Total Expenses

54.5% 45.5% 45.8%

76.5% 23.5% 26.4%

Pre-Tax Profit (Loss)

Technology

EBITDA

Insurance Carriers

Average

+25% Profit

+25% Growth

Appendix

Expense Growth Over Prior Year Compensation Expense

5.6% -4.8% 7.1% 4.0%

-6.1% -7.4% 5.9%

7.7%

Selling Expense

-14.2% 10.7%

Operating Expense

Administrative Expense

*

*

*Insufficient Data

Expenses (as % of Net Revenues)

Average

+25% Profit

+25% Growth

60%

52.2% 52.2%

50%

38.3%

40%

30%

20%

17.3%

16.5%

2014 Best Practices Study

12.4%

10%

5.5%

5.1% 3.5%

2.3%

2.3%

0.3%

Agencies with Revenues Under $1,250,000

0%

Compensation

Selling

Operating

Administrative

13

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Profit/Loss Summary

Profile

Revenues

Average

+25% Profit

+25% Growth

Revenues (as % of Gross Revenue) Commercial Lines

Expenses Profitability

41.2%

27.0%

29.6%

Bonds

0.4%

0.1%

0.2%

Employee Overview

Personal Lines

45.2%

60.9%

57.6%

VAS - P&C

0.4% 6.2% 3.0% 0.4% 2.6% 0.0% 0.1% 0.3%

0.0% 6.8% 1.0% 0.1% 4.1% 0.0% 0.0% 0.0%

1.0% 8.1% 1.4% 0.0% 1.6% 0.2% 0.0% 0.2%

Producer Info

Contingent/Bonus Group Medical All Other Group Bonus/Overrides Investments Miscellaneous Total Revenues Individual Life & Health

Service Staff Info

Technology

Insurance Carriers

Appendix

100.0%

100.0%

100.0%

Brokerage Commission Expense

0.3%

0.2%

0.0%

Net Revenues

99.7%

99.8%

100.0%

Expenses (as % of Net Revenues) Compensation

52.5%

38.3%

52.2%

Selling

5.1%

3.5%

5.5%

Operating

17.3%

12.4%

16.5%

Administrative Total Expenses

2.3%

0.3%

2.3%

77.3%

54.5%

76.5%

Profit/Loss (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Pre-Tax Profit

22.7% 26.1% 17.3% 25.6% 29.0%

45.5% 48.3% 41.6% 45.8% 48.6%

23.5% 27.1% 16.3% 26.4% 30.1%

Pro Forma Pre-Tax Profit 1 Operating Pre-Tax Profit 2

EBITDA 3

2014 Best Practices Study

Pro Forma EBITDA 4

1 Pre-tax Profits if discretionary expenses are eliminated and all owners compensated as employees

2 Pre-tax Profits excluding contingents, bonus and investment income

3 EBITDA—Earnings Before Interest Taxes Depreciation and Amortization

4 EBITDA if discretionary expenses are eliminated and all owners compensated as employees

Agencies with Revenues Under $1,250,000

14

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Profitability

Profile

Historical EBITDA Margin & Operating Margin (for Average Group)

Revenues

Expenses Profitability

35%

33.0%

30.3%

29.0%

30%

27.5% 28.5%

Employee Overview

26.0%

26.2%

24.8%

25%

Producer Info

25.8% 25.6%

26.2%

23.9%

Service Staff Info

20%

22.8%

22.8%

21.4%

18.5%

Technology

15%

17.4% 17.3%

16.5%

Insurance Carriers

10%

10.8% 11.0%

9.9%

Appendix

5%

6.6%

5.0%

0%

2008

2007

2009

2010

2011

2012

2013

2014

Pro Forma EBITDA

EBITDA Margin

Operating Margin

About EBITDA Margin and Operating Margin EBITDA Margin is calculated by dividing a firm’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) by the firm’s net revenues.

Pro Forma EBITDA Margin is calculated by dividing a firm’s Pro Forma EBITDA by the firm’s Pro Forma net revenue.

Operating Margin is calculated as EBITDA less contingent income divided by Pro Forma net revenues less contingent income.

2014 Best Practices Study

Agencies with Revenues Under $1,250,000

15

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Profile

Revenues

The Rule of 20 is a simple growth and profitability balancing equation that provides a quick way to determine whether or not an agency is creating value for its shareholders. It states that an agency will drive industry-standard shareholder returns if the sum of (a) its organic growth rate and (b) 1/2 of its EBITDA margin equals or exceeds 20. Generally speaking, an outcome of 20 or more, regardless of the different combinations of growth and profitability, indicates that the agency’s shareholders can expect to earn 15% -17% per year through stock price appreciation and/or shareholder distributions.

Expenses Profitability

Employee Overview

Producer Info

Rule of 20 Outcome

Service Staff Info

What is the Rule of 20?

Organic Growth

EBITDA Margin

Rule of 20 Outcome

Public Brokers

Technology

Insurance Carriers

Willis Group

4.9% 24.0% 16.9

1/2 of EBITDA Margin

Organic Revenue Growth + =

Rule of 20 Score

Aon

3.0% 20.9% 13.5

Appendix

Brown & Brown

6.8% 33.5% 23.6

• Provides a tool to benchmark agency performance • Helps frame the trade-off between growth and profitability

Arthur J. Gallagher 6.5% 19.9% 16.5 Marsh & McLennan 3.0% 20.7% 13.4

Average

+25% Profit Average +25% Growth Average

Rule of 20

18.2

24.1

23.5

Financial Stability

Average

Top 25%

Balance Sheet Current Ratio

1.53:1

2.82:1

Tangible Net Worth (% of Net Revenue)

2.3%

14.7% 12.3%

Receivables/Payable Ratio

62.4%

Aged Receivables

% Receivables Aged Past 60 Days % Receivables Aged Past 90 Days

48.5%

*

2014 Best Practices Study

4.2%

0.0%

*Insufficient Data

Accounts Receivable

Agencies with Revenues Under $1,250,000

Average

+25% Profit

+25% Growth

Agency Billed vs. Direct Billed by Carrier % of P&C Revenues that are Agency Billed % of P&C Revenues that are Direct Billed

15.5% 81.0%

3.6%

4.9%

82.1%

95.1%

16

Analysis of Agencies with Revenues Under $1,250,000

Key Benchmarks

Employee Productivity

Profile

Revenues

Average

+25% Profit

+25% Growth

Total Number of Employees (FTE)

6.7

4.5

5.7

Expenses

Revenue Per Employee

$135,346 $66,272 $69,074

$214,865 $78,802 $136,063

$135,198 $63,149 $72,049

Profitability Employee Overview

Compensation Per Employee

Spread Per Employee

Producer Info

Average

+25% Profit

+25% Growth

$250K

Service Staff Info

$200K

Technology

Insurance Carriers

$150K

$214,865

Appendix

$100K

$135,346

$135,198

$136,063

$50K

$78,802

$0

$72,049

$69,074

$66,272

$63,149

Revenue Per Employee Compensation Per Employee Spread Per Employee

Average

+25% Profit

+25% Growth

Average number of Agency Employees that work remotely

1.3

*

*

% of Agencies with Remote Workers

20.7%

3.4%

28.6%

*Insufficient Data

Administrative Staff

Accounting & HR Department Info

Average

Top 25%

Accounting Department Total Number of Employees in Accounting Department

0.7 2.0 0.2

High Low

2014 Best Practices Study

Revenue per Accounting Employee Total Payroll for Accounting Employees Accounting Payroll as % of Net Revenue HR Department Total Number of Employees in HR Department

$905,092 $29,802

$1,167,708

3.3%

Agencies with Revenues Under $1,250,000

* * * * * *

High Low

Revenue per HR Employee Total Payroll for HR Employees HR Payroll as % of Net Revenue

*

17

*Insufficient Data