2013 Best Practices Study

2013 Best Practices Study

2013 Best Practices Study

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2013 Best Practices Study

Special Acknowledgement We wish to thank the following companies for their sponsorship which has funded the development of the 2013 Best Practices Study and the Best Practices Gateway website.

2013 Best Practices Study

Copyright©2013 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

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2013 Best Practices Study

TABLE OF CONTENTS

Introduction

Analysis of Agencies with Revenues Under $1,250,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Key Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

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Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Key Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157 Insurance Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 Analysis of Agencies with Revenues Over $25,000,000 Key Benchmarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Employee Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .186 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .189 Insurance Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .191 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197 Glossary / Definitions / Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .199

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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 2013 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 Every third year the study offers a comprehensive look at agency performance results providing additional benchmarks and management narratives not found in the annual updates. Of particular interest is the additional information on the agencies’ business practices and philosophies. The 2013 study can be purchased from the Independent Insurance Agents & Brokers of America (Big “I”) Education Department. Order forms can be downloaded 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 studies’ 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 extensive time and effort, 307 submitted the data; only 216 qualified for the honor. To be chosen, the agency had to be among the 30-40 top-performing agencies in one of six revenue categories. Their year-end results and business practices were compiled to create the Best Practices benchmarks. Those benchmarks are updated annually. Taking part in the Best Practices Study has become a prestigiousrecognitionofthesuperioraccomplishments

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of the top insurance agencies in the country. 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 an insurance carrier and ask that their name be submitted.

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 2013 Best Practices Study please contact the Big “I” Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

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 • Download order forms 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 Planner . These Best Practices tools are part of a

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2013 Best Practices Study

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2013 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 Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Key Benchmarks at a Glance

Average

+25% Profit

+25% Growth

Growth Organic Growth By Line of Business* Commercial P&C

8.4%

7.9%

17.4%

Personal P&C

7.1%

3.6%

10.5%

Group Medical

13.9%

*

32.5%

All Other Group

7.5%

*

*

Total Organic Growth Profit Pro Forma Pretax Profit

6.9%

7.4%

19.2%

23.1%

38.6%

25.9%

Pro Forma EBITDA

30.3%

43.9%

33.9%

Rule of 20 Score

23.0

28.4

32.8

Financial

Average

Top 25%

Current Ratio

1.47:1

2.53:1

Receivable/Payable Ratio

48.6%

-20.2%

Accounts Receivables > 60 Days

44.9%

7.1%

Accounts Receivables > 90 Days

4.3%

0.0%

Productivity

Average

+25% Profit

+25% Growth

Revenue per Employee

$121,438

$167,166

$144,442

Compensation per Employee

$61,327

$69,559

$61,750

Spread per Employee

$60,111

$97,607

$82,692

Annual New Commission Generated per Validated Producer Average

Top 25%

Commercial P&C

$41,671

$78,757

Personal P&C

$19,940

$40,775

2013 Best Practices Study

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

24.2%

2.0

Personal P&C

23.7%

1.9

Group Life & Health/Financial

49.2%

0.4

*Insufficient Data

3

*Excludes any acquired revenue

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Developing New Producers With a NUPP of 3.7% and a producer success rate of over 75%, agencies in this study group are highly focused on finding, attracting and developing producers. In order to accomplish this goal, firms are relying primarily on training – both internal and external.

firm notes, “are reviewed weekly and training is made available to address the need.” For this group of agencies, the key to developing producers may lie in understanding the producer hired and adapting the mentoring and training offered to fit that producer’s need. Hiring a producer is a relatively rare occurrence for these agencies – only about a quarter hired a producer in the past year. Many of these firms have found hiring in their markets difficult or are gun-shy from recent hiring failures. Others acknowledge the time and investment required to develop a producer and have decided to attempt to acquire producers or to increase the capacity of existing production staff. Given the relative infrequency of producer hires – and the magnitude of the investment for these agencies – the development of these producers is critical. Adjusting to Health Care Reform For many of the firms in this study group, healthcare reform is not a grave concern. Total life & health revenues average only about 5% of agency revenue for these firms, so even a complete loss of life & health revenue would be only a “flesh wound.” Not surprisingly, preparing for healthcare reform was a non-issue for many firms and many others said they were doing nothing to prepare. Others, though, are doing what they can to prepare their business for the evolving health care environment. The primary responses involve staying informed, partnering with experienced and savvy employee benefits brokers and exploring ancillary products. Staying informed seems to be the key to figuring out whether a response is needed and what the response should be. One agency executive captured the essence of staying informed: “Our clients are going to need to be educated about the changes headed their way. We are attending educational opportunities ourselves so we can help lower the learning curve for them.”

Keys to Developing New Producers (Top 5 Listed in Order of Frequency Mentioned) 1. Mentoring 2. Carrier-provided training 3. Sales-specific training 4. Actively track pipeline and process 5. Promote CSRs to producer rank

First and foremost, agencies are quick to acknowledge the value of mentoring. Mentoring comes in different forms – ride-alongs, time with agency owners, etc. – but these agencies believe that close coaching relationships are the most effective way to develop producers. As one agency executive put it, “I realize I have to invest in a producer and I look forward to the process of mentoring a young person in this business.” Following the internal coaching and training provided through a mentor relationship, agencies in this study group leverage outside training available through carriers and through sales coaches and sales trainers. In fact, many of the agencies in this group use both carrier schools and outside sales consultants to develop producers. The advantage to this approach, it seems, is a healthy combination of product training and education on the sales techniques and strategies necessary to be successful. “Education needs,” one

2013 Best Practices Study

“It is a moment of truth for health brokers across America. Some brokers are not investing the time and effort to be a good consultant. I see opportunity for brokers who are prepared.”

Agencies with Revenues Under $1,250,000

4

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

next five years,” the need for talented individuals permeates all aspects of agency operations. A close second to talent is technology. Agents are working to keep up with advancing technology and to use technology to their advantage in the marketplace. One agency executive related that their number one challenge is “finding ways to compete in the digital / social media marketing world.” Many agencies echo

Top Adjustments (Top 5 Listed in Order of Frequency Mentioned) 1. Doing nothing at this time 2. Partnering with a Benefits Firm 3. Staying informed 4. Selling Ancillary Products 5. L&H products not sold; no applicable response

Top Challenges (Top 5 Listed in Order of Frequency Mentioned ) 1. Finding and retaining talent 2. Technology

After evaluating the changing requirements of healthcare reform, agents can then determine how they would like to respond. Often that response is to involve a partner agency. “We have aligned with a proven local financial services and benefits company,” notes one agency executive, “to offer specialized coverage and service to our clients.” The advantage of a partner may be to leverage the resources and knowledge that the partner has already built. Health care reform presents both challenge and opportunity. “It is a moment of truth for health brokers across America,” responded one agency executive. “Some brokers are not investing the time and effort to be a good consultant. I see opportunity for brokers who are prepared.” Facing Challenges The challenges facing this group of agencies are diverse, but at the top of the list is talent. Whatever the market position, strategy or location of a firm, an insurance agency requires quality people to maintain its success. Nothing is more critical to the agencies in this study group than continuing to find and develop these individuals. “We have little turnover,” remarked one agency executive, “but it is imperative that employees are satisfied professionally and personally while working for our agency.” The search for talent for these firms covers all areas of the agency. From “hiring young people to get into the industry” to “finding good, reliable support staff” to “replacing employees that will be retiring in the

3. Carrier volume and carrier relationships 4. Rate increases due to retention issues 5. Direct writers

this concern. As the uses for social media in a business context evolve, agents are working hard to stay at the forefront. Following talent and technology, the next several challenges were carrier-related. From satisfying carrier volume requirements to dealing with carrier rate increases to competing with direct-writers, the carrier universe has produced its share of challenges for these firms. One agency notes that “Getting new markets is the biggest challenge while balancing ‘feeding’ existing markets.” The challenges mentioned by the agencies in this study group are somewhat different than three years ago, when maintaining growth and controlling expenses were two of the top five challenges in the aftermath of the financial crisis. Though there will always be challenges, these agents are performing well and are optimistic about the future. “All in all,” one agency owner noted, “I’m still glad to have an insurance career and own an agency.”

2013 Best Practices Study

Agencies with Revenues Under $1,250,000

“We have little turnover, but it is imperative that employees are satisfied professionally and personally while working for our agency.”

5

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

Profile (of Agencies in this Study Group)

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Average Total Revenues: $789,963

Population Density of Metropolitan AreasWhere Home Office is Located Average

+25% Profit

+25% Growth

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

54.5% 24.2% 15.2%

25.0% 25.0% 37.5% 12.5%

37.5% 25.0% 37.5%

6.1%

0.0%

18.2% 69.7%

0.0%

0.0%

S

75.0%

75.0%

Partnership

0.0% 9.1% 3.0%

0.0%

0.0%

LLC

25.0%

25.0%

Sole Proprietorship

0.0%

0.0%

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

1.3

1.0

1.4

# of States Offices are Located in

1.1

1.0

1.1

Agency has an ESOP

0.0% 0.0%

0.0% 0.0%

0.0% 0.0%

% of Stock Owned by ESOP

Shareholders Number of Shareholders (excluding ESOP)

2.4

2.0

1.4

High Low

12.0

1.0

Ownership Percentage % Owned by Largest Shareholder

74.6%

75.1%

86.4%

High Low

100.0%

30.0%

Shareholder Age Current Age of Largest Shareholder

53.7

51.0

52.1

Parent Corporation

Average

% of Agencies Owned by Another Corporation

3.3%

Description of Parent Corporation Financial Institution

100.0%

National Broker

0.0% 0.0%

Other

Member of Group % of Agencies Belonging to a Franchise, Cluster, Alli- ance/Network or Aggregator Group

Groups included Iroquois, Combined Agents of America, DCS Risk Management Group, ISU, SIAA, Bainswest, Continental Insurance Agency Alliance, TIA, Marketsource, Empire Spectrum Group and Consoli- dated Agencies, LLC.

39.4%

2013 Best Practices Study

Reason for Joining Franchise/Cluster/etc.

Other 15.4%

Agencies with Revenues Under $1,250,000

Other included to associate with quality agents and as a resource partnership.

Market Access 38.5%

6

Profit Sharing 46.2%

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

Revenues

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

(% by Source)

Average

+25% Profit

+25% Growth

Property & Casualty Commercial Commissions & Fees

42.0%

35.7%

38.9%

Bonds

0.7%

0.4%

0.7%

Personal Commissions Value Added Services

46.0%

54.2%

46.3%

0.4% 5.5%

0.0% 5.5%

0.0% 6.4%

Contingent/Bonus

Total P&C

94.7%

95.8%

92.3%

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

2.3% 0.4% 2.0% 0.1% 4.8% 0.1% 0.4%

0.8% 0.1% 2.8% 0.0% 3.8% 0.0% 0.4%

3.0% 0.1% 3.2% 0.0% 6.4% 0.0% 1.3%

Bonus/Overrides

Total L&H/Financial

Investments

Miscellaneous

Gross Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

0.3%

0.0%

0.0%

Net Revenues

99.7%

100.0%

100.0%

Revenue by Source (% of Gross Revenues)

Average

+25% Profit

+25% Growth

60.0%

50.0%

40.0%

30.0%

2013 Best Practices Study

20.0%

% Total Revenue

Agencies with Revenues Under $1,250,000

10.0%

0.0%

P&C Commercial

P&C Bonds Comm & Fees

P&C Personal

P&C VAS Fees

P&C Contingent/ Bonus

L&H Group Medical Comm & Fees

L&H All Other Group Comm & Fees

L&H Individual

L&H Bonus/ Overrides

Investments Miscellaneous

Comm & Fees

Comm & Fees

Comm & Fees

7

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

Revenue by Acquisition

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Acquired Revenues

Average Commissions Acquired

% of Agencies Acquiring

% of Net Revenues

Acquisitions Made in Last 12 Months

6.1%

*

*

What the Typical Transactions Looked Like Revenues Acquired per Transaction

Multiples of Revenue Paid

Average

* * *

Average

* * *

High Low

High Low

*Insufficient Data

Revenue by Account Concentration

Average

+25% Profit

+25% Growth

% of Revenue Derived from: Largest Account

5.5%

2.4%

6.5%

High Low

23.4%

0.5%

10 Largest Accounts

15.8% 46.4%

10.1%

16.3%

High Low

1.1%

Average

+25% Profit

+25% Growth

“Other” Group Life & Health* Revenue (% from source) Life 47.5%

39.0%

* * * * * * * *

Disability

3.6%

0.7% 0.7% 3.3% 0.0%

Dental & Vision

23.5%

Retirement/Pension

1.1% 5.6% 6.7%

Worksite/Voluntary/Supplement

2013 Best Practices Study

Long-Term Care

20.0% 36.3%

Employee Benefits TPA

12.1%

All Other

0.0%

0.0%

Agencies with Revenues Under $1,250,000

*Insufficient Data *Excludes Group Medical

8

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

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Average

+25% Profit

+25% Growth

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

17.1%

9.9%

26.9%

# of Accounts Total Revenue

2.8

*

3.3

$157,095 $56,393

* *

$198,068 $60,944

Revenue per Account

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

16.5%

29.0%

16.0%

# of Accounts Total Revenue

6.0

9.8

8.0

$88,354 $14,726

$141,335 $14,373

$93,996 $11,749

Revenue per Account

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

17.5%

28.4%

19.1%

# of Accounts Total Revenue

12.7

20.0

13.6

$83,114 $6,543

$138,471

$80,343 $5,920

Revenue per Account

$6,924

Less than $5,000 % of Book

48.9%

32.7%

38.0%

# of Accounts Total Revenue

571.9

459.5

417.9

$224,041

$159,265

$159,510

Revenue per Account

$392

$347

$382

(as measured by number of lives)

Average

+25% Profit

+25% Growth

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

19.1%

0.0%

29.6%

# of Accounts Total Revenue

*

*

*

* *

* *

* *

Revenue per Account

50 - 100 Lives

% of Book

8.7%

0.0%

11.4%

# of Accounts Total Revenue

1.0

*

*

$12,576 $12,576

* *

* *

2013 Best Practices Study

Revenue per Account

25 - 50 Lives

% of Book

19.1%

10.8%

15.9%

Agencies with Revenues Under $1,250,000

# of Accounts Total Revenue

2.3

*

3.3

$13,756 $2,446

* *

$13,630 $4,089

Revenue per Account

Under 25 Lives

% of Book

53.1%

89.2%

43.1%

9

# of Accounts Total Revenue

40.2

71.0

11.0

$20,420

$23,638

$22,131 $2,012

Revenue per Account

$508

$333

*Insufficient Data

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

Revenue by Specialty/Niche

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Average

+25% Profit

+25% Growth

% of Agencies having an Industry and/or Product Specialty/Niche Total INDUSTRY Specialty/Niche Revenues as % of Agency Net Revenue Total PRODUCT Specialty/Niche Revenues as % of Agency Net Revenue

39.4%

37.5%

*

10.7%

12.8%

9.5%

5.9%

0.2%

5.1%

*Insufficient Data

Average Revenue per Specialty

% of Agencies Having Specialty

Top 5 INDUSTRY Specialties Construction

$150,011 $195,228

12.1% 18.2%

Other

N/A N/A N/A

* * *

* * *

*Insufficient Data Other industry specialties included school districts, sporting goods, retail, shoe stores, public entities, restaurants, independent auto dealers, municipalities, pizza franchises, law firms and professional liability - architects, engineers and lawyers.

Average Revenue per Specialty

% of Agencies Having Specialty

Top 5 PRODUCT Specialties Commercial Property

$52,503 $84,703 $15,290

18.2% 12.1%

Workers Compensation

Professional & Management Liability

9.1%

N/A N/A

* *

* *

*Insufficient Data Other product specialties included BOP business, casualty, general liability, motor vehicle dealer bonds, and auto.

2013 Best Practices Study

Agencies with Revenues Under $1,250,000

10

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Value Added Services/Other Products Provided

18.2%

% of agencies that offer Value Added Services:

Charge for Services (routinely or occasionally)

Average

Do Not Charge

Property & Casualty (% of agencies providing) Claims Services (beyond traditional services)

6.1% 6.1% 9.1% 3.0% 0.0% 9.1% 3.0% 3.0% 0.0% 0.0% 0.0%

50.0% 50.0% 33.3%

50.0% 50.0% 66.7%

Loss Control/Engineering/Safety Risk Management Consulting

Data Analysis

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

100.0%

Workers Comp TPA Premium Financing

0.0%

100.0%

Self-Insurance Programs

100.0%

0.0%

Household Contents Inventory Services Identity Theft Protection Programs

100.0%

0.0% 0.0% 0.0%

Captive Ins. Company Consulting/Management

Other

Charge for Services (routinely or occasionally)

Average

Do Not Charge

Life & Health / Financial (% of agencies providing) Wellness

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Enrollment

COBRA Administration

Government Compliance Service

Employee Benefits TPA

2013 Best Practices Study

HR Consulting

Actuarial/Data Analysis

Agencies with Revenues Under $1,250,000

Pension/401(k)

Self-Insurance Programs

Investment Products (Securities, Stocks)

Zywave

PEO (Employee Leasing Products & Services)

Other

11

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Revenue Growth by Source

Average

+25% Profit

+25% Growth

Commercial P&C Renewals 1

92.3% 15.9%

83.8% 24.1%

98.1% 19.2%

New Business 2

0.0% 8.4% 8.4%

0.0% 7.9% 7.9%

0.0%

Acquired Revenues 3

17.4% 17.4%

Organic Growth 4

Total Growth 5

Bonds

Renewals 1

74.4% 31.4%

* * * * *

72.4% 62.6%

New Business 2

0.0% 5.8% 5.8%

0.0%

Acquired Revenues 3

34.9% 34.9%

Organic Growth 4

Total Growth 5

Personal P&C

Renewals 1

92.9% 14.2%

92.1% 11.5%

95.1% 15.4%

New Business 2

0.1% 7.1% 7.2%

0.4% 3.6% 4.0%

0.4%

Acquired Revenues 3

10.5% 10.9%

Organic Growth 4

Total Growth 5

Value Added Services Renewals 1

67.2% 52.5%

* * * * *

* * * * *

New Business 2

*Insufficient Data

0.0%

Acquired Revenues 3

19.8% 19.8%

Organic Growth 4

Total Growth 5

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.

2013 Best Practices Study

*Insufficient Data

Agencies with Revenues Under $1,250,000

“As a small agency being part of a cluster helps, but giving our carriers enough volume to be a good partner means we have to grow.”

12

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

Revenue Growth by Source (continued)

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Average

+25% Profit

+25% Growth

Group Medical L&H Renewals 1

105.6%

* * * * * * * * * *

122.8%

8.3% 0.0%

9.7% 0.0%

New Business 2

Acquired Revenues 3

13.9% 13.9%

32.5% 32.5%

Organic Growth 4

Total Growth 5

All Other Group L&H Renewals 1

98.7%

* * * * *

8.7% 0.0% 7.5% 7.5%

New Business 2

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Individual L&H

Renewals 1

47.2% 48.8% 0.0% -4.0% -4.0%

23.5% 79.8%

27.8% 79.4%

New Business 2

0.0% 3.3% 3.3%

0.0% 7.2% 7.2%

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Total Commissions & Fees Renewals 1

92.9% 14.8%

90.8% 15.5%

95.9% 19.9%

New Business 2

0.1% 7.8% 7.9%

0.3% 6.3% 6.6%

0.3%

Acquired Revenues 3

15.7% 16.0%

Organic Growth 4

Total Growth 5

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

*

*

*

7.8% 7.9%

6.4% 6.7%

15.9% 16.1%

*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.

1.7%

-23.8%

49.7%

*

* *

* *

-23.3%

2013 Best Practices Study

7.0%

7.6%

19.3% 19.2% 19.4%

6.9% 7.0%

7.4% 7.7%

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.

13

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Revenue Growth by Source (continued)

Historical Organic Growth (in Net Revenue)

Average

+25% Profit

+25% Growth

20% 30% 40%

24.6%

21.2%

19.2%

16.8%

12.3%

11.6%

12.0%

10.0%

9.2%

7.9%

10%

6.9% 7.4%

5.4%

5.7%

2.2%

2.0%

1.9%

0.4%

0%

–0.5%

–1.5%

–2.0%

–10%

2007

2008

2009

2010

2011

2012

2013

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

9.1%

Surety-Bonding

81.8% 81.8%

Personal P&C

Small Commercial P&C Individual Life & Health

33.3%

18.2%

Group Medical/Health Insurance

0.0% All Other Group Benefits

0%

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

2013 Best Practices Study

Agencies with Revenues Under $1,250,000

14

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

Expenses (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Compensation Expenses Payroll: Employee

40.7%

35.9%

34.8%

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

3.4%

1.9%

5.0%

Total Payroll

44.1%

37.8%

39.8%

Benefits: Payroll Taxes Benefits: Retirement

3.8% 1.3% 2.7% 0.3% 8.2%

2.8% 0.9% 1.0% 0.7% 5.4%

3.2% 0.6% 2.9% 0.6% 7.3%

Benefits: Insurance

Benefits: Other

Total Benefits

Total Compensation

52.2%

43.2%

47.1%

Selling Expenses T&E/Conventions Auto Expenditures Auto Depreciation

1.0% 1.5% 0.7% 2.2% 2.3%

0.6% 1.6% 0.9% 2.4% 2.5%

0.7% 1.0% 1.0% 2.0% 2.9%

Total Auto

Advertising/Promotions

Total Selling

5.5%

5.6%

5.7%

Operating Expenses Occupancy Expenditures

5.4% 0.2% 5.6% 0.4% 0.2% 0.6% 2.3% 0.1% 2.4% 1.3% 0.6% 1.1% 1.1% 0.9% 1.8% 0.6% 0.1% 0.4% 0.3% 0.7%

5.2% 0.0% 5.2% 0.5% 0.6% 1.1% 1.4% 0.2% 1.6% 1.0% 0.4% 0.9% 0.8% 0.4% 1.0% 0.5% 0.1% 0.2% 0.2% 0.1%

6.2% 0.0% 6.2% 0.2% 0.4% 0.6% 2.6% 0.1% 2.7% 0.9% 0.6% 1.2% 1.4% 0.5% 2.1% 0.7% 0.1% 1.0% 0.4% 1.2%

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

2013 Best Practices Study

Dues/Subscriptions/Contributions

Taxes/Licenses

Agencies with Revenues Under $1,250,000

Insurance

Professional Fees

Bad Debts

Outside Services Education/Training

15

Miscellaneous

Total Operating

17.4%

13.6%

19.5%

continued on next page