2007 Best Practices Study

2007 Best Practices Study

About the Study

So, for example, an agency that generates an EBITDA margin (as a percent of revenue) of 20% and grows organically by 10% achieves a “Rule of 20” score of exactly 20%. (20% times 50% plus 10% = 20%.) The higher the score, the better. The secret to the Rule of 20 is the weighting of the relative importance of organic growth versus EBITDA when it comes to creating shareholder value (the weighting is 2 to 1). Generally speaking, an outcome of 20 means an agency is generating a shareholder return of approximately 15%-16%, which is commonly viewed as the “expected” rate of return for a well-run insurance agency. A score of less than 20 indicates room for improvement, while a score above 20 is outstanding. In 2006, only one public broker, Brown & Brown, achieved a Rule of 20 outcome of 20 or more, as is shown in the table below.

The History

The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (IIABA) 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 IIABA 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. Once every three years, the IIABA asks insurance companies, state association affiliates, and other industry organizations to nominate for each of the studies’ revenue categories those agencies they believe 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. This year, the beginning of a new three-year study cycle, more than 800 independent agencies throughout the U.S. were nominated to take part in the annual study, but only 195 agencies qualified for the honor. To be chosen, the agency had to be The Process

Rule of 20 Outcome

Organic Growth

EBITDA Margin

Rule of 20 Outcome

Rank Public Brokers

1 Brown & Brown

4.5% 38.8% 23.9%

2 Willis Group

8.0% 21.3% 18.7%

3 Hub Group

5.0% 26.7% 18.4%

4 Hilb, Rogal & Hobbs

4.4% 27.0% 17.9%

5 Arthur J. Gallagher

6.0% 21.2% 16.6%

6 USI

1.8% 20.7% 12.2%

7 Marsh & McLennan 2.0% 14.2% 9.1%

8 Aon

2.0% 13.9% 9.0%

The comprehensive 2007 study can be purchased from the Independent Insurance Agents & Brokers of American (IIABA) 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.

2007 Best Practices Study