2010 Best Practices Study

2010 Best Practices Study

2010 Best Practices Study

2010 Best Practices Study

Special Acknowledgement

We wish to thank the following companies for their sponsorship which has funded the development of the 2010 Best Practices Study and the Best Practices Gateway website.

2010 Best Practices Study

Copyright©2010 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

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2010 Best Practices Study

TABLE OF CONTENTS

Introduction

Analysis of Agencies with Revenues Under $1,250,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Profitbility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Service Staff Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Profitbility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Service Staff Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Profitbility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Service Staff Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Profitbility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Producer Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

2010 Best Practices Study

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2010 Best Practices Study

Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Profitbility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .148 Analysis of Agencies with Revenues Over $25,000,000 Management Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .152 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Profitbility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .176 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .182 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184 Glossary / Definitions / Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .186

2010 Best Practices Study

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2010 Best Practices Study

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 2010 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:

About The Study 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. The Process 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 more than 1,200 independent agencies throughout the U.S. were nominated to take part in the annual study, but only 224 agencies qualified for the honor. To be chosen, the agency had to be among the top-performing agencies in one of six revenue categories. Their year-end results and business practices were compiled to create the 2010 Best Practices benchmarks. Taking part in the Best Practices Study has become a prestigious recognition of the superior accomplishments 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 should contact their state association.

• Income & Expense Distribution • Revenue & Profitability Growth

• Production & Service Staff Compensation/Productivity • Technology Expenses • P&C and GL&H Carrier Representation • And much more

This year's study offers a more comprehensive look at the 224 agencies selected as the 2010 Best Practices Agencies. In addition to their financial and operational results, the study also takes a look at a variety of management issues including:

• Recruiting / Developing Talent • Achieving Organic Growth • Adjusting to Health Care Reform • Top Challenges What’s New This Year

Several new benchmarks have been added including the NUPP statistic. This metric indicates whether or not an agency is making a sufficient investment in new producers. For the first time the study also provides statistics on the agencies’ Commercial and Life & Health books of business by providing a breakdown of accounts by commission size and by specialties/niches. In addition, service staff positions have been broken out to provide productivity benchmarks for account executives/senior CSR positions.

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2010 Best Practices Study

About the Best Practices Gateway Website

The electronic Executive Update of this study can be accessed via the websites of IIABA (www.iiaba.com) and Reagan Consulting (www.reaganconsulting.com) or directly at (http://bp.reaganconsulting.com/). From the Best Practices Gateway home page users can to 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 complete line of Best Practices products and services. Order forms can be downloaded from (http://bp.reaganconsulting.com/). If You Have Questions If you have questions about the information published in the 2010 Best Practices Study please contact the IIABA Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

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2010 Best Practices Study

1

2010 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

2010 Best Practices Study

1

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

Mgmt. Perspectives

Profile

Revenues

Key Benchmarks at a Glance

Expenses

Profitability

Average

+25% Profit

+25% Growth

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

Employee Overview

Producer Info

0.7%

0.9%

9.6%

Staff Service Info

Personal P&C

4.5%

7.1%

8.5%

Group Medical

-4.9%

-14.1%

-11.2%

Technology

All Other Group

*

*

*

Insurance Carriers

Total Organic Growth

2.0%

0.7%

13.0%

Appendix

Profit Pro Forma Pretax Profit

25.1%

43.2%

25.8%

Pro Forma EBITDA

27.5%

43.8%

27.6%

Rule of 20 Score

16.3

21.7

30.6

Financial

Average

Top 25%

Current Ratio

1.03:1

1.84:1

Receivable/Payable Ratio

88.7%

10.1%

Accounts Receivables > 60 Days

36.1%

6.2%

Accounts Receivables > 90 Days

20.7%

2.7%

Productivity

Average

+25% Profit

+25% Growth

Revenue per Employee

$124,669

$158,089

$114,805

Compensation per Employee

$68,403

$71,402

$59,413

Spread per Employee

$56,267

$86,687

$55,392

Annual New Commission Generated per Validated Producer

Average

Top 25%

Commercial P&C

$37,590

$73,761

Personal P&C

$20,175

$34,892

2010 Best Practices Study

Life & Health/Financial

$21,974

$41,875

Commissions Serviced per Service & Sales Support Staff

Agencies with Revenues Under $1,250,000

Average

Top 25%

Commercial P&C

$197,492

$401,168

Personal P&C

$150,150

$330,738

Life & Health/Financial

$116,003

$166,297

*Insufficient Data **Excludes any acquired revenue

2

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

Recruiting & Developing Talent More than half of the agencies in this study group are located in communities with less that 50,000 people. While the pool of potential candidates tends to be more limited than in larger cities, the smaller communities allow these agencies to network very effectively to fill a position via referrals from business contacts, existing employees, and clients. Another method is to seek out candidates from people such as the bank teller or store manager who had provided a positive service experience. Keys to Recruiting Talent (Top 5 Listed in Order of Frequency Mentioned) 1. Solicit referrals from business network, clients, & employees 2. Seek out candidates who have provided good service/experience in a business setting Although turnover is typically low in these agencies, the most successful agencies try to be are aware of “who is out there”. They maintain a pipeline of candidates generated from their network and are prepared to hire should the unexpected occur. Help wanted ads, placement agencies, and recruiting from college campuses were used, all having varying degrees of success. Interestingly, the agencies in this study group, particularly those with younger principals, tended to use technology as a recruiting tool. They are comfortable with online services such as monster.com to post openings and often employ social networking to “get the word out.” Not surprisingly, exceptional computer skills are now required for all positions in these agencies since technology is an integral part of all agency activities. 3. Utilize placement agencies 4. Place ads in newspapers, publications, online services 5. Recruit on college campuses

Mgmt. Perspectives

Many agencies in this group prefer to hire producers with sales experience but with little or no insurance backgrounds and service staff without experience so they can be“indoctrinated to the agency’s way of doing things”. As such, they have developed specific new employee training modules and use testing profiles such as OMINI, DISC, and others to help review, manage, and motivate these employees. Achieving Organic Growth The mantra for this group of agencies seems to be “cross-sell and ask for the referral.” These two strategies allowed them to drive positive organic growth in a difficult environment. As they identified and pursued the lines of business not written for existing clients, they nurtured client relationships through discounts for multiple policies with the same carrier, increased client communications and education, and enhanced service. This heightened level of service improved retention and created a fertile ground to ask for referrals. The most successful agencies established and enhanced trusted relationships with lenders, realtors, bankers, accountants, business owners and others who are influential in their communities in order to provide and obtain referrals. As one agent said, “They comprise 90% of our referral network.” To support their increased sales efforts, these agencies also put resources into new advertising/marketing materials and activities. Although traditional marketing support was used, this group, more than others, embraced the internet, email, and social media to create brand recognition, reach new prospects in a broader geographic area, address niche audiences, and communicate with existing clients. Other successful growth strategies included specialization and niche marketing to homogenous classes, franchises and associations. Results show that 3. Expand advertising/marketing efforts including website/social media/internet 4. Develop more niches/specialties/target markets 5. Nurture existing accounts through superior service delivered by knowledgeable staff 1. Implement disciplined cross-selling, account rounding, upgrading 2. Aggressively seek referrals from existing clients and centers of influence Keys to Organic Growth (Top 5 Listed in Order of Frequency Mentioned)

Profile

Revenues

Expenses

Profitability

Employee Overview

Producer Info

Staff Service Info

Technology

Insurance Carriers

Appendix

2010 Best Practices Study

Keys to Developing Talent (Top 5 Listed in Order of Frequency Mentioned)

Agencies with Revenues Under $1,250,000

1. Provide in-house training/mentoring

2. Pay for out-of-office seminars, programs

3. Utilize carrier training

4. Require and provide incentives to acquire industry designations

3

5. Provide vesting / ownership opportunities

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

Mgmt. Perspectives

especially difficult to find and attract qualified employees, and to fund ongoing development and rewards for current employees. In discussing a wage freeze on all employees, one agency manager confided, “our clerical staff has helped us have good profits this year and I want to reward them as soon as possible. They currently share commissions on business they produce but I want them to enjoy wage increases.” Cash flow constraints have been brought on by the continuing soft market and weak economy. As agency profit margins have shrunk, expense control has become increasingly important. Many of the agencies in this group wrestle with the need to hold or cut spending levels at the same time they need to invest in new sales and improved retention. New sales are needed to meet their volume commitments to their carriers, to maintain their agencies’ values and to fund the internal perpetuation, a route that most want to take but are often unable to achieve. Retention is critical for positive net growth but difficult as the agencies’ commercial clients are closing their doors and their personal lines clients seek lower pricing. One agent explained, “Due to the current economy, clients are calling us and asking for their account to be priced with other carriers…..it feels that we are working harder than ever to retain long-time clients.” This same agent, however, exemplified the advantage of being an Independent Agent and why this group continues to thrive by adding, “We are glad to be an independent agency that is able to retain our business although we may have to move it among carriers with the agency.”

this group of agencies has been “more active than ever to attract new business.” They used multiple channels, not to mention the tried and true…”ask existing customers for more business!” Adjusting to Health Care Reform Typically, life & health insurance accounts for less than 10% of this group’s revenue, so the most common action taken in light of health care reform is no action at all. However, for those that have life & health books of business, legislative change is viewed as either an opportunity to expand the business into new areas or as an impending threat to the revenue source and their ability to provide an affordable benefits program to their own employees. 1. Taking no action 2. Staying informed and keeping clients inform 3. Investigating/preparing for opportunities that will surface 4. Continuing to sell L&H products but not as aggressively 5. Considering the impact on agency’s own benefits package For those seeing opportunity, they feel more people will have or want to purchase health insurance and are positioning themselves to be trusted source of information and products to those consumers. One agent indicated,“Our practice is adjusting by becoming very well informed of the implications of the reform at the various stages and passing our knowledge onto our clients and prospective clients. We’re using the situation to expand our client base.” Others are developing plans to aggressively market products to individuals, hiring or aligning with an outside health and benefits broker, revamping their websites for additional focus on healthcare insurance products, and attending classes for further training. For those with a more negative view of the reform impact, they too are staying informed but have reduced their marketing and prospecting for group health clients. Facing Challenges A perennial challenge for agencies in this revenue category is finding, developing and retaining quality employees. However, recent cash flow constraints endured by many of these agencies have made it Top Adjustments (Top 5 Listed in Order of Frequency Mentioned)

Profile

Revenues

Expenses

Profitability

Employee Overview

Producer Info

Staff Service Info

Technology

Insurance Carriers

Appendix

Top Challenges (Top 5 Listed in Order of Frequency Mentioned )

1. Recruiting, retaining, and rewarding quality employees 2. Controlling Expenses 3. Maintaining positive growth 4. Meeting carrier volume commitments 5. Staying up with technology

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

4

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

Profile (of Agencies in this Study Group) A. Average Total Revenues: $791,342 B. Population Density of Metropolitan Areas Where Home Office is Located Average

Mgmt. Perspectives

Profile

Revenues

+25% Profit

+25% Growth

Expenses

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

52.5% 22.5% 15.0% 10.0%

48.0% 22.0% 18.0% 12.0%

48.3% 20.0% 20.0% 11.7%

Profitability

Employee Overview

Producer Info

Staff Service Info

32.5% 45.0%

30.0% 46.0%

31.7% 43.3%

S

Technology

Partnership

5.0%

4.0%

6.7%

Insurance Carriers

LLC

15.0%

18.0%

16.7%

Appendix

Sole Proprietorship

2.5%

2.0%

1.7%

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

1.3

1.2

1.5

# of States Offices are Located in

1.0

1.1

1.0

Agency has an ESOP

0.0% 0.0%

0.0% 0.0%

20.0% 82.5%

% of Stock Owned by ESOP

D. Shareholders Number of Shareholders (excluding ESOP)

1.9 5.0 1.0

3.0

2.0

High

Low

E. Ownership Percentage % Owned by Largest Shareholder

77.4%

66.7%

66.7%

High

100.0%

Low

46.0%

F. Shareholder Age Current Age of Largest Shareholder

53.6

57.5

52.1

G. Parent Corporation

Average

% of Agencies Owned by Another Corporation

2.7%

2010 Best Practices Study

“Other” included AAA, joint venture, another insurance agency, holding company or large ESOP with number of diversified industries.

Description of Parent Corporation Financial Institution

100.0%

Agencies with Revenues Under $1,250,000

0.0% 0.0%

National Broker

Other

H. Member of Group

“Groups” included DCS, Shared Agency Services, 3-S Agencies, SMART Group, Iroquois, Pacific Interstate Insurance Brokers, and Consolidated Agencies.

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

17.5%

5

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

Revenues

Mgmt. Perspectives

Profile

(% by Source)

Average

+25% Profit

+25% Growth

Property & Casualty Commercial Commissions & Fees

Revenues

43.3%

44.1%

46.8%

Expenses

Bonds

0.7%

0.4%

1.4%

Profitability

Personal Commissions Value Added Services

40.0%

40.7%

35.1%

0.8% 7.5%

0.0% 6.1%

2.2% 9.6%

Employee Overview

Contingent/Bonus

Producer Info

Total P&C

92.2%

91.2%

95.0%

Staff Service Info

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

5.7% 0.1% 1.6% 0.1% 7.6% 0.1% 0.1%

7.0% 0.0% 1.8% 0.0% 8.8% 0.0% 0.0%

3.3% 0.0% 1.3% 0.1% 4.8% 0.1% 0.1%

Technology

Insurance Carriers

Appendix

Bonus/Overrides

Total L&H/Financial

Investments

Miscellaneous

Gross Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

0.0%

0.2%

0.0%

Net Revenues

100.0%

99.8%

100.0%

Revenue by Source (% of Gross Revenues)

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

6

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

Revenue by Aquisition

Mgmt. Perspectives

Profile

Acquired Revenues

Revenues

Average Commissions Acquired

% of Agencies Acquiring

Percentage of Net Revenues

Expenses

Profitability

Acquisitions Made in Last 12 Months

5.0%

$28,923

7.5%

Employee Overview

Producer Info

What the Typical Transactions Looked Like Revenues Acquired per Transaction

Multiples of Revenue Paid

Staff Service Info

Average

* * *

Average

* * *

Technology

High Low

High Low

Insurance Carriers

*Insufficient Data

Appendix

Revenue by Account Concentration Average

+25% Profit

+25% Growth

% of Revenue Derived from: Largest Account

3.8%

3.0%

3.0%

High Low

13.5%

1.1%

10 Largest Accounts

13.1% 33.6%

10.9%

12.6%

High Low

2.6%

Average

+25% Profit

+25% Growth

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

63.9%

80.5%

50.0%

Disability

2.0%

1.0% 0.5% 0.5% 0.0%

0.0% 0.0% 0.0%

Dental & Vision

11.7%

Retirement/Pension

0.1% 9.1% 2.2% 0.1%

Worksite/Voluntary/Supplement

25.0%

Long-Term Care

12.0%

0.0% 0.0%

2010 Best Practices Study

Employee Benefits TPA

0.5% 5.0%

All Other

10.9%

25.0%

*Excludes Group Medical

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)

Mgmt. Perspectives

Profile

Average

+25% Profit

+25% Growth

Commercial P&C Total Commissions & Fees in Book

Revenues

$401,165

$458,356

$429,002

Greater than $25,000 % of Book

Expenses

16.1%

23.7%

15.8%

Profitability

# of Accounts Total Revenue

9.3

19.4

7.7

$107,887 $11,619

$195,886 $10,097

$101,771 $13,275

Employee Overview

Revenue per Account

Producer Info

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

16.6%

17.2%

18.9%

Staff Service Info

# of Accounts Total Revenue

13.4

20.4

14.3

$86,166 $6,409

$142,063

$91,369 $6,412

Technology

Revenue per Account

$6,964

Insurance Carriers

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

19.1%

20.6% 106.9

22.5% 116.9

Appendix

# of Accounts Total Revenue

58.8

$89,330 $1,519

$106,015

$108,653

Revenue per Account

$992

$930

Less than $5,000

% of Book

48.2% 438.0

38.5% 280.0

42.7% 541.3

# of Accounts Total Revenue

$199,081

$176,371

$206,276

Revenue per Account

$455

$630

$381

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

Average

+25% Profit

+25% Growth

Group L&H/Financial Total Commissions & Fees in Book

$100,258

$96,578

$561,978

Greater than $25,000 % of Book

12.9%

* * * *

* * * * * * * *

# of Accounts Total Revenue

2.0

$60,226 $30,113

Revenue per Account

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

18.3%

16.2%

# of Accounts Total Revenue

3.0

2.5

$42,804 $14,268

$47,037 $18,815

Revenue per Account

2010 Best Practices Study

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

26.0%

26.9%

32.7%

# of Accounts Total Revenue

5.9

7.0

7.0

Agencies with Revenues Under $1,250,000

$36,534 $6,192

$39,016 $5,574

$44,959 $6,423

Revenue per Account

Less than $5,000

% of Book

42.8%

51.4%

42.5%

# of Accounts Total Revenue

59.7

48.5

61.5

$42,913

$49,646 $1,024

$58,373

8

Revenue per Account

$719

$949

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

Mgmt. Perspectives

Revenue by Specialty/Niche

Profile

Average

+25% Profit

+25% Growth

Revenues

% 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

25.0%

20.0%

30.0%

Expenses

Profitability

33.4%

44.9%

37.8%

Employee Overview

*

*

*

Producer Info

*Insufficient Data

Staff Service Info

Average Revenue per Specialty

% of Agencies Having Specialty

Technology

Top 5 INDUSTRY Specialties Agriculture

Insurance Carriers

$621,974 $129,750 $125,000 $121,309

0.8% 0.8% 0.8% 1.7%

Health Care Hospitality Construction N/A All Others**

Appendix

$194,145

4.2%

** “All Others” includes municipal risk management, religious order, auto dealerships, retail sporting goods, restaurants, homeless/rehab facility, non-profits, and law firms.

Average Revenue per Specialty

% of Agencies Having Specialty

Top 5 PRODUCT Specialties Professional & Management Liability

$264,027

0.8%

N/A N/A N/A N/A All Others***

$621,974

0.8%

*** “All Others” includes multi-peril crop insurance.

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

9

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

Mgmt. Perspectives

Services/Other Products Provided (% of Agencies Providing)

Profile

Revenues

Average

+25% Profit

+25% Growth

Property & Casualty Claims Services (beyond traditional services)

Expenses

15.8% 21.1% 26.3% 10.5%

20.0% 60.0% 40.0% 20.0%

14.3% 28.6% 14.3% 14.3% 28.6% 14.3% 14.3% 14.3% 0.0%

Profitability

Loss Control/Engineering/Safety Risk Management Consulting

Employee Overview

Data Analysis

Producer Info

Workers Comp TP Premium Financing

0.0%

0.0%

Staff Service Info

47.4%

40.0%

Self-Insurance Programs

5.3%

0.0%

Technology

Household Contents Inventory Services Identity Theft Protection Programs

10.5% 21.1%

40.0% 40.0%

Insurance Carriers

Appendix

Captive Ins. Company Consulting/Management

0.0% 0.0%

0.0% 0.0%

0.0% 0.0%

Other

Average

+25% Profit

+25% Growth

Life & Health / Financial Wellness

0.0%

0.0%

0.0%

Enrollment

15.8%

20.0% 20.0%

14.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14.3%

COBRA Administration

5.3% 0.0% 0.0%

Government Compliance Service

0.0% 0.0%

Employee Benefits TPA

HR Consulting

10.5%

20.0%

Actuarial/Data Analysis

0.0%

0.0%

Pension/401(k)

15.8%

40.0%

Self-Insurance Programs

0.0%

0.0%

Investment Products (Securities, Stocks)

10.5%

20.0%

Zywave

0.0% 5.3% 5.3%

0.0% 0.0%

PEO (Employee Leasing Products & Services)

Other*

20.0%

*”Other” includes HR website.

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

10

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

Mgmt. Perspectives

Revenue Growth by Source

Profile

Average

+25% Profit

+25% Growth

Revenues

Commercial P&C Renewals 1

Expenses

89.5% 11.2%

90.1% 10.8%

93.0% 16.7%

New Business 2

Profitability

Acquired Revenues 3 Organic Growth 4

0.2% 0.7% 0.9%

0.0% 0.9% 0.9%

0.0% 9.6% 9.6%

Employee Overview

Total Growth 5

Producer Info

Bonds

Renewals 1

74.5% 23.5% 0.0% -2.0% -2.0%

53.9% 34.6%

74.9% 29.1%

Staff Service Info

New Business 2

Technology

Acquired Revenues 3 Organic Growth 4

0.0%

0.0% 4.0% 4.0%

-11.5% -11.5%

Insurance Carriers

Total Growth 5

Personal P&C

Appendix

Renewals 1

93.6% 10.9%

95.2% 11.9%

96.3% 12.1%

New Business 2

Acquired Revenues 3 Organic Growth 4

0.3% 4.5% 4.8%

0.0% 7.1% 7.1%

0.0% 8.5% 8.5%

Total Growth 5

Value Added Services Renewals 1

45.5% 50.0% 0.0% -4.4% -4.4%

* * * * *

* * * * *

New Business 2

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.

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

11

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

Mgmt. Perspectives

Revenue Growth by Source (continued)

Profile

Average

+25% Profit

+25% Growth

Revenues

Group Medical L&H Renewals 1

Expenses

86.6% 8.6% 0.0% -4.9% -4.9%

81.7%

74.4% 14.4%

New Business 2

4.3% 0.0%

Profitability

Acquired Revenues 3 Organic Growth 4

0.0%

Employee Overview

-14.1% -14.1%

-11.2% -11.2%

Total Growth 5

Producer Info

All Other Group L&H Renewals 1

* * * * *

* * * * *

* * * * *

Staff Service Info

New Business 2

Technology

Acquired Revenues 3 Organic Growth 4

Insurance Carriers

Total Growth 5

Individual L&H

Appendix

Renewals 1

67.3% 34.1%

73.4% 27.6%

62.4% 52.8%

New Business 2

Acquired Revenues 3 Organic Growth 4

0.0% 1.4% 1.4%

0.0% 1.0% 1.0%

0.0%

15.3% 15.3%

Total Growth 5

Total Commissions & Fees Renewals

89.6% 12.4%

87.4% 13.3%

94.7% 18.4%

New Business

Acquired Revenues

0.2% 2.0% 2.2%

0.0% 0.7% 0.7%

0.0%

Organic Growth

13.0% 13.0%

Total Growth

P&C Contingent Income Growth L&H Bonus Income Growth Investment Income Growth

-0.8%

-7.3%

40.6%

*

* *

*

-21.5%

-21.7

Total Revenue Growth

2.2%

-1.5%

16.8%

Brokerage Commission Expense Growth

*

*

*

Net Revenue Growth (Organic) Net Revenue Growth (Total)

2.0% 2.2%

-1.5% -1.5%

16.8% 16.8%

*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.

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

12

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

Mgmt. Perspectives

Organic Growth

Profile

Revenues

The persisting soft market and current depressed economic environment made organic growth very difficult to achieve. The MEDIAN organic growth rate, which is the midpoint of the data when results are ranked in descending order, will give a more complete picture of the growth achieved by this study group.

MEDIAN Organic Growth Rate: 3.1%

Expenses

Profitability

Employee Overview

Organic Growth by Line of Business

Producer Info

Staff Service Info

Technology

Insurance Carriers

Appendix

2010 Best Practices Study

Agencies with Revenues Under $1,250,000

13

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

Mgmt. Perspectives

Expenses (as % of Net Revenues)

Profile

Revenues

Average

+25% Profit

+25% Growth

Compensation Expenses Payroll: Employee

Expenses

43.2%

38.1%

41.2%

Profitability

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

3.3%

0.8%

2.2%

Total Payroll

46.5%

38.9%

43.4%

Employee Overview

Benefits: Payroll Taxes Benefits: Retirement Benefits: Insurance

3.8% 1.5% 3.0% 0.1% 8.5%

3.4% 1.1% 2.3% 0.0% 6.8%

3.8% 1.0% 3.5% 0.2% 8.5%

Producer Info

Staff Service Info

Benefits: Other

Technology

Total Benefits

Total Compensation

55.0%

45.7%

51.9%

Insurance Carriers

Selling Expenses T&E/Conventions Auto Expenditures Auto Depreciation

1.3% 1.4% 0.4% 1.7% 1.6% 4.6% 4.9% 0.2% 5.2% 0.5% 0.2% 0.7% 1.9% 0.3% 2.1% 1.4% 0.6% 1.5% 1.1% 0.4% 2.0% 0.7% 0.2% 0.3% 0.4% 0.7%

1.0% 1.5% 0.0% 1.5% 1.6% 4.1% 3.5% 0.0% 3.5% 0.4% 0.0% 0.4% 0.8% 0.0% 0.8% 1.5% 0.5% 1.5% 1.2% 0.5% 1.3% 0.5% 0.1% 0.1% 0.4% 0.5%

1.8% 1.4% 0.3% 1.7% 1.8% 5.3% 5.2% 0.0% 5.3% 0.6% 0.3% 0.9% 2.1% 0.1% 2.3% 1.2% 0.7% 1.9% 1.1% 0.6% 1.6% 0.4% 0.4% 0.3% 0.5% 0.9%

Appendix

Total Auto

Advertising/Promotions

Total Selling

Operating Expenses Occupancy Expenditures

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

Dues/Subscriptions/Contributions

Taxes/Licenses

2010 Best Practices Study

Insurance

Professional Fees

Bad Debts

Agencies with Revenues Under $1,250,000

Outside Services Education/Training

Miscellaneous

Total Operating

17.2%

12.9%

18.0%

continued on next page

14