2018 Best Practices Study

The insurance agency/brokerage business and the world in which it operated were both very different in 1993, when we issued the first Best Practices Study . The World Wide Web was still in its infancy, with a total of just 600 websites. Laptop computers, email, texting, and even Google were foreign or non-existent concepts to most Americans. Bill Clinton took office in his first term as President, and the most popular movie was Jurassic Park (perhaps a picture of the political world we were heading into).

In the early 90s, times were tough for agents and brokers, as fierce competition, alternative markets, and harsh economic forces had taken their toll over the previous decade, as evidenced by decreasing

numbers of agents and declining market share. To address these challenges, the Big “I” appointed a blue-ribbon panel called the Presidential Commission to Enhance Agency Values . One of the Commission’s key initiatives was to help agents better understand the internal factors affecting their results and the critical success factors and best practices that were allowing some agencies to prosper. To create and execute what became the Best Practices Study , the Big “I” partnered with my consulting firm, which consults with agents and brokers on matters of value and operating excellence. The stated objectives of the Best Practices Study were to: 1) Allow agents to better understand their own performance 2) Make agents aware of the performance of the best agencies in the industry 3) Identify the factors most critical to the success and viability of agents 4) Provide the necessary training, tools, and resources to allow agents to elevate their performance and prosper As we celebrate the publication of the 25th version of the Study , it is fair to say that these objectives have not only been achieved but have far exceeded any of our expectations. We have also seen the quality and breadth of the Best Practices Study improve materially. The 1993 Best Practices Study included 150 agencies, organized in five size categories, from agencies with revenues under $500,000, to those with revenues of over $5,000,000. The 2018 Study has been expanded to include 237 agencies across six size categories with the top-end including agencies with revenues over $25,000,000. The 2018 Best Practices Study is also much more comprehensive, including information on producer hiring and performance, generational health, specialization, account stratification, acquisitions, technology, and financial health.

It is fascinating to see how the performance of Best Practices agencies has improved over the past 25 years. If we look at one size category of agencies (revenues between $2.5 - 5.0 million), we can see the remarkable lift in the performance of the average agencies from 1993 to 2018, as measured by two critical metrics – revenue-per-employee and agency profitability (pro forma pre-tax profit).

% Improvement

1993

2018

Revenue per Employee

$80,793

$177,473

+120%

Pro Forma Pre-Tax Profit

12.0%

27.5%

+129%

$177,473

 10

27.5%