2006 Best Practices Study

2006

2006 BEST PRACTICES STUDY

SPECIAL ACKNOWLEDGEMENT

We wish to thank the following companies for their sponsorship which has funded the development of the 2006 Best Practices Study and the Best Practices Gateway website.

2006 BEST PRACTICES STUDY

TABLE OF CONTENTS

Introduction

Analysis of Agencies with Revenues Less than $500,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Analysis of Agencies with Revenues Between $500,000 and $1,250,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..25 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

2006 BEST PRACTICES STUDY

Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 Analysis of Agencies with Revenues Over $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

2006 BEST PRACTICES STUDY

INTRODUCTION

Since 1993 the annual Best Practices Study has served as a tool to help agency own- ers 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 2006 Best Practices Study Executive Update provides critical performance benchmarks in seven agency revenue categories ranging from Under $500,000 to Over $25,000,000 . Agencies can measure, evaluate, and compare results for agency opera- tions including:

• • • • • •

Income & Expense Distribution Revenue & Profitability Growth

Production & Service Staff Compensation/Productivity

Technology Expenses

P&C and GL&H Carrier Representation

Much more

This year’s Executive Update continues to follow the performance of the 195 agencies selected in 2004 as Best Practices Agencies. (NOTE: New agencies are selected every third year.) Although this publication updates critical financial and operational bench- marks and can be used on a standalone basis, readers may also want to reference the 2004 Best Practices Study for more comprehensive information on the Best Practices Agencies including:

• • • • •

Factors most critical to success

Top challenges

Keys for maximizing productivity

Keys for gaining a competitive advantage

Additional operational results and business practices

The comprehensive 2004 study is available in hard copy only and can be purchased from the Independent Insurance Agents & Brokers of American (IIABA) Education Department. Order forms can be downloaded at http://bp.reaganconsulting.com/.

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 agen- cies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or

2006 BEST PRACTICES STUDY

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 pro- vide 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 indus- try.

The Process

Once every three years, the insurance companies participating in the IIABA’s Council for Best Practices and the Executive Directors of IIABA’s state association affiliates nomi- nate 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. In 2004, the beginning of a new three-year study cycle, approximately 900 agencies from around the country were nominated in seven revenue categories ranging from “ Under $500,000 ” to “ Over $25,000,000 .” Over 300 agencies accepted the invitation and sub- mitted data. The agencies submitting data were scored and ranked objectively for inclusion on the basis of Account Retention Rates, Revenue Growth, Productivity, Profitability, and Financial Stability. Only 195 agencies, the top 30 firms in the first six categories and 15 in the largest revenue category, were included in the study and earned the status of a “Best Practices Agency.” Their compiled year-end results and business practices were published in the compre- hensive 2004 Best Practices Study . Last year their continued performance was reviewed and compiled in order to update the subset of financial and operational benchmarks which comprised the 2005 Best Practices Executive Update . This 2006 Update com- pletes the study cycle for the 2004 Best Practices Agencies.

A new study cycle will begin in March 2007 when additional agency nominations are accepted for participation. Only 195 will qualify for inclusion in the study.

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 nominat- ed should contact their state association.

2006 BEST PRACTICES STUDY

About the Best Practices Gateway Website

The electronic version 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 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 and Executive Updates , many other useful studies, resources, and tools are available to help agencies improve their perform- ance 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 2006 Best Practices Study Executive Update please contact the IIABA Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

Copyright©2006 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

2006 BEST PRACTICES STUDY

AGENCIES WITH REVENUES UNDER $500,000

PROFILE (of Agencies in this Study Group)

2006

A.

Average Total Revenues: $347,138

B.

Corporate Structure

PROFILE

+25% Profit

+25% Growth

Average

C

46.7%

36.8%

34.8%

S

40.0%

47.4%

52.2%

REVENUES/ EXPENSES

Partnership

0.0%

0.0%

0.0%

LLC

6.7%

5.3%

4.3%

Sole Proprietorship

6.7%

10.5%

8.7%

FINANCIAL STABILITY

C.

Shareholders

+25% Profit

+25% Growth

Average

EMPLOYEE OVERVIEW

Number of Shareholders

1.7

1.8

1.5

High

4.0

Low

1.0

PRODUCER INFO

D.

Ownership Percentage

+25% Profit

+25% Growth

Average

SERVICE STAFF INFO

% Owned by Largest Shareholder

77.8%

71.2% 75.0%

High

100.0%

Low

35.0%

TECHNOLOGY

E.

Shareholder Age

+25% Profit

+25% Growth

Average

INSURANCE CARRIERS

Current Age of

Largest Shareholder

55.9

49.5

51.5

2006 Best Practices Study

1

AGENCIES WITH REVENUES UNDER $500,000

F.

Parent Corporation

2006

Average

% of Participating Agencies

0.0%

Owned by Another Corporation

PROFILE

Description of Parent Corporation

Financial Institution

0.0%

National Broker

0.0%

REVENUES/ EXPENSES

Other

0.0%

FINANCIAL STABILITY

G. Population Density of Metropolitan Area Where Home Office Is Located

EMPLOYEE OVERVIEW

+25% Profit

+25% Growth

Average

Less than 50,000

46.7%

42.1%

43.5%

50,000 - 250,000

26.7%

21.1%

17.4%

PRODUCER INFO

250,000 - 1,000,000

26.7%

36.8%

39.1%

More than 1,000,000

0.0%

0.0%

0.0%

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

2

AGENCIES WITH REVENUES UNDER $500,000

REVENUE ANALYSIS

2006

A.

% of Revenue by Source

+25% Profit

+25% Growth

Average

Commercial P&C

34.7%

28.2%

42.6%

PROFILE

Personal P&C

53.3%

58.0%

43.3%

P&C Service Fees

0.4%

0.0%

1.5%

Contingent

7.2%

4.9%

7.6%

REVENUES/ EXPENSES

Group L&H

2.1%

4.9%

2.4%

Individual L&H

1.5%

3.0%

1.7%

Investments

0.5%

1.0%

0.8%

FINANCIAL STABILITY

Miscellaneous

0.2%

0.0%

0.2%

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Exp

1.4%

0.0%

0.0%

EMPLOYEE OVERVIEW

Net Revenues

98.6% 100.0% 100.0%

70%

Average

60%

+25% Profit

PRODUCER INFO

50%

+25% Growth

40%

30%

SERVICE STAFF INFO

20%

% Total Revenue

10%

Commercial P&C

Personal P&C

P&C Service Fees

Contingent

Group L&H

Individual L&H

Investments

TECHNOLOGY

Future Revenue Sources

% of Agencies Considering Line of Business as Very Important:

INSURANCE CARRIERS

Personal Lines

86.7% 80.0%

Small Commercial Lines Individual Life & Health

0.0% 0.0%

Group Life & Health Surety & Bonding

26.7%

2006 Best Practices Study

3

AGENCIES WITH REVENUES UNDER $500,000

B.

% of Revenues Derived from Largest Accounts

+25% Profit

+25% Growth

2006

Average

Largest Commission Account

4.7% 2.1% 8.3%

High

18.4%

PROFILE

Low

1.4%

10 Largest Commission Accounts

12.0% 9.5% 22.7%

High

43.9%

REVENUES/ EXPENSES

Low

1.7%

C. Revenues Derived from Acquisitions Made in the Last 12 Months

FINANCIAL STABILITY

% of Agencies Acquiring Avg. Total Commissions Acquired

% of Net Revenues

6.7%

$78,219

16.5%

EMPLOYEE OVERVIEW

D.

Net Revenue Growth

+25% Profit

+25% Growth

Average

PRODUCER INFO

Net Revenue Growth (Organic)

2.5% 4.5% 11.3%

Net Revenue Growth (Total)

3.9% 4.5% 11.3%

SERVICE STAFF INFO

Revenue Growth by Source (as % of Prior Year’s Total Revenues)

Average

+25% Profit

30%

+25% Growth

TECHNOLOGY

20%

10%

0%

INSURANCE CARRIERS

% Total Revenue -10%

-20%

-30%

Commercial P&C

Personal P&C

Group L&H

P&C Service Fees

Individual L&H

Total Commissions & Fees

2006 Best Practices Study

4

AGENCIES WITH REVENUES UNDER $500,000

E. Revenue Growth by Source (stated as % of Prior Year’s Total Revenues)

+25% Profit

+25% Growth

2006

Average

Commercial P&C

87.0%

69.0%

87.5%

Renewals 1

12.0%

13.7%

14.4%

New Business 2

Acquired Revenues 3

2.3%

0.0%

0.0%

Organic Growth 4

-1.0%

-17.3%

1.9%

Total Growth 5

1.3%

-17.3%

1.9%

PROFILE

Personal P&C

86.1%

84.3%

88.7%

Renewals 1

New Business 2

12.3%

17.2%

14.4%

Acquired Revenues 3

0.0%

0.0%

0.0%

REVENUES/ EXPENSES

Organic Growth 4

-1.7%

1.5%

3.1%

Total Growth 5

-1.7%

1.5%

3.1%

Renewals 1

*

*

*

P&C Service Fees

New Business 2

*

*

*

Acquired Revenues 3

*

*

*

FINANCIAL STABILITY

*

Organic Growth 4

*

*

*

Total Growth 5

*

*

Group L&H

Renewals 1

76.1%

63.7%

85.7%

New Business 2

22.9%

24.1%

1.5%

EMPLOYEE OVERVIEW

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

-1.0%

-12.2%

-12.8%

Total Growth 5

-1.0%

-12.2%

-12.8%

Renewals 1

61.9%

82.4%

59.3%

Individual L&H

PRODUCER INFO

New Business 2

33.4%

30.4%

41.1%

Acquired Revenues 3

0.0%

0.0%

0.0%

12.8%

Organic Growth 4

-4.7%

0.4%

12.8%

Total Growth 5

-4.7%

0.4%

SERVICE STAFF INFO

Renewals 1

86.9%

84.1%

88.9%

Total Commissions & Fees

New Business 2

12.2%

15.9%

14.2%

Acquired Revenues 3

1.6%

0.0%

0.0%

Organic Growth 4

-0.9%

0.1%

3.1%

Total Growth 5

0.6%

0.1%

3.1%

TECHNOLOGY

Contingent Income Growth

4.8%

*

*

Investment Income Growth

-0.8%

*

-25.0%

Total Revenue Growth

2.9%

4.5%

10.5%

Brokerage Commission Expense Growth

3.0%

*

*

Net Revenue Growth (Organic)

2.5%

4.5%

11.3%

INSURANCE CARRIERS

Net Revenue Growth (Total)

3.9%

4.5%

11.3%

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.

*Insufficient Data

2006 Best Practices Study

5

AGENCIES WITH REVENUES UNDER $500,000

EXPENSE ANALYSIS

A.

Expenses Analysis (as a % of Net Revenues)

2006

+25% Profit

+25% Growth

Average

Compensation Expense Total Payroll

38.5%

31.1%

42.2%

Benefits

8.1%

3.4%

5.7%

PROFILE

Total Compensation

46.6%

34.5%

47.9%

Selling Expenses

T&E/Conventions

1.5% 3.1% 2.9% 7.5% 4.5% 1.9% 0.7% 1.4% 1.8% 1.7% 3.4% 1.0% 0.6% 0.5% 0.3% 2.1% 0.6% 0.4% 0.3% 1.9% 0.4% 0.6% 0.1% 3.4%

0.7% 2.9% 2.5% 6.1% 3.3% 1.2% 0.5% 1.2% 1.8% 0.8% 1.8% 0.6% 1.0% 0.3% 0.1% 2.3% 0.7% 0.0% 0.6% 2.1% 0.6% 0.3% 0.3% 4.0%

2.0% 1.9% 2.4% 6.4% 3.2% 1.4% 0.7% 1.0% 1.9% 0.2% 2.6% 0.6% 0.9% 0.4% 0.6% 2.6% 0.4% 0.0% 0.0% 1.7% 0.4% 0.7% 0.0% 2.8%

Automobile

Advertising/Promotions

Total Selling

REVENUES/ EXPENSES

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

FINANCIAL STABILITY

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Equipment Rental/Maintenance

Bad Debts

EMPLOYEE OVERVIEW

Outside Services

Information Technology

Education/Training

Miscellaneous

Total Operating

20.8%

15.7%

16.5%

PRODUCER INFO

Administrative Expenses Amortization

Depreciation Officer-Life

Interest

SERVICE STAFF INFO

Other

Total Administrative

Total Expenses Pre-Tax Profit

78.2% 21.8%

60.4% 39.6%

73.6% 26.4%

60%

TECHNOLOGY

Average

50%

+25% Profit

40%

+25% Growth

INSURANCE CARRIERS

30%

20%

% Net Revenue

10%

0%

Compensation Expense

Operating Expense

Administrative Expense

Selling Expense

2006 Best Practices Study

6

AGENCIES WITH REVENUES UNDER $500,000

Revenue/Expense/Profit Summary

2006

+25% Profit

+25% Growth

Average

Revenues (% by Source) Commercial Lines

34.7% 28.2% 42.6% 53.3% 58.0% 43.3%

Personal Line

0.4% 7.2% 2.1% 1.5% 0.5% 0.2%

0.0% 4.9% 4.9% 3.0% 1.0% 0.0%

1.5% 7.6% 2.4% 1.7% 0.8% 0.2%

P&C Service Fees Contingent/Bonus Group Life & Health Individual Life & Health

PROFILE

Investments Miscellaneous

REVENUES/ EXPENSES

100.0% 100.0% 100.0%

Total Revenues

1.4%

0.0%

0.0%

Brokerage Commission Expense

98.6% 100.0% 100.0%

Net Revenues

Expenses (as % of Net Revenues) Compensation

46.6%

34.5%

47.9%

FINANCIAL STABILITY

Selling

7.5%

6.1%

6.4%

Operating

20.8%

15.7%

16.5%

Administrative

3.4%

4.0%

2.8%

Total Expenses

78.2%

60.4%

73.6%

EMPLOYEE OVERVIEW

Pre-Tax Profit

21.8% 30.9% 13.9%

39.6% 56.6% 33.7%

26.4% 38.8% 18.1%

Pro Forma Profit 1

Operating Pre-Tax Profit 2

Pro Forma EBITDA 3

34.3%

60.6%

41.6%

PRODUCER INFO

1 Pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed (i.e., removing expenses that would not be incurred if a third party owned the agency). 2 Pre-tax profit minus contingents, bonus and investment income. 3 EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization

SERVICE STAFF INFO

60%

Average

50%

+25% Profit

TECHNOLOGY

40%

+25% Growth

30%

20%

INSURANCE CARRIERS

% Net Revenue

10%

Pre-Tax Profit

Operating Pre-Tax Profit

Pro Forma Pre-Tax Profit

2006 Best Practices Study

7

AGENCIES WITH REVENUES UNDER $500,000

FINANCIAL STABILITY

2006

A.

Current Ratio A current ratio greater than 1:1 indicates that cash and assets with short-term maturities are sufficient to meet a firm’s short-term obligations.

Average

Top 25%

Liquidity/Current Ratio

0.91:1

1.22:1

PROFILE

B.

Tangible Net Worth The tangible net worth is an important measure as it represents the net value of the corporation if it were liquidated. A low or negative tangible net worth impacts a firm’s ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations .

REVENUES/ EXPENSES

Average

Top 25%

Tangible Net Worth (as % of Net Rev)

18.7% 30.0%

FINANCIAL STABILITY

C1.

Receivables The following ratio measures the collection practices of an agency, with a lower ratio representing more timely collections.

Average

Top 25%

Receivables/Payables Ratio

64.4% 13.0%

EMPLOYEE OVERVIEW

C2.

Aged Receivables

Average

Top 25%

Over 60 Over 90

32.6% 11.6%

6.6% 5.8%

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

8

AGENCIES WITH REVENUES UNDER $500,000

EMPLOYEE OVERVIEW

2006

A.

Employee Statistics

+25% Profit

+25% Growth

Average

Total Number of Employees*

3.7

3.8

4.1

PROFILE

Revenue per Employee

$100,952 $131,957 $109,735

Compensation per Employee

$46,004

$42,789 $49,623

Spread per Employee

$54,948

$89,168 $60,111

*Full-time Equivalents

REVENUES/ EXPENSES

$200,000

Average

FINANCIAL STABILITY

+25% Profit

$150,000

+25% Growth

$100,000

EMPLOYEE OVERVIEW

$50,000

Compensation per Employee

Spread per Employee

Revenue per Employee

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

9

AGENCIES WITH REVENUES UNDER $500,000

PRODUCER INFORMATION

2006

A.

New Producer Hiring

+25% Profit

+25% Growth

Average

% of Agencies that Hired a New Producer During Last Fiscal Year

PROFILE

10.0%

*

*

Number of New Producers Hired

1.0

*

*

REVENUES/ EXPENSES

Average Annual Compensation Per New Producer

$48,000

*

*

FINANCIAL STABILITY

*Insufficient Data

Where New Producers Were Found

EMPLOYEE OVERVIEW

Directly from college or graduate school 0.0%

Outside of Industry* 33..%

PRODUCER INFO

An insurance carrier 33.3%

Another insurance broker 33.3%

SERVICE STAFF INFO

*Other industries mentioned most often include Medical/Pharmaceutical, Payroll Services, Advertising, Construction/Engineering, Banking/Financial Services, and Legal

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

10

AGENCIES WITH REVENUES UNDER $500,000

B.

Validated Producer Results

2006

1.

Typical Producer Productivity

Commercial P&C

Group L&H

Personal P&C

Multi- Lines

1.3

*

1.1

1.3

Average

PROFILE

Number of Validated Producers

2.8

*

2.0

2.0

High

0.5

*

0.3

1.0

Low

$22,720

*

$22,668 $16,869

Average

New Commissions Produced Annually

REVENUES/ EXPENSES

$33,062

*

$46,000

27,500

Top 25%

$175,178

*

$113,690 $178,253

Average

Total Commissions in Producer’s Book

$219,629

*

$247,555 $260,235

Top 25%

FINANCIAL STABILITY

Annual Pay per Producer

$50,688

*

$43,563 $40,805

Annual Pay as % of Producer’s Book

28.6%

*

38.3% 22.9%

EMPLOYEE OVERVIEW

*Insufficient Data

PRODUCER INFO

Producer Summary

Average Commissions in Book

Average New Commissions Produced

$1,200,000

$300,000

SERVICE STAFF INFO

$1,000,000

$250,000

$800,000

.$200,000

$600,000

$150,000

$400,000

$100,000

$200,000

$50,000

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Commercial P&C

Group L&H

Personal P&C

Multi- Line

TECHNOLOGY

Average

Average

Top 25%

Top 25%

INSURANCE CARRIERS

2006 Best Practices Study

11

AGENCIES WITH REVENUES UNDER $500,000

2.

Most Successful Producer Productivity

2006

Commercial P&C

Group L&H

$23,741

*

Average

New Commissions Produced Annually

$38,201

*

Top 25%

PROFILE

$230,911

*

Average

Total Commissions in Producer’s Book

$350,250

*

Top 25%

$1,204

*

REVENUES/ EXPENSES

Average

Average Commissions per Account

$2,475

*

Top 25%

*Insufficient Data

FINANCIAL STABILITY

How Most Successful Producers Spent Time

EMPLOYEE OVERVIEW

Commercial P&C Producer

Group L&H Producer

Soliciting New Business 19.4%

Management/ Personnel/Agency Administrative 30.3%

PRODUCER INFO

Insufficient Data - Chart Not Applicable

Personal Training/ Education/

Servicing Existing Accounts 44.4%

Professional Development 6.0% %

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

12

AGENCIES WITH REVENUES UNDER $500,000

SERVICE STAFF INFO

2006

A.

Service Related Personnel

+25% Profit

+25% Growth

Average

Total # of Service Related Personnel*

2.4

2.0

2.3

*Non-commissioned employees who have responsibility -- either directly (e.g., Account Executives (AE), Account Managers (AM), Customer Service Representatives (CSRs), Assistant CSRs, etc.) or indirectly (e.g., Claims Specialist, Placer/Marketer, etc.) -- to provide or support the delivery of service to the agency’s clients.

PROFILE

Service Structure

REVENUES/ EXPENSES

+25% Profit

+25% Growth

% of Agencies Having:

Average

Separate/Dedicated Marketing Department

0.0% 0.0% 0.0%

Separate/Dedicated Claims Department

0.0% 0.0% 0.0%

Assistants for CSRs/Account Managers

20.0% 25.0% 50.0%

FINANCIAL STABILITY

EMPLOYEE OVERVIEW

B.

CSR Productivity by Line of Business CSRs includes Account Executives (non-producer position) , Senior CSRs, CSRs, Account Managers, Assistant CSRs, etc. (i.e., positions with main responsibility for client service or main responsibility to support the AE, CSR/AM in providing client services) as well as the department managers who spend a portion of their time servicing clients. Respondents were instructed to use decimals to accurately represent the actual number of full-time equivalent CSR positions.

PRODUCER INFO

How Time Was Spent

Commercial P&C CSRs

SERVICE STAFF INFO

Average Top 25%

Selling New Business (New or Acct Rounding) 13.8%

Number

0.8 1.0 0.5

Administration 7.0%

High Low

Marketing (Placement) 8.0%

Average Commissions Serviced

$176,086 $219,629

TECHNOLOGY

Claims Processing 6.8%

Customer Service 64.5%

Average Pay ($)

$32,000

Average Pay (as % of Book Serviced)

18.2%

INSURANCE CARRIERS

2006 Best Practices Study

13

AGENCIES WITH REVENUES UNDER $500,000

How Time Was Spent

Group L&H CSRs

2006

Average Top 25%

Number

* * *

High Low

Insufficient Data - Chart Not Applicable

Average Commissions Serviced

PROFILE

*

*

Average Pay ($)

*

Average Pay (as % of Book Serviced)

*

REVENUES/ EXPENSES

*Insufficient Data

FINANCIAL STABILITY

How Time Was Spent

Personal P&C CSRs

Average Top 25%

Selling New Business (New or Acct Rounding) 21.1%

Number

1.1 2.0 0.5

Administration 7.9%

High Low

Marketing (Placement) 11.4%

EMPLOYEE OVERVIEW

Average Commissions Serviced

$140,452 $241,333

Average Pay ($)

$27,607

Claims Processing 4.0%

Customer Service 55.6%

Average Pay (as % of Book Serviced)

PRODUCER INFO

19.7%

SERVICE STAFF INFO

Multi-Line CSRs

How Time Was Spent

Average Top 25%

Number

1.6 3.0 1.0

Selling New Business (New or Acct Rounding) 20.8%

Administration 12.3%

High Low

TECHNOLOGY

Average Commissions Serviced

$213,163 $341,083

Marketing (Placement) 13.3%

Average Pay ($)

$32,052

INSURANCE CARRIERS

Average Pay (as % of Book Serviced)

Customer Service 47.3%

Claims Processing 6.2%

15.0%

2006 Best Practices Study

14

AGENCIES WITH REVENUES UNDER $500,000

TECHNOLOGY

2006

A.

Information Technology Expense (as % of Net Revenues)

+25% Profit

+25% Growth

Average

Total IT Expense for Fiscal Year 1 2.9% 3.4% 4.1% 1 Includes hardware/software leasing, supplies, maintenance & maintenance contracts, training, data communications, website development/maintenance, computer depreciation and software amortization.

PROFILE

B.

Information Technology (IT) Personnel

REVENUES/ EXPENSES

Because technology plays such an important role in supporting the agency’s Customer Service activities and efforts, they might be considered part of the service team. However, for the study they were NOT included in the overall service head count.

FINANCIAL STABILITY

IT Full-Time Employee Equivalents

Average

Top 25%

Average Number of IT Employees

0.5 1.0 0.2

High Low

EMPLOYEE OVERVIEW

Total IT Payroll Expenses

$7,070

$14,276

IT Payroll as % of Net Revenues

1.8%

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

15

AGENCIES WITH REVENUES UNDER $500,000

INSURANCE CARRIERS

2006

A.

Number of P&C Carriers Represented

+25% Profit

+25% Growth

Average

Personal Lines National

2.8

2.0

3.5

PROFILE

Regional

3.9

4.5

3.0

Commercial Lines National

2.5

1.0

3.8

REVENUES/ EXPENSES

Regional

3.1

3.3

5.0

B.

Number of Group Employee Benefits Carriers Represented

+25% Profit

+25% Growth

Average

FINANCIAL STABILITY

Average Total GEB Carriers

4.3

7.8

5.5

Average Number by Product GL&H

2.1

2.3

2.0

LTD

1.5

1.7

1.3

EMPLOYEE OVERVIEW

Dental

1.3

1.3

1.5

Retirement

4.1

*

1.7

C.

Commission Income Derived from Top Carriers

PRODUCER INFO

+25% Profit

+25% Growth

Average

% of Net Revenue from Top P&C Carrier

41.6% 36.4% 44.6%

SERVICE STAFF INFO

% of Net Revenue from Top 3 P&C Carriers

60.5% 56.4% 61.8%

% of Net Revenue from Top GL&H Carrier

1.8% 2.9% 0.6%

% of Net Revenue from Top 3 GL&H Carriers

3.8% 5.5% 2.7%

TECHNOLOGY

D.

Carrier Service Center Use

+25% Profit

+25% Growth

Average

% of Agency’s Personal Lines Commissions Placed in Service Centers % of Agency’s Commercial Lines Commissions Placed in Service Centers

INSURANCE CARRIERS

*

*

*

*

*

*

*Insufficient Data

2006 Best Practices Study

16

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

PROFILE (of Agencies in this Study Group)

2006

A.

Average Total Revenues: $807,350

B.

Corporate Structure

PROFILE

+25% Profit

+25% Growth

Average

C

33.3%

29.6%

30.3%

S

57.1%

63.0%

63.6%

REVENUES/ EXPENSES

Partnership

0.0%

0.0%

0.0%

LLC

9.5%

7.4%

6.1%

Sole Proprietorship

0.0%

0.0%

0.0%

FINANCIAL STABILITY

C.

Shareholders

+25% Profit

+25% Growth

Average

EMPLOYEE OVERVIEW

Number of Shareholders

2.4

3.2

2.0

High

6.0

Low

1.0

PRODUCER INFO

D.

Ownership Percentage

+25% Profit

+25% Growth

Average

SERVICE STAFF INFO

% Owned by Largest Shareholder

66.5%

58.7% 75.7%

High

100.0%

Low

40.0%

TECHNOLOGY

E.

Shareholder Age

+25% Profit

+25% Growth

Average

INSURANCE CARRIERS

Current Age of

Largest Shareholder

52.6

48.3

52.3

2006 Best Practices Study

17

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

F.

Parent Corporation

2006

Average

% of Participating Agencies

0.0%

Owned by Another Corporation

PROFILE

Description of Parent Corporation

Financial Institution

0.0%

National Broker

0.0%

REVENUES/ EXPENSES

Other

0.0%

FINANCIAL STABILITY

G. Population Density of Metropolitan Area Where Home Office Is Located

EMPLOYEE OVERVIEW

+25% Profit

+25% Growth

Average

Less than 50,000

76.2%

74.1%

72.7%

50,000 - 250,000

4.8%

7.4%

9.1%

PRODUCER INFO

250,000 - 1,000,000

9.5%

11.1%

12.1%

More than 1,000,000

9.5%

7.4%

6.1%

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2006 Best Practices Study

18

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

REVENUE ANALYSIS

2006

A.

% of Revenue by Source

+25% Profit

+25% Growth

Average

Commercial P&C

44.8%

48.8%

43.5%

PROFILE

Personal P&C

36.6%

38.5%

41.8%

P&C Service Fees

0.3%

1.1%

0.0%

Contingent

8.3%

3.9%

5.8%

REVENUES/ EXPENSES

Group L&H

6.4%

4.6%

3.5%

Individual L&H

2.7%

2.5%

4.7%

Investments

0.3%

0.3%

0.3%

FINANCIAL STABILITY

Miscellaneous

0.6%

0.3%

0.5%

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Exp

2.1%

2.9%

0.0%

EMPLOYEE OVERVIEW

Net Revenues

97.9%

97.1% 100.0%

70%

Average

60%

PRODUCER INFO

+25% Profit

50%

+25% Growth

40%

30%

SERVICE STAFF INFO

20%

% Total Revenue

10%

Commercial P&C

Personal P&C

P&C Service Fees

Contingent

Group L&H

Individual L&H

Investments

TECHNOLOGY

Future Revenue Sources

% of Agencies Considering Line of Business as Very Important:

INSURANCE CARRIERS

Personal Lines

90.5% 85.7%

Small Commercial Lines Individual Life & Health

0.0%

Group Life & Health Surety & Bonding

19.0% 19.0%

2006 Best Practices Study

19

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

B.

% of Revenues Derived from Largest Accounts

+25% Profit

+25% Growth

2006

Average

Largest Commission Account

3.3% 3.5% 3.5%

High

9.2%

PROFILE

Low

1.1%

10 Largest Commission Accounts

14.7% 14.2% 14.2%

High

37.1%

REVENUES/ EXPENSES

Low

6.3%

C. Revenues Derived from Acquisitions Made in the Last 12 Months

FINANCIAL STABILITY

% of Agencies Acquiring Avg. Total Commissions Acquired

% of Net Revenues

0%

$0

0%

EMPLOYEE OVERVIEW

D.

Net Revenue Growth

+25% Profit

+25% Growth

Average

PRODUCER INFO

Net Revenue Growth (Organic)

3.8% 5.4% 18.6%

Net Revenue Growth (Total)

3.8% 5.4% 18.6%

SERVICE STAFF INFO

Revenue Growth by Source (as % of Prior Year’s Total Revenues)

Average

+25% Profit

30%

+25% Growth

TECHNOLOGY

20%

10%

0%

INSURANCE CARRIERS

% Total Revenue -10%

-20%

-30%

Commercial P&C

Personal P&C

Group L&H

P&C Service Fees

Individual L&H

Total Commissions & Fees

2006 Best Practices Study

20

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

E. Revenue Growth by Source (stated as % of Prior Year’s Total Revenues)

+25% Profit

+25% Growth

2006

Average

Commercial P&C

88.0%

88.0%

87.2%

Renewals 1

12.3%

16.0%

19.2%

New Business 2

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

0.3%

4.2%

6.4%

Total Growth 5

0.3%

4.2%

6.4%

PROFILE

Personal P&C

89.5%

90.5%

88.2%

Renewals 1

New Business 2

13.1%

17.5%

20.0%

Acquired Revenues 3

0.0%

0.0%

0.0%

REVENUES/ EXPENSES

Organic Growth 4

2.6%

8.0%

8.2%

Total Growth 5

2.6%

8.0%

8.2%

Renewals 1

96.9%

*

*

P&C Service Fees

New Business 2

3.2%

*

*

Acquired Revenues 3

0.0%

*

*

FINANCIAL STABILITY

0.1%

Organic Growth 4

*

*

0.1%

Total Growth 5

*

*

Group L&H

Renewals 1

80.8%

89.8%

54.5%

New Business 2

16.8%

25.3%

41.8%

EMPLOYEE OVERVIEW

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

-2.4%

15.1%

-3.7%

Total Growth 5

-2.4%

15.1%

-3.7%

Renewals 1

43.5%

43.8%

27.8%

Individual L&H

PRODUCER INFO

New Business 2

54.1%

46.7%

55.7%

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

-2.4%

-9.4%

-16.5%

Total Growth 5

-2.4%

-9.4%

-16.5%

SERVICE STAFF INFO

Renewals 1

88.3%

89.2%

89.1%

Total Commissions & Fees

New Business 2

15.4%

17.8%

24.7%

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

3.9%

7.1%

13.7%

Total Growth 5

3.9%

7.1%

13.7%

TECHNOLOGY

Contingent Income Growth

-3.3%

*

*

Investment Income Growth

22.4%

*

*

Total Revenue Growth

4.2%

6.9%

18.6%

Brokerage Commission Expense Growth

*

*

*

Net Revenue Growth (Organic)

3.8%

5.4%

18.6%

INSURANCE CARRIERS

Net Revenue Growth (Total)

3.8%

5.4%

18.6%

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.

*Insufficient Data

2006 Best Practices Study

21

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

EXPENSE ANALYSIS

A.

Expenses Analysis (as a % of Net Revenues)

2006

+25% Profit

+25% Growth

Average

Compensation Expense Total Payroll

44.4%

30.8%

34.4% 11.0% 45.4%

Benefits

9.6%

6.7%

PROFILE

Total Compensation

54.0%

37.5%

Selling Expenses

T&E/Conventions

0.9% 1.5% 1.8% 4.2% 3.5% 1.2% 0.7% 1.2% 0.8% 0.5% 1.7% 0.7% 0.7% 0.1% 0.6% 1.3% 0.4% 0.7% 0.8% 0.7% 0.3% 0.6% 0.3% 2.8%

0.7% 1.2% 1.4% 3.2% 2.4% 1.1% 0.7% 1.4% 0.5% 0.5% 1.8% 0.6% 0.3% 0.0% 0.1% 1.2% 0.4% 0.1% 0.0% 0.4% 0.1% 0.1% 0.0% 0.6% 11.3% 52.7% 47.3%

1.1% 1.5% 1.5% 4.0% 3.3% 1.1% 0.8% 1.3% 0.5% 0.3% 1.8% 0.8% 0.7% 0.2% 0.2% 1.3% 0.2% 0.3% 0.0% 0.3% 0.2% 0.4% 0.0% 0.9%

Automobile

Advertising/Promotions

Total Selling

REVENUES/ EXPENSES

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

FINANCIAL STABILITY

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Equipment Rental/Maintenance

Bad Debts

EMPLOYEE OVERVIEW

Outside Services

Information Technology

Education/Training

Miscellaneous

Total Operating

14.1%

12.9%

PRODUCER INFO

Administrative Expenses Amortization

Depreciation Officer-Life

Interest

SERVICE STAFF INFO

Other

Total Administrative

Total Expenses Pre-Tax Profit

75.0% 25.0%

63.2% 36.8%

60%

TECHNOLOGY

Average

50%

+25% Profit

40%

+25% Growth

30%

INSURANCE CARRIERS

20%

% Net Revenue

10%

0%

Compensation Expense

Operating Expense

Administrative Expense

Selling Expense

2006 Best Practices Study

22