2004 Best Practices Study
2004 BEST PRACTICES STUDY - APPENDIX
Profitability The 11 bank-owned agencies also reported higher profitability than their independently owned peers. Specifically, their average pre-tax profit margin and operating pre-tax profit margin are 24.5% and 15.6%, respectively. The 154 non-bank-owned agencies averaged lower for both prof- itability metrics at 16.6% and 6.0%, respectively. However, a comparison of pro forma pre-tax profitability, which is calculated after eliminating discretionary expenses and adjusting owner compensation, shows the bank-owned agencies with only a slight advantage of 25.4% versus 24.2%. The profitability advantage for the bank-owned agencies appears to be gained through lower oper- ating expenses. Operating expenses total 10.6% of net revenues for the bank-owned agencies and 14.4% of net revenues for the non-bank-owned agencies. Presumably, the bank-owned agencies are leveraging the existing bank infrastructure in order to reduce operating expenses. For exam- ple, occupancy expense for the bank-owned agencies is substantially lower (2.9% of net revenues versus 3.7%), as is expense for outside services (0.2% of net revenues versus 0.6%). Productivity Productivity, as measured by revenue and spread per employee, is relatively similar for the bank- owned and non-bank-owned agencies, though the bank-owned agencies average slightly better for both. The bank-owned agencies reported revenue per employee of $146,490 and compensation per employee of $83,480, for a spread of $63,010. The non-bank-owned agencies produced com- parable but slightly less efficient results of $138,036 in revenue per employee and $85,124 in compensation, for a spread of $52,912. These results appear to reinforce the notion that banks acquire agencies as a platform for growth and, consequently, are generally not eliminating posi- tions or modifying compensation structures.
Though the disciplines of statistical analysis suggest we be cau- tious in concluding too much from the observations above, it appears notable that these bank-owned agencies are producing exceptional results in the areas of growth, profitability and pro- ductivity. We can anticipate that leading banks in insurance will continue to pursue leading agencies. And they will continue to bring to bear their considerable resources to help those agencies become even more successful.
These results appear to reinforce the notion that banks acquire agencies as a platform for growth and, consequently, are generally not eliminating positions or modifying compensation struc- tures.
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