2004 Best Practices Study

REVENUE SIZE CATEGORY HERE AGENCIES WITH REVENUES BETWE $1,250,000 AND $2,500,000

EXECUTIVE PERSPECTIVES 2003 proved to be positive year for agencies in this category. Revenues grew by approximately 18.4% on average and pre-tax profit grew by 14.1% on average. Eager to continue this momentum, these agencies are adjusting to a soft market by clarifying their underwriting guidelines and streamlining procedures to eliminate unnecessary work and expense. Those that have made recent investments in their production infrastructure feel they will be better able to endure the changing market. Keys to Their Success As one might anticipate with a softening market, average revenue per employee decreased to $121,692 from $124,719 in 2003. However, compensation per employee is also down to $69,947, a dramatic

EXECUTIVE PERSPECTIVES

PROFILE

REVENUES/ EXPENSES

decrease from its 2003 level of $78,511. This pushed the spread per employee up to $51,745. The spread increase may be the result of leveraging the existing production staff more effective- ly. Many agencies in this group are restructuring their sales and service function by introducing a new intermittent service posi- tion designed to support the lead producer. This has enabled that producer to spend more time on new sales. When asked about factors critical to success, one agency responded, "Identifying the gifts and talents of every team mem- ber, matching them to the right job responsibilities, and then giv- ing them the opportunity to excel." As production talent becomes increasingly hard to acquire, this new level of support staff will become more valuable to Best Practices agencies in attracting producers and providing an environment in which they can succeed. Challenges They Face

Factors Most Critical to Agency's Success (Top 5 Listed in Order of Frequency Mentioned) 1. Experienced, dedicated and motivated employees 2. Relationships with a good mix of stable carriers 3. High account retention 4. New business development 5. Efficient workflows / effective use of automation

FINANCIAL STABILITY

EMPLOYEE OVERVIEW

PRODUCER INFO

Compensation continued to be the largest expense for these Best Practices agencies, consuming an aver- age 57.7% of the agencies' net revenues. As noted above, however, this percentage is down from the pre- vious year indicating more productive sales efforts. At the same time, this decrease reflects a top challenge for Best Practices agencies - acquiring new production talent - since having new, unvalidated producers on board would negatively impact the compensation expense to net revenues ratio.

SERVICE STAFF INFO

Top Challenges (Top 5 Listed in Order of Frequency Mentioned) 1. Acquiring and developing new producers 2. Finding experienced, quality service staff & management personnel 3. Growing/maintaining revenues in a softening market/cuts in commission 4. Staying ahead of technology changes 5. Having time to sell, manage, and plan

Nevertheless, agencies in this category hired 1.4 new producers within the last fiscal year, with a success rate (success rate being defined as having achieved all of his/her goals) of 71.5%. About one-third of the new producers hired came from outside of the industry. Personality testing/profiling prior to hiring the new producer helped asssure a fit in the agency and aided in the suc- cessful transition into insurance. Most of the management com- ments indicate that recruiting and developing new production talent is the key to future survival.

TECHNOLOGY

INSURANCE CARRIERS

APPENDIX

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