2020 Best Practices Study

weeks or months will require only days to implement, as contingency action plans (expense reductions, specific personnel adjustments, growth investments, etc.) will already be in place.

3) Rethink profitability. Experiences like COVID-19, while painful, often reveal areas of excess in terms of agency profitability. COVID-19 has exposed four potential excess expense areas for insurance agencies. These potential excess areas can be recaptured as profit and used if needed to sustain the business during uncertain times or to make the necessary growth investments that will enable you to hit the ground running when the yellow flag is raised.

Pro Forma EBITDA* *Earnings before interest, taxes, depreciation, and amortization

31.9%

35%

26.4% 27.2% 25.8%

30%

22.7%

25%

19.3%

20%

15%

10%

5%

0%

< $1.25M $1.25M- $2.5M

$2.5M- $5.0M

$5.0M- $10.0M

$10.0M- $25.0M

> $25.0M

Potential expense items to rethink include:

Occupancy

Do you need as much space as you have? Occupancy expenses typically consume 4% of net revenue and represent the second largest expense category (after compensation). The pandemic has demonstrated that agency employees can, and often prefer to, work remotely, so there may be an opportunity for agencies to rethink occupancy requirements accordingly. Does an all-hands-on-deck, brick and mortar approach still make sense for your agency? Does the pandemic create an opportunity to reinvest rent savings in hiring new talent? Travel and entertainment has ground to a halt during COVID-19. Interestingly, new business has not evaporated as many predicted. Much to the chagrin of many producers, historical levels of T&E expenses may not be necessary or appropriate in the future.

Average Occupancy as % of Net Revenues (across all revenue categories):

Average Travel & Entertainment

T&E

as % of Net Revenues (across all revenue categories):

Average Automobile as % of Net Revenues (across all revenue categories):

Automobile

Like T&E, automobile usage has diminished and is certainly not mission- critical in many cases, revealing yet another area of potential savings.

Average Advertising/Promotion as % of Net Revenues (across all revenue categories):

Advertising/ Promotion

Similarly, many agencies have made material reductions in advertising/promotions without significantly impacting new business results. Could this be an ongoing trend? If so, advertising budgets may be yet another source of profits to recapture.

Rethink your finances; not only to weather these uncertain times, but to prosper as things return to normal.

 14