Independent Agencies Growing Organically

Independent agencies are enjoying a period of high profitability boosted by healthy organic growth despite continued soft pricing in commercial lines.

Independent insurance agents/brokers posted median organic growth of 5.9 percent for the second quarter of 2015, slightly higher than 5.8 percent recorded in the first quarter of 2015 and second quarter of 2014, as measured by the Reagan Consulting Organic Growth and Profitability (OGP) quarterly survey.

“Industry organic growth has now been in a relatively tight band of five percent to seven percent for 14 consecutive quarters,” said Kevin Stipe, president of Reagan Consulting, an Atlanta-based management consulting and merger-and-acquisition advisory firm for the insurance distribution system. “Times are good for insurance brokers.”

Continued strong organic growth boosted profitability to 24.6 percent in Q2 2015, the highest second-quarter performance since the survey launched in 2008.

Benefits Growth

The second quarter also marked the first time in four years that group benefits – with a 6.8 percent rate – “outgrew” commercial lines (5.4 percent). Softening pricing in commercial lines affected that line for the second straight year, Reagan reported.

Reagan expects “more and potentially deeper softening” in commercial property/casualty pricing going forward. “If this happens, commercial lines growth will likely decelerate further and pull agency-wide organic growth down,” Stipe said.

The quarterly survey also found that personal lines growth slipped to 1.8 percent versus 2.2 percent in Q2 2014.

Agents and brokers project a 20.0 percent EBITDA margin and a 6.7 percent organic growth rate for the full year.

For the survey, Reagan Consulting used data from 130 mid-size and large agencies and brokerage firms with median revenue of $17 million.