Mergers Slow as New Agencies Pop Up

Report: Number of Agencies Unchanged Since 2006

A new study by an industry trade group has found that the decade-long contraction in the number of insurance agencies has ceased during the past two years — a move industry insiders say is driven by a slowdown in mergers. And paired with another new trend — an increase in the number of new agencies — the study suggests that the long-term movement of the independent agency system toward fewer, larger agencies is reversing, or at least slowing down.

The Agency Universe Study, released earlier this month by the Independent Insurance Agents and Brokers of America (the Big “I”) and several independent agency companies, says that the number of independent agencies has stabilized at around 37,500. That’s the same number as in 2006, when the groups last completed the study.

The Big “I” has been updating the report every two years since 1996, when the number of agencies stood at 44,000. In each successive two-year period, that total has shrunk — until now. Robert Rusbuldt, chief executive of the Big “I,” said one reason for the stabilization is that the pace of mergers and acquisitions has slowed in the past several years.

“We saw phenomenal amounts of activity in the independent agency universe prior to 2006, and it was on a very high upward path where merger and acquisition activity was increasing,” he said. “Now it has leveled off.”

That decrease in mergers and acquisitions has followed another equally surprising trend: a significant spike in new agency startups in the past two years. In particular, the number of small agencies — those with less than $150,000 in insurance revenue — grew between 2006 and 2008, while the percentage of all other size agencies decreased slightly.

In total, small agencies comprised about 17 percent of all insurance agencies in the country, up from 12 percent just two years ago. And the thumbnail sketches of those new agencies reveal a few other interesting trends.

Most new agencies (33 percent) are popping up in the South Atlantic States or in the West South Central states (20 percent). Most new agencies experience significant growth, with an average increase of 55 percent in insurance sales. Also, newer agencies tend to be slightly more concentrated on personal lines commissions. About 48 percent of new agencies’ revenue came from personal lines, compared with 45 percent across all agencies.

And as one might expect, those newer agencies tend to be headed by younger principals. The average age of the principal for a new agency was 47, compared with the average age of 52 from across all agencies.

“More agencies are being formed than in past years, particularly in areas of the country suffering from difficulties in the availability of coverage, and their principals tend to be younger,” said Madelyn Flannagan, Big “I” vice president for education and research. “This is a positive finding as the bulk of agents are baby boomers nearing retirement.”

Improved Satisfaction with Carriers

The study also revealed that insurance agents are more satisfied with their carriers than they were just two years ago.

Overall, 72 percent of agents reported overall satisfaction with their personal lines carriers, up from 65 percent who responded that way in 2006. Agent satisfaction was also higher with small commercial lines carriers, which climbed to 69 percent from 63 percent, and medium commercial lines carriers, up to 72 percent from 56 percent, as well. Sixty-six percent of agents indicated overall satisfaction with large commercial lines carriers, although that question was not asked in 2006.

Across all lines, insurance agents said one of the most improved areas for all of their carriers was in making it easy for CSRs to write business. Seventy-two percent of agents identified that area as the most improved for personal lines carriers, as did 61 percent for small commercial lines carriers and 64 percent for large commercial lines carriers. The study also revealed that insurance agencies represent more personal lines carriers now than they did in 2006. The typical agency represented 6.2 carriers in 2008, compared with 5.4 carriers in 2006.

As far as agency operations, the Agency Universe Study found that agencies appear to have become measurably more efficient. On average, agencies employed fewer full-time equivalent workers — about nine per agency in 2008 versus 11.2 in 2006. Although that is partially due to the number of new agencies started in the past few years, it was a trend seen in agencies of most sizes. Only medium-large to large agencies — those with between $1.25 million and $10 million in insurance revenue — saw modest staff increases in 2008.

With regard to agency technology, the report concluded that carriers, agencies and systems providers should continue efforts to improve technology to increase agency efficiencies even more.

Topics Trends Mergers & Acquisitions Carriers Agencies