The last four years have been a period of financial growth and agent consolidation, according to the 2000 Agency Universe Study, a study of the independent agency system conducted by Future One, a cooperative effort of the Independent Insurance Agents of America (IIAA) and 19 insurance companies.
The study also shows continued growth of woman and minority ownership, marked gains in technology use, modest staffing increases, and a greater presence of younger ownership. Agent’s carrier relationships, carrier satisfaction, priorities and concentration of business were also surveyed. The survey has been conducted every four years since 1983. However, Future One has elected to perform this survey now every two years, beginning in 2002.
The following highlights offer a glimpse into some of the most pertinent findings from the 2000 poll.
Presence of Independent Agents
The last four years have been a period of stable consolidation for independent agents. There are 42,000 independent agencies in operation in the U.S. today, a slight decrease (5 percent: 44,000) since 1996. By comparison, between 1983 and 1987 the number of agencies plummeted 23 percent, and between 1987 and 1992 the rate of decline was 14 percent.
Still, 29 percent of all agencies have been involved in a merger or acquisition in the past four years, generally resulting in larger, more profitable agencies. Sole proprietorships have declined and corporations have increased.
Most agencies—about 72 percent—classify their business as a corporation. Seventeen percent are sole proprietorships, down 10 percent from four years ago, and 7 percent operate as partnerships, even with 1996.
The number of limited-liability corporations declined slightly to 3 percent. Nine percent of agencies belong to networks, which have an average of 22 members; 11 percent are parts of clusters, or huddles, which have an average of 21 agency members.
Cultural and Gender Diversity
Workplace diversity is increasing as more women and minorities increase ownership of agencies. Agency ownership by women has increased by about 25 percent. Still, non-Hispanic whites own 81 percent of agencies, 6 percent are now owned by Latino/Hispanic owners, 3 percent by Asian Americans and 1 percent by African-Americans.
Revenues and Growth
The survey finds that 62 percent of independent agents reported revenue growth in 1999 over the year prior (just 15 percent experienced a decline). Commercial lines-dominant agents were highest with 68 percent growth; while 64 percent of balanced agencies and 57 percent of personal lines-dominant agencies indicated revenue increases.
Average agency premium volume is up 72 percent over the past 8 years. Commercial-dominant agencies-those with 70 percent or more of revenues derived from commercial lines-report higher-than-average total revenues, while almost two-thirds (63 percent) of agencies that sell predominantly personal lines have total revenues of less than $250,000.
About 7 percent of agencies produced more than $2.5 million in revenues, up from 4 percent in 1996. The sources of revenue for the average agency remained consistent with 1996: 50 percent of revenues coming from property/casualty personal-lines commissions, 37 percent from property/casualty commercial lines and 5 percent from profit-sharing contingencies. Ninety-eight percent of agencies report having some non-insurance revenue. About 19 percent of the agencies said noninsurance revenue exceeds insurance revenue.
The major sources of non-insurance revenue for most agencies are investment-product commissions (29 percent), real-estate sales and services (20 percent) and banking product sales (8 percent). Seventy-three percent of agencies have one location, 25 percent report having from two to 10 locations, and 2 percent say they have 11 or more locations.
Six percent of agencies report operations in more than one state. Continuation of the business is clearly a big issue for today’s agency owners. Seventy-one percent of agencies have one or more perpetuation tools in place, 56 percent have a written plan. Fifty-nine percent are using life insurance as a tool to perpetuate their business, and 21 percent have retained earnings.
Employment and Ownership
Agencies polled in the 1996 survey predicted much larger increases in their staffing than actually occurred. While six-of-ten predicted they would increase their sales staff that year, less than one-of three did. One-half believed they would increase their support staff, but less than one-in-five did. In the past four years, overall employment has increased only slightly, with the average number of employees per agency increasing from 10.1 to 11.4.
Seventeen percent of all agencies were established since 1995; eight percent in 1999 alone. The typical agency has three independent producer contractors, eight employees licensed to sell property/casualty lines of coverage and four employees licensed to sell life and health products. On average, agency employees maintain nonresident property/casualty licenses in 3.5 states and nonresident life/health licenses in one state. An influx of younger people holding an ownership interest in agencies also is encouraging.
Two-thirds of primary agency principals are between the ages of 45 and 64, four years ago 89 percent of agencies were run by owners between the ages of 55 and 69. Fifty-nine percent of principals with the highest proportion of ownership are under age 55. Of those agencies with more than one owner, 68 percent of the individuals with the second-highest proportion of ownership are under age 55.
Technology
Internet usage has increased significantly, about 85 percent in the past four years. Ninety-three percent of agencies have and use Internet access. One-half of all agencies plan to provide round-the-clock service using technology. The most-used aspects of the Internet are e-mail (97 percent), locating business information (75 percent), retrieving carrier client materials (50 percent) and access to marketing information (53 percent). In sales and support technology use, Internet connectivity is most pronounced.
All agencies reported that each of their producers had a personal computer at their desks and that 87 percent of all customer-service representatives had a PC. Ninety-nine percent of those salespeople and 81 percent of the support staff are connected to the Internet from desktops.
Agencies are using technology to streamline their daily processes, with fully automated policy rating (54 percent), automated application processes (53 percent) and certificates and endorsement processing tying with accounting processes (50 percent). In their dealings with insurance companies, 77 percent report using electronic funds transfer to handle their monthly payments to companies.
A little more than one-third of agencies feel that the Internet is an opportunity and not a threat to their future successes, while only 8 percent believe that their current customers would ever consider buying insurance over the Internet. More than one-half of agencies reported that they had purchased new PC systems or upgraded existing systems within the past two years. It is likely Y2K fears provided the independent agency system with impetus for a major overhaul of systems.
Business Perceptions
Agents were questioned about the factors that affect their business environment. Almost half of independent agents believe that direct writers are affecting their bottom line, and one-third believe that bank-insurance sales are still a threat. More than one-half of independent agencies believe that this is a time of great opportunity for their profession.
A strong majority of agents (78 percent) consider providing great service to be the key to their continued success. Most agencies feel that a need for continued education and the adoption of a “best practices” mentality is critical to their futures. About half of agencies reported that they hoped to find other ways of doing business, such as expanding into non-insurance financial services or possibly partnering with a bank.
Topics Profit Loss Agencies Tech Property Casualty
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