For the second consecutive quarter, the median organic growth rate in Q3 2021 was 8.5 percent, the highest in the survey's history. The findings, derived from over 170 participating agencies with median annual revenues of $14.8 million, including more than 50 of Business Insurance's Top 100 brokers, "are a tremendously positive reflection of the state of the industry," according to Harrison Brooks, Reagan Consulting partner.
Organic growth of individual lines
Both commercial and personal lines also boasted “the largest year-over-year increase for Q3 in GPS history,” says Brooks.
Organic growth of commercial lines surged from 5.5% in Q3 2020 to 9.5% in Q3 2021, driven largely by the economy’s recovery from the pandemic and a continuing hard market.
In personal lines, organic growth rose from 2.1% in Q3 2020 to 4.2% in Q3 2021, primarily driven by rate increases. Of interest, says Brooks, “firms located in coastal states had outsized organic growth in personal lines due to significant exposure increases. Their median growth rate was 6.2% as compared to the industry average of 4.1%.”
Organic growth of employee benefits rose from 3.9% in Q3 2020 to 4.1% in Q3 2021. Although not fully reflected in Q3 results, Brooks says, “2021 group benefits rates have returned to pre-2020 levels as the world returns to work and many employers are paying a higher percentage of their employees’ medical expenses.”
Bullish outlook for stronger firms
Reagan Consulting uses Rule of 20, its proprietary calculation, to measure agency value. A score of 20 “is considered high performance in most market conditions and indicates a healthy investor return of 15% to 17%,” says Brooks. With a median score of 21.4 in Q3 2021, agents and brokers broke the standing record — meaning that more than half of the GPS agencies generated a return for their shareholders of 15% or greater. “Even with increasing wages and selling expenses, agents and brokers are projecting 2021 to be the highest performing year in the history of the GPS,” says Brooks.
The news is not as positive for all agents and brokers. Brooks points out a widening gap between top-performing agencies and bottom-quartile agencies. “Top performing firms grew at 13.3% in Q3 while bottom-quartile firms grew at 4.4%,” he says. That delta of 8.9% was an increase over the Q2 delta of 8.6%.
For further observations and commentary on the Q3 2021 results, contact Harrison Brooks at Reagan Consulting, 404.869.2537 or harrison@reaganconsulting.com.
The Reagan GPS was formerly known as the Organic Growth & Profitability (OGP) Survey. Each participating agency in the GPS receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan’s quarterly commentary of industry trends affecting agents and brokers. For information on participating in the survey, contact Michelle Appelbaum at 404.869.2541 or michelle@ReaganConsulting.com.