The independent insurance agent and broker channel posted organic growth of 11.2% in the second quarter of 2023 — once again exceeding its previous high-water mark of 11.1%, set in Q1 2023. Moreover, profit margins were high.
This and other detail is outlined in the most recent Growth & Profitability Survey (GPS) conducted quarterly by Reagan Consulting. “Organic growth is outpacing the pressures on profitability,” reports Brian McNeely, EVP and partner.
The combination of all-time highs in organic growth and profit margins are resulting in all-time highs for the Rule of 20, a measure of shareholder return, McNeely says. The 25.1 Rule of 20 score recorded in Q2 is the highest second-quarter result ever. “Agents and brokers have never been healthier and shareholder returns have never been higher,” he says.
Growth by product line
“Personal lines continued its stunning growth run,” says McNeely, increasing 9.3% in Q2, 70.6% higher than the previous Q2 high of 5.5%, set in 2022. “While personal lines growth has not been a material contributor to overall organic growth historically, it is now.”
At 11.6%, the median organic growth of commercial property-casualty dropped slightly from 11.7% in the previous quarter.
Group and employee benefits remain healthy despite a small decrease in the organic growth rate from 7.9% in Q1 to 6.5% in Q2. “If there was any question, the group benefits slowdown from COVID-19 is over,” says McNeely.
Outlook of agents, brokers
How are agents and brokers thinking about the future? They expect some deceleration in organic growth for the remainder of 2023, McNeely says, with organic growth expected to finish the year at 10.0%.
Industry growth has been spurred by the hard market and inflation, McNeely notes. Recent reductions in the inflation rate will negatively impact the rate of organic growth. On the other hand, a normalized rate of inflation will “provide relief from a profitability perspective.”
As a result, EBITDA margins are projected to finish the year at 23.0%, which would be the highest annual level ever recorded.
“This is the best time ever to be an agent or broker from a shareholder return perspective,” McNeely says.
To receive the full Reagan commentary or more information about Reagan Consulting, contact McNeely at bmcneely@ReaganConsulting.com or 404.869.2523.
The Reagan GPS was launched in 2008. Every quarter, each participating agency receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan’s 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.
About Reagan Consulting
Reagan Consulting is a management consulting firm providing strategic consulting, valuation, capital raising, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm’s services for insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, capital raise advisory, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Growth & Profitability Survey.