However, ever the realists, agents and brokers have tempered their expectations for the coming year, according to the survey. "The industry appears to be already feeling the effects of macroeconomic factors," says Brian McNeely, executive vice president and partner at Reagan Consulting.
Organic growth of 8.5% is expected by agents and brokers through the end of 2022, but operating profits will fall. "Expenses are now growing faster than revenues," McNeely says, owing to higher payroll costs and the loss of pandemic-related savings, such as lower travel expenses.
According to McNeely, sales velocity, a leading indicator of future organic growth, has already fallen this year, from 12.6% in Q1 to 11.8% in Q2. Reagan's proprietary sales velocity metric is used to benchmark agency new business results. It is calculated by dividing new business written in the current year by the total of commissions and fees from the previous year.
Unexpected outcomes
Commercial property and casualty (P&C) sales outperformed other lines again in Q2, with organic growth of 12.2%. McNeely attributes the growth to premium rate increases primarily, but adds that "a great economic environment, including continued government spending," has boosted commercial p-c business.
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.