Big “I” publishes Best Practices study update for 2023
Big “I” publishes Best Practices study update for 2023 | Insurance Business America
Insurance News
Big “I” publishes Best Practices study update for 2023
What sets the best apart from the rest?
Insurance News
By
Kenneth Araullo
Amid transitioning past the economic turbulence brought by the coronavirus pandemic and adapting to the challenges of a hard market, Best Practices agencies within the independent agency channel are showcasing remarkable organic growth and profitability, according to insights that emerged from the 2023 update of the Best Practices Study conducted by the Big “I” and Reagan Consulting.
This update marks the second phase of the three-year cycle, focusing on the firms that met the criteria as a 2022 Best Practices agency. Collaboratively conducted for the past 30 years by the Big “I” and Reagan Consulting, this annual study offers critical performance benchmarks across six agency revenue categories, ranging from under $1.25 million to over $25 million.
What sets the Best Practices agencies from the rest?
Key takeaways from this update encompass the following:
Sustained organic growth – organic growth stands at an impressive 9.5%, a level surpassed only by growth observed during the hard market of the early 2000s. Nearly all revenue categories, excluding the under $1.25 million group, witnessed an uptick in their organic growth rates.
Consistently high profitability – Best Practices agency profitability remains stable, standing at 26.3%, a historically high level.
Strong Rule of 20 results – the Rule of 20, a metric calculated by adding organic growth to 50% of pro forma EBITDA (earnings before interest, taxes, depreciation, and amortization), maintained last year’s record results at 24.3. The Rule of 20 serves as a robust metric to evaluate overall agency health.
Sales velocity dip – sales velocity, though still at healthy levels, saw a decrease in five of six revenue categories, averaging at 14.7%, a slight dip from last year’s 15.5%.
Enhanced producer recruitment and development – net unvalidated producer payroll (NUPP), a gauge of producer recruitment and development, surged to 2.0% of net revenues, compared to 1.1% in the prior year’s study. A healthy NUPP investment ranges from 1.5% to 2.0%, indicating that Best Practices agencies are intensifying investments in their new business engines—a strategic move that also augments valuation and perpetuation.
Improved productivity levels – revenue-per-employee, a key metric reflecting overall agency health, witnessed improvement across all revenue categories, except the over $25 million category.
Rising shareholder and producer ages – the weighted average shareholder age (WASA) registered at 54.3 years, up from 53.2 in the previous year’s study. Similarly, the weighted average producer age (WAPA) increased to 49.6 years from 48.6. Agencies should vigilantly manage these metrics, as lower WASA and WAPA are pivotal for long-term agency perpetuation.
“The independent agency channel is healthier today than ever before, even as it faces challenges such as industry consolidation, increasing consumer expectations for value-added resources, insurtech competition, and a systemic lack of young talent. The study provides guidance on ways all agencies, not just best practices agencies, can continue to grow and stabilize their operations as we enter a hard market,” Big “I” senior director of agent development, research, and education Jennifer Becker said.
Regan Consulting partner Tom Doran also chimed in, commenting that this year’s results were unlike anything else published in the partnership’s last 30 years.
“Particularly encouraging is the fact that best practices agencies took to heart the study’s previous indicators of the need to focus on producer recruitment and development. These investments are paying off in excellent valuations—and while there’s still room for improvement, the study shows the top-performing agencies continue to demonstrate the rewards of purposeful improvement,” Doran said.
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