Every three years, the Independent Insurance Agents & Brokers of America, or the Big “I”, and Reagan Consulting ask insurance leaders to nominate the agencies they consider to be some of the best in the industry. They then invite these agencies to take a detailed survey of their financial and operational year-end results, which the Big I and Reagan Consulting score, rank, and use as a foundation for the Best Practices Study.
The Best Practices Study provides agencies with critical financial and operational benchmarks they can use to optimize their own performance. This year, of the over 2,600 independent agencies nominated, 282 earned the Best Practices Agency title.
Let’s dig into some of the insights from this year’s study to find out where top-performing agencies are focusing their efforts and what other independent agencies can do to find similar success.
Four emerging insurance industry trends top agencies are watching
The insurance industry continues to evolve in unimaginable ways. In the last two years alone, the COVID-19 pandemic and aging talent pool have impacted the way agencies operate. So far, the industry has shown resilience in the face of these challenges. Independent agencies continue to thrive and see positive growth in market share.
However, with the worst of the pandemic seemingly in the rearview mirror, top agencies are turning their focus on a few new trends shaping the industry.
Mergers and acquisitions
Mergers and acquisitions aren’t exactly new to the insurance brokerage industry. They have been a dominant story in the landscape for the past decade. But, with a 33 percent increase in M&A deals from last year, it’s no wonder the topic has industry leaders talking.
Most of the Best Practices insurance firms view a competitor’s sale as a positive. When a rival sells out, they frequently lose some of their competitive fire during the sale. This leaves their clients and employees vulnerable to movement, giving other firms an opportunity to swoop in.
However, there is some concern over what the increase in mergers and acquisitions means for the future of the industry. With already large brokers increasing in size at an alarming rate, will we soon be facing a landscape dominated by giant “super-brokers”? What could this mean for smaller, independent firms? The Best Practices agencies are looking for ways that they can continue to compete if this trend continues.
Another trend that has been steadily increasing but was accelerated by the COVID-19 pandemic is that of free agency or increased employee mobility. The Best Practices Study defines free agency as the increasing frequency with which employees are moving from firm to firm.
The best way for firms to adapt to this growing trend is to keep their employees happy. Top-performing agency owners provide their current staff with more incentives to stay, like giving them the option to work remotely either part- or full-time. They are also increasing their efforts to recruit top talent from rival firms, resulting in a swell of competitive pressure in the industry.
Possibly the biggest trend to come from this post-pandemic world is the expectations around remote work. Employees have grown accustomed to working from home, sometimes to the chagrin of the agencies that worked hard to build a positive in-person work culture.
Remote work means many of these agencies no longer have the workplace environment they worked so hard to build. The loss of the physical workspace, tools, and resources has stripped agencies of their “best place to work” reputation. Agency leaders feel stuck between wanting to demand employees return to the office but knowing this could lead to losing their best people to a competitor that offers more flexibility.
To keep their best workplace title, agencies need to find ways to incorporate positive workplace culture into the remote workspace. This could mean holding more virtual meetings or co-working sessions. If your agency offers a choice between remote work and coming in to the office, incentivize employees to come in at least once or twice a week by offering group classes, lunches, and other activities.
The final major trend on Best Practices Agency leaders’ minds is the rise in insurance-related technology, or insurtech. Insurtech includes:
- Broker-assisting tools: Technology-enabled tools that brokers can use to their advantage (Hey, that’s us!)
- Big data: Large data sets that carriers use to insure risk and better connect with their customers
- Disruptive technology marketers: Direct competitors to brokers that sell personal, commercial, and health insurance online
While the direct competitors could pose a threat, agents and brokers that stay in the know and leverage insurtech have the opportunity to benefit in some major ways, like eliminating manual processes and increasing operational efficiencies.
Critical issues currently facing insurance agencies
The conversation around producers leaving one firm for another has become a lot louder and even spawned a new term: lift-out. Producer lift-out occurs when a firm intentionally recruits a producer from another firm with promises such as bonus or equity incentives.
This trend has upped the ante on what is being dubbed the “war for talent” as it puts an increased value on the individual rather than the institution. Not only is lift-out happening more often with producers, but it’s also becoming more common with other key talent, including account executives and members of the leadership team.
The surveyed agencies concluded that in order to compete for new talent and keep their current producers they need to establish and distribute producer equity plans. It’s also worth mentioning that outdated technology and processes can negatively affect the producer experience, making them more likely to jump ship.
Remaining private vs. going public
The trends and issues facing agencies have led many firm owners wondering if they should remain private or sell to a third party. With the difference between internal and external values growing larger, valuation is now the No. 1 driver of selling to a third party.
Agency owners realize that selling to a third party will likely result in higher profit margins, but plenty are still determined to remain private. And why wouldn’t they be? The future of independent agencies is bright. Independent agency owners can reap the same economic benefits as those who sell to a third party as long as they stay on top of trends and focus on the key elements to profiting while remaining private.
Three key elements to prospering as a privately held brokerage firm in today’s market
According to 45 independent agent and broker CEOs (with average revenues of over $20 million), to ensure success and remain private, the three main elements a firm should focus on are people, culture, and leadership.
The surveyed CEOs expressed their beliefs that the most important factor in remaining privately held is an agency’s strategic human capital structure. The bottom line is people are everything. Without the right people, how could anyone expect to run a successful independent agency?
For an independent agency to prosper, their people should be their No. 1 priority. The Best Practices Agencies recommend designating a chief people officer as a strategic member of a firm’s leadership team and making HR a part of daily operations. That means having your HR team work directly with the sales and operational teams to solve problems.
Given the rise in employee mobility, firms that want to remain private should consider hiring a talent acquisition officer. This person can dedicate their time to recruiting the best talent. Remember, it’s not just about recruiting new talent, but also keeping current talent. To do this, a firm should initiate learning and development programs to help current employees expand their skills.
Second to people in the key elements to remaining private is an agency’s culture. For agency leaders looking to understand their current culture, the best first step is to talk to their staff. Employees should be able to define how they view their firm’s culture and leaders can use this knowledge to continue shaping a positive environment.
Agencies that wish to remain independent need to show how committed they are to that goal. Independence should be a key aspect of an agency’s culture. Your people need to see your commitment to independence through your actions and business decisions.
Third on the list of important factors to remaining a successful independent agency is leadership. This one is pretty obvious: A firm can rarely prosper without leaders who employees are willing to follow.
An agency’s leadership team should be a driving force committed to creating a robust culture and remaining independent. Leadership should be aware of emerging trends and have a plan for successfully navigating the firm through them.
The best firms don’t rely on past success to keep moving forward
The Best Practices Study made it clear that the independent agent and broker ecosystem continues to remain an important and relevant part of the larger industry. The Best Practices Agencies in this study prove that, rather than relying on past successes and traditions, prospering as an independent firm is all about staying ahead of trends and preparing for the future of the industry.
If you are an owner looking to stay ahead of the trends, keep your producers happy, and continue prospering as an independent agency, AgentSync can help.