Agents and brokers could be in for a record-breaking year of profitability in 2014 after posting their highest-ever first quarter profitability results, according to Atlanta, Ga.-based Reagan Consulting group.
Profitability as measured by pro forma EBITDA earnings before interest, taxes, depreciation and amortization margins jumped a whopping 200 basis points to a record of 29.9% in the first quarter of this year, up from 27.9% during the same period in 2013, according to Reagan Consultings Organic Growth and Profitability Survey.
Higher commissions for brokers and agents are considered the primary driver for the margin increase, the survey shows, adding that carriers seem to be paying out bigger bonuses this year due to a combination of strong underwriting performance in 2013, coupled with brokers solid organic growth performance.
Craig Davidson, broker coach and founder of the Davidson Marketing Group and an EBA columnist, says growth and profitability have trended upward this year for several reasons, including the delay of the Affordable Care Acts employer shared responsibility rule and brokers push to innovate sales techniques and business strategies in response to the ACA.
Necessity is the mother of invention, he says. Believe me, brokers felt like they were kicked in the gut with President Obama and the democratic health care legislative agenda. Once the brokerage industry got over the woe-is-me phase of grieving, they got smart and began adopting new techniques, service offerings and hustle to go after the business that was always there. Maybe brokers had become complacent. The insurance industry has a way of breeding complacency. The shock to the system was good medicine regardless of how one feels about the ACA.
Advisers continue to look for things they can do to better control their own destiny, says Kevin Stipe, president of Reagan Consulting, specializing in insurance consulting and mergers and acquisitions.
Perry Braun, executive director of Benefit Advisors Network agrees, "I find that most [brokers and agents] continue to focus on strategies and make investments that will lead them to be the very best advisers to their clients.These investments have an impact on the operating margins that an agency achieves in the short term, while simultaneously positioning them well for the future.
In addition, Stipe adds, Its no secret the insurance brokerage industry is in the midst of accelerating consolidation. Some of this consolidation is opportunity-driven, with agencies being pulled toward the attraction of record-high agency valuations, the ability to access sophisticated client-facing resources and green-field leadership opportunities offered by new industry participants.
Davidson agrees, saying, Weaker players have sold out have sold out or closed their insurance selling businesses at a strong rate over the past few years. We still have the same size insurance market, but now we have that market being distributed over fewer and stronger players.
Group benefits sales growth was 5%, up significantly from a 3.7% growth rate in the first quarter of 2013. Commercial product line growth came in at 8.4%.
Organic growth for the first quarter, measured at 6.2%, was nearly identical to the 6.1% measured during the first quarter in 2013, the survey showed, but brokers and agents are projecting organic growth for all of 2014 will be 7%, up from the 6.1% projected at the end of 2013.
