By Michael Freilich
While many independent agency principals have an excellent handle on the ins and outs of their business, they can also gain a competitive advantage through insurance agency benchmarking.
As driven entrepreneurs, agency owners make it their mission to stay on top of their business’ growth rate and their expenses, knowing which clients represent the greatest percentage of revenue, and other important details. By and large, agency principals possess a highly informed perspective – and the more forward-looking owners recognize there’s always going to be room for improvement.
In order to truly gain a deeper understanding of how their agency is performing, however, independent insurance agency owners should know how they stack up against their peers. That’s where benchmarking comes in.
For example, when comparing your business’ performance to other agencies, you may discover that your expenses are in line with others, but your productivity has slowed. As a result, you may decide to invest in your agency by hiring producers who will enable you to bring in new types of clients; adopt new workflows that can streamline your agency’s processes; or utilize new technology tools that can help your agency make more money.
Benchmarking your agency against others doesn’t just highlight your strengths: It reveals the areas in which you can redirect your efforts to grow your business.
When doing insurance agency benchmarking, what do I measure?
As an independent insurance agency principal, the type of benchmarking data that will prove most useful are key metrics of agency performance and value. This includes your agency’s:
- Revenue by account size
- Revenue per employee
- Percentage of revenue derived from your largest accounts
- Average number of products per customer
- Retention rate
- Growth, as measured by renewal revenues, acquired revenue, and new-business revenue
- Customer acquisition cost (CAC)
- IT spend as a percentage of revenue
- Expense management & payroll
- Number of accounts per customer/ability to cross-sell
- Number of producers, their average compensation, and average comp as a percentage of your book
These and other metrics will help your agency identify new areas in which you can concentrate your resources.
Next steps to insurance agency benchmarking
There are several different ways in which you can effectively benchmark your business against other agencies.
The best way to start is through open discussions with other insurance agency principals who you know or with whom you feel comfortable – and, conversely, who feel comfortable sharing such information with you. This is particularly helpful when the agencies you’re comparing against are of equitable size to your own.
In order to get the most out of this type of benchmarking, it’s important to expand your personal circle of fellow insurance agency owners. Begin by leveraging your existing contacts with other local agencies; then, conduct some research to find LinkedIn or Facebook groups of agency owners and join the ones that appeal to you. Regional associations will provide similar opportunities to network with other principals.
Expert research is especially helpful. Throughout the year, boutique and large consulting firms publish whitepapers and studies that offer insight into the challenges of independent agencies.
Regan Consulting and the Big “I” conduct the yearly Best Practices Study, which compiles benchmarking data on key metrics of agency performance and value including revenue growth and profitability, financial stability, expense management, and sales and operations productivity. National Underwriter Property & Casualty magazine and the National Association of Professional Insurance Agents (PIA) co-publish the annual Independent Insurance Agent Survey of agents that presents agents’ feedback on a variety of operations-related topics.
Additionally, you may consider joining an agency network, which (among other benefits) enables you to become part of a community in which you have regular opportunities to share best practices with other member principals.
Renaissance Alliance is an agency network that focuses on helping agencies find growth opportunities in their businesses: One way they do this is through the Renaissance Technology Platform, which analyzes your agency’s data and compares it to that of similar agencies. With the network’s assistance, Renaissance members gain a deeper understanding of the different ways in which they can expand their business.
Membership with Renaissance also affords the benefit of insights delivered by an agency growth partner. These experienced agency executives work with our members to develop a growth plan, anchored in benchmarks developed using the Renaissance Technology Platform.
Insights that help drive revenue
Even if you possess the most thorough understanding of your agency’s data (and even if you personally consider your business a success), the ability to compare your performance against your contemporaries and industry benchmarks helps you see where.
On its own, your agency data can only show you so much; in a comparative equation, it is cast in a much different and arguably more valuable light.
While discovering how your business’ performance measures up against that of fellow agencies, the knowledge gained can empower you and your staff to focus on the areas that will help your agency gain more revenue, create value, and improve your financial stability.
Michael Freilich is Chief Product Officer at Renaissance.
Watch this video to learn more about the Renaissance agency technology platform: