Once a favored option for smaller independent agencies, agency networks provide significant value that mid-to-large size agencies are now finding hard to ignore.
For decades, it was commonly accepted that larger agencies had the staffing and capital to serve their clients efficiently, and the premium levels to provide them leverage while negotiating with carriers.
Over time, however, sea changes in the insurance industry have altered the correlation between an agency’s size and its need for resources – and agency principals have become increasingly aware that the game has changed. Particularly in the past five years, smaller agencies aren’t the only ones that view agency networks as a solution to their needs.
The Playing Field Changes
Access to carriers, talent, and technology are the three competitive differentiators among independent agencies, regardless of their size – and the larger players who once seemed to corner the market in these areas are discovering that persistent trends of increased consolidation in the P&C industry have altered the playing field.
Wider consolidation at the carrier level has fostered an environment in which scale now matters more than ever, and agents know that carrier consolidation often breeds aggressive revenue targets that independent agencies are obligated to assist in meeting. Larger agencies with business spread among several key carrier partners face a conundrum in which they may write sizable amounts of premium, but those accounts end up spread too thinly among multiple major insurers eager to grow revenue.
As a result, larger agencies have become more challenged in meeting their premium thresholds. The P&C marketplace now is such that even $40m agencies have trouble maximizing their enhanced compensation.
They can’t feed their carrier partners enough volume to move to higher payout tiers.
It’s ironic that today, some of the biggest agencies are under more pressure than they have in years to deliver results – a burden their smaller competitors are all too familiar with.
Additionally, consolidation at the agency level has been steamrolling – a trend that shows no signs of stopping. The past five years have witnessed the most active M&A market in history.
Last year, 1,034 insurance agency mergers and acquisitions were announced – an increase of 30% from the 795 reported in 2020, according to OPTIS Partners’ North American Agent & Broker 2021 Year-End Merger & Acquisition Report. More than half of the businesses sold were P&C agencies. Private equity-backed buyers were responsible for about 75% of the total transactions.
Insurance agency M&A during the first six months of 2022 has been equally strong, above the average activity during the same period over the last five years (427 announced deals in the U.S. and Canada, up 16% year over year).
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Even at those levels, consolidation isn’t the only factor influencing larger agencies to consider a network. The commoditization of personal insurance has driven many savvy agencies to focus on commercial business – and any agent knows that in order to succeed in that arena, you need the right carrier partners.
Technology remains a challenge for agencies at all stages of growth. In order to serve clients quickly and effectively, new tools are needed – and the bigger the agency, the more expensive those investments become. Guidance is needed to ensure that the solution the agency plans to implement does precisely what it’s supposed to, and that it won’t become obsolete before long.
Personnel is another challenge: the insurance industry is hardly immune from the effects of the Great Resignation of 2021. For agencies of all sizes, the employee turnover rate has grown to 20%, according to Vertafore’s survey report “The Insurance Agency Workforce: Evolving into the Next Normal.” At the agency level, specialization in select lines of business is prized more than ever, and those experts can now command higher salaries.
It’s no longer enough to be a large agency. Bigger fish are circling, and in order for larger players to maintain their influence, those organizations are actively considering their options for adding resources.
Keys to the Future
Joining an agency network is no longer being viewed by larger agencies as a defensive position. It’s a strategy built on offense, that empowers them with improved, fixed compensation, and better terms negotiated on their behalf by a trusted partner.
In 2022, even large agencies need a boost to help them punch above their weight class and stay in the ring. Aggregating their premium a network can help elevate them to higher payout tiers, and the technology and people delivered by a well-equipped network – as well as access to commercial lines markets and expertise in select lines of business – can drastically alter the performance of even the biggest independents.
Renaissance is more than a network. We work with the owners of P&C agencies of all sizes to provide you the people and technology for your business to thrive while remaining completely independent.
While you maintain 100% control of your agency, we deliver reliable, consistent revenue through fixed overrides, growth bonuses, higher commissions, and enhanced profit sharing in addition to expanded carrier access to technology, back-office support, and other valuable resources.
Contact us to learn more about how your agency can not only maintain its status, but to grow stronger while ensuring its future.