The ups and downs of agency profitability in the first quarter and the way forward after the pandemic: Reagan
Insurance agencies reported some ups and downs in first quarter profitability results, according to Reagan Consulting’s latest survey of the growth and profitability of the consulting firm’s client agents and brokers.
Three industry metrics were the best first quarter profitability results in a 13-year history:
- First, the profit before interest, taxes, depreciation and amortization (EBITDA) (or profitability before tax) margin was 31.2%, more than 1.5 percentage points higher than in the first quarter of 2020.
- Second, the median operating margin was 16.7%. The operating margin measures the profitability of brokers excluding conditional income and bonuses. The Q1 2021 operating margin was nearly 4 percentage points higher than the Q1 2020 results. The increase indicates that brokers continue to experience expense savings from COVID-19, according to Reagan Consulting.
- Third, commercial lines posted organic growth of 6.3%, the highest since COVID-19 began to affect businesses as well as a 13-year better result in the first quarter.
These highs were offset by the first decline in personal income since 2010 (to less than 0.2%) and the weakest first quarter growth (2.1%) in group health benefits in 13 years.
According to Reagan partner Mark Crites, the industry is still stabilizing amid the pandemic. Crites attributes the growth in commercial lines to a combination of the rebounding economy and price increases. “Our agent and broker clients continue to see double-digit rate increases on major business renewals in the first three months of the year,” says Crites.
On the other hand, the damage caused by COVID to the entertainment, hospitality and retail industries has resulted in employee leave and layoffs, which in turn has affected group health plan income for insurers. “With the majority of group policies now based on a per employee, per month model, brokers immediately felt the pressure,” Crites said.
Why the loss of growth of personal lines? Crites kicks her out of the need of consumers to preserve their finances during the pandemic and of “the inability of brokers to renew homeowner policies in wildfire areas and other high risk coastal areas through of the traditional market. “
The path to follow
Reagan’s advisers say the results of his survey of about 200 participating agencies point to two avenues for post-pandemic growth.
First, agents and brokers must lead with whatever they can influence. “No one can control when a hard or soft market hits. Likewise, no one can control the business cycle, ”Crites said. “But you can control the third engine of growth, the speed of sales,” which is a measure of new business output.
He said the increase in the speed of sales in the first quarter of 2021 shows that agents and brokers “are finding ways to present themselves in front of potential clients.” Quarterly organic growth of respondents was 5.5%, up from the fourth quarter 2020 growth result of 4.3%. This first quarter organic growth is the highest since the 6.6% recorded in the first quarter of 2020.
Second, agents would have to reinvest savings from the pandemic, savings Reagan estimates at 2% to 4% of total net income.
“Companies that reinvest those dollars back into the business – instead of distributing additional profits to shareholders – will be the winners of COVID-19,” he said.
Source: Reagan Consulting
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