In spite of dramatic economic challenges and a decade of decline in the number of agencies, the insurance distribution network has stabilized, with smaller agencies focused on personal lines faring better than their larger counterparts focused on commercial lines. These are among several findings of the “2010 Agency Universe Study” (AUS). Released by Future One, a collaboration of the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) and leading independent agency companies, the study of the independent agency system is one of the most comprehensive to date.
“The 2010 Agency Universe Study reflected the combined effect of the recession which began just as the 2008 study was underway, a prolonged soft insurance market and declining revenues,” says Robert Rusbuldt, Big “I” president & CEO. “Despite all of these challenges, many new agencies are forming, typically with a more diverse and younger leadership, demonstrating the strength of the independent agency system and the potential for growth.”
The study surveys a wealth of issues about independent agencies operating in the United States, including their numbers, revenue base and sources, number of employees, ownership, mix of business, diversification of products, technology uses, non-insurance income sources and marketing methods.
“As the Big ‘I’ continues to increase its diversity efforts, the 2010 Agency Universe Study found some progress, with an increase in the number of new small and medium small agencies with minority principals,” says Madelyn Flannagan, Big “I” VP of agent development, education and research. “In addition to the increasing ethnic diversity of agency ownership, albeit from a very low base, these agencies are also solidifying the position of women as principals in more than a third of agencies. Most strikingly, the proportion of independent agencies with African-American principals grew from 1% in 2008 to just over 4% in 2010.”
Other key findings of the 2010 Agency Universe Study include:
• The number of independent agencies remains stable. After a decade of declining numbers of agencies, 2006 saw a return to stability. Since 2006, there have been approximately 37,500 agencies in business in the United States and that number remained approximately the same for 2010.
• The system as a whole is very dynamic, particularly among smaller agencies. Of the 37,500 agencies existing in 2010, approximately 11% or 4,000 were founded in 2008, 2009 or 2010. That number is approximately equal to the number of agencies lost as separate entities through mergers and acquisitions.
• A regional redistribution of independent agencies. A review of agencies founded since 2005 found that 50% of new agencies are located in the South, 24% in the South Atlantic states and 19% in the West South Central Census division. This may reflect the flexibility of the independent agency system, which allows it to serve markets many captive agency companies have essentially abandoned. In contrast, only 8% of new agencies are located in the Northeast, compared to 18% of older independent agencies.
• Decline in commercial lines revenues hit the very largest brokers hardest. Among independent agencies and brokers decreases in commercial insurance revenues were significantly concentrated in the larger agencies.
• Agencies have suffered from the soft insurance market and, since 2008, from the Great Recession. While 55% of small agencies saw increased revenues from 2008 to 2009, 25% had decreased revenues. In all of the other size categories, agencies with decreased revenues have outnumbered those with increased revenues. The decline in revenues has been substantially worse in commercial lines than in personal lines. Consequently, it has hurt larger agencies, more dependent on commercial lines, hardest.
• The cost of technology has become a less important issue. Marketing the agency effectively on the Internet, security and ease of use of new real-time functionality are now the top three most important technology issues for agency owners. At the same time, carrier websites have gained ground as the preferred method for agency-carrier interactions.
The 2010 Agency Universe Study is the tenth in a series that was first conducted in 1983. Subsequent studies were released in 1987, 1992, 1996 and 2000. Since 2002, the study has been completed biennially. Since 2004, the Agency Universe Study has relied on Internet data collection. Approximately 2100 agencies were included in the 2008 analysis.
In addition to the Big “I”, the Future One coalition includes the following company partners: Allied Insurance, Allstate, Amerisure Insurance, Central Insurance Cos., Chubb Group of Insurance Cos., CNA, Encompass, Erie Insurance, The Hanover Insurance Group, The Hartford, Hartford Steam Boiler, Liberty Mutual Agency Corp., Progressive, Selective Insurance Group, Travelers, Westfield Insurance and Zurich North America.
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Corrected December 7, 2010 at 10:52AM: yes