Insurance Productivity & Profitability Insights

We’re always interested in how agencies are performing and operating—we have, after all, made it our business. So we are closely watching the periodic results released from the Independent Insurance Agents & Brokers of America (Big “I”) Best Practices Survey.

In this report, the Big “I” analyzes the performance of 217 of the top insurance agencies in the country. It provides a timely and useful benchmark for evaluating agency operations. In particular, the report gives us a few different ways to look at profitability. For the sake of discussion, we’ll focus on the bracket of surveyed agencies with revenues between $5 million and $10 million.

Even within this cream-of-the-crop group of agencies, there can be a 30 percent difference in measures of profitability. For example, let’s consider the spread per employee, which is the difference between revenue per employee and the compensation per employee. This is an excellent metric of productivity because it measures employee contribution to the business before overhead. At average agencies, the spread is $64,733. At agencies with +25 percent profit, the spread is $89,868. That’s a 32 percent difference.

Also interesting are the figures for the Rule of 20. Assigning points to agencies based on organic growth rate and EBITDA margin, this looks at growth and profitability in balance. A score near or above 20 means a company will have a good return for shareholders. Average agencies surveyed had a score of 20.3; agencies with +25 percent profit had a score of 27.7; agencies with +25 percent growth had a score of 29.5.

Though the Rule of 20 formula is weighted to prioritize organic growth, growing the EBITDA margin is a solid strategy for improving the score during a soft insurance market or economic downturn.

In both the case of spread per employee and the Rule of 20, improving employee productivity can improve how an agency measures up. If you improve the output per employee based on improving operations efficiency and effectiveness, it’s “cheap” money that doesn’t require a huge investment or downsizing.

This is only a sampling of the ample data provided (you’ll have to purchase the full report for that), but these numbers demonstrate an essential truth—that the most profitable agencies have the most productive employees.

But, of course, there are many ways to understand the data. Tell us what you took away from the report, especially as it pertains to profitability, employee productivity and IT—tweet us @ReSourcePro with your thoughts.