The independent insurance agent and broker channel tallied an 8.4% organic growth rate for Q1 2024 — the lowest rate of growth in 11 straight quarters according to Reagan Consulting’s quarterly Growth & Profitability Survey (GPS).
With 2023 recording all-time highs in organic growth and profitability, early predictions for 2024 were more of the same. The results tell a slightly different story.
“Although growth and profitability are still strong by historical standards, we may be seeing the first indications that our industry, which has been red hot since 2021, is beginning to cool,” says Tom Doran, Reagan partner.
Growth by product line
In light of recent downward P&C rate pressures and, given that commercial P&C represents most agencies’ largest source of revenue, it’s not surprising that the commercial organic growth rate slowed to 8.5% in Q1, down from 11.7% in Q4 of 2023.
For the first time in the history of the GPS, personal P&C growth eclipsed the growth of both commercial P&C and employee benefits. Historically, even well-run brokerages struggle to crack 3.0% organic growth in personal lines. Remarkably, during Q1, personal P&C grew by 9.9%, down slightly from Q4’s 10.3% growth mark.
“Even though personal lines is one of the smallest revenue categories for most brokerages — typically 10-12% for GPS firms — these impressive growth numbers were welcome news in light of cooling commercial P&C growth,” Doran says.
Fueled by strong new business results and an uptick in health insurance premiums, employee benefits notched a 7.5% growth rate — the second strongest Q1 result in more than a decade.
Profitability slows
A decline in profitability mirrored the decline in growth in Q1. Profitability tends to spike in Q1 and decrease the rest of the year due to the timing of contingent income receipts, so comparing Q1 2024 to previous Q1 periods is a more accurate profitability trend snapshot. Profitability in Q1 was 28.7%, down just over two points from the Q1 result in 2023 and driven primarily by lower margins in contingent/override income.
“Carriers are having to account for increased losses due to storm activity, nuclear jury verdicts, a meteoric spike in replacement costs, and the 2022-2023 supply chain fiasco,” Doran says. “Since contingent income is the single largest driver of bottom-line profitability for a brokerage, this downward trend is worth monitoring.”
Agency valuation outlook
How will a decline in organic growth affect valuations, which currently stand at record levels? The answer so far is mixed. “High-quality agencies with healthy demographics and good growth prospects are still commanding record valuations,” Doran says. “But for those that have simply been riding the waves of firming pricing and a strong economy, there might be more buyer pricing discipline on the horizon.”
To receive the full Reagan commentary or for more information about Reagan Consulting, contact Tom Doran at tom@ReaganConsulting.com.
The Reagan GPS was launched in 2008. Every quarter, each participating agency receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan’s commentary of industry trends affecting agents and brokers. For information on participating in the survey, contact Michelle Appelbaum at 404.869.2541 or michelle@ReaganConsulting.com.
About Reagan Consulting
Reagan Consulting is a management consulting firm providing strategic consulting, valuation, capital raising, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm’s services for insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, capital raise advisory, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Growth & Profitability Survey.