The 120th annual meeting of the Independent Insurance Agents of Georgia was held earlier this month. It began earlier than usual with a two hour legislative panel on Thursday afternoon followed by morning meetings on Friday and Saturday, which ended an hour earlier than usual. However, the information and networking opportunities provided were as valuable as always.
The legislative panel acknowledged that the 2017 session of the General Assembly was not as productive as it could have been, mainly due to political reasons. 2018 is an election year and several members of the House and Senate were positioning themselves for runs for higher office, in particular the governor’s office. This led to the failure to pass some laws what were considered to be non-partisan and broadly supported, including a bill to reform Georgia’s adoption code and to permit the Insurance Commissioner’s Office to enforce the payment to agents by health insurance companies of the commission rates that are specified in their filings with that Office. Unfortunately, it does not look like things will get any better in 2018.
On Friday morning, Harrison Brooks of Reagan Consulting spoke about trends affecting the insurance industry. Mergers and other acquisition transactions hit an all time high in 2016, and 2017 is off to an even better start. This activity is primarily due to the record amount of money being spent by private equity firms to buy insurance agencies. Such firms purchased over half of all agencies sold in 2016. The prices being paid for best practices agencies averaged eight times earnings before interest, taxes, depreciation, and amortization (EBITDA), with the potential to earn three times more over an earn out period after the sale closes. However, almost as many new agencies have been formed in the past five years as have been purchased, so the industry remains in balance.
For those agencies looking to grow by acquisition, Mr. Brooks recommended looking locally, within a 30 minute radius of your current location. He advised looking for other agencies that have good leadership, younger producers and/or other staff, serve a different geographic area, and have developed a specialization that gives them a competitive advantage. If can’t afford to buy another agency, Mr. Brooks suggested looking for good producers at other agencies, the younger the better.
Another big trend affecting the insurance industry is the rise of what is referred to as “InsureTech.” In recent years, over $6 billion has been invested in technology companies like Lemonade that purport to offer a new or more efficient way to buy insurance. This investment has been made in four main areas: health insurance, auto insurance (pay by the mile), on demand insurance (individual items insured for specified periods of time), and peer to peer insurance (Lemonade).
In Mr. Brooks’ opinion, InsureTech was the greatest threat to independent insurance agencies that rely heavily on personal lines business, but small commercial lines competition would soon be coming. His advice for agencies was to upgrade their ability to conduct business electronically, especially on mobile devices. There are many resources available for agencies who want to do so; IIABA’s Agents Council For Technology, Insurance Digital Revolution, and CB Insights being some.
Mr. Brooks also had some things to say about how independent insurance agencies can determine if they are on the right track in terms of growth and the hiring of new producers. His comments on those topics will be the subject of my next post.