2014 Agency Universe Study - Independent Agent · About Future One and the 2014 Agency Universe...

Future One is a collaborative program of the Independent Insurance Agents & Brokers of

America, Inc., and member companies.

2014 Agency Universe Study

Prepared by:

Maynard Robison, ConsultantMaynard Robison, Consultant

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About Future One and the 2014 Agency Universe Study 3

Reader’s Guide 9

Acknowledgements 14

Independent Agencies in a Time of Economic Recovery 16

The Agency System 21

Agency Revenue 31

Marketing 40

Market Access Providers 51

Agency-Carrier Relationships 56

Agency Staff 72

Technology 81

Attitudes and Perceptions 93

Agency Perpetuation Planning 97

Ties to the Industry 103

Appendix A: Supplementary Data 111

Supplementary Tables 112

Respondent Profile 114

Appendix B: Additional Details on Methods 117

Table of Contents

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About Future One and the 2014 Agency Universe Study

Future One is a cooperative effort of the Independent Insurance Agents & Brokers of America (IIABA) and independent agency companies. It sponsors a variety of programs to enhance the independent agency system and agency-carrier relationships, both legislatively and in the business environment.

One of Future One's major efforts has been the Agency Universe Study (AUS), first conducted in 1983. The study was repeated at 4-5 year intervals over the next 13 years (1987, 1992, 1996, 2000) and, starting in 2002, has been conducted biennially to track the fast-paced changes in the industry.

The AUS continues to provide information – much of it unavailable anywhere else – that is useful to independent agency principals, independent agency carriers, and the IIABA in its public information and education efforts.

The study provides independent agency principals and managers with insights into how their peers operate, as well as businessstrategies that may be helpful to them.

Carriers obtain information, ranging from agency principals’ and managers’ opinions about the future of the independent agency system to how they use technology. This information helps carriers make better decisions as they work with independent agency principals.

IIABA cites the AUS several hundred times each year in its work with independent agency principals, the trade press and public officials.

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The Study

The Agency Universe Study is a survey of independent insurance agencies. The 2014 survey continues to focus on both agencies as whole business enterprises and, for multi-office agencies, on specific locations or satellite offices.

Individual locations of multi-office agencies were included starting in 2006 for several reasons.

Carriers often deal as much with specific offices as with multi-office agencies as a whole.

Some decisions are made at the office level.

Within large agencies, different offices often focus on different market segments.

The first chapter in this report, The Agency System, provides data on agencies’ overall structures and revenues at the agency level, regardless of the number of offices the agency has. Subsequent chapters focus on operations at the individual office location level. (In the few cases where both branch and headquarters locations responded to the survey, headquarters location responses were included in The Agency System chapter, and all responses were included in subsequent chapters). However, throughout this report, agencies are classified by size in terms of their size as whole enterprises, across all offices. For the 80% of agencies that have just one location, operations at the enterprise level and at the individual office level are identical.

The 2014 survey included many questions that were asked in previous versions of this research, both because they continue to be areas of interest and so that trends can be tracked. In most cases where 2014 and 2012 questions were identical, responses for both 2012 and 2014 are included in this report. For more comparisons of 2014 to 2012, readers can refer to the cross-tabulations.

Methodology

There is no single comprehensive listing of independent agencies and brokers that could be used as sample for this study. Therefore, to obtain as broad a representation as possible, Future One used the IIABA’s listing of independent agencies, which is compiled from state association membership lists, and also listings of their agencies that a number of participating carriers were willing to provide. The Business Insurance Top 100 Brokers list was added.

Undoubtedly, the willingness of some carriers (but not others) to include their agency listings in the sample biases the data to some extent, by leading to overrepresentation of those carriers’ agencies. However, the extent of this bias is limited by the fact that agencies represent multiple carriers, and undoubtedly in many cases represent both a carrier that provided listings and carriers that did not. Of course, a very large number of agencies also appear on the IIABA’s membership list.

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Data was collected via web-based interviewing. E-mail invitations (and reminders) were sent to agency principals and/or other agency contacts, requesting their participation in the research. Each invitation included a unique PIN to enable respondents to complete the survey in more than one sitting if necessary, and to make it possible to analyze the survey results using information from the sample, such as classifying agencies by community types using their zip codes. In total, 3628 respondents were included in the study—2648 who completed the entire questionnaire and 980 who completed only the first two key sections (Your Agency and Your Agency’s Revenues and Markets). On a weighted basis, we received data from 3010 respondents (see page 7).

Because Future One needed to collect a very broad range of information, two versions of the questionnaire were used to reduce the number of questions asked of each respondent. Each version contained a set of core questions common to both versions, plus somesections exclusive to each version. For example, version 1 asked about marketing while version 2 asked about agency technology usage.

Another method used to shorten the interview length was limiting each respondent to answering no more than two sections about specific lines of business and account sizes: personal, small commercial (<$15K total annual P&C premium), medium commercial ($15K-$99K total annual P&C premium), and large/very large commercial ($100K+ total annual P&C premium). Among respondents eligible to answer more than two sections, the following priority was used to maximize the number of evaluations for types encountered less often: large/very large commercial, medium commercial, small commercial, personal. The eligibility criteria for answering each section, based on the number of accounts by line/account size, are shown below.

Personal: 50+ accounts

Small commercial – accounts with < $15,000 in annual premiums - 50+ accounts

Medium commercial – accounts providing $15,000 to $100,000 in annual premiums - 10+ accounts

Large/very large commercial - accounts paying $100,000 or more in annual premiums - 2+ accounts

As in previous AUS reports, the terms “personal lines carrier,” “small commercial lines carrier,” etc., are used throughout. Of course, many carriers provide coverage for both personal lines accounts and commercial lines accounts of various sizes. In this report, these designations refer to the type or size of accounts that agencies write with a carrier, not the lines or products offered by the carrier.

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Analysis

The data cross-tabulation tables (or “banners”) used to analyze the data classify the participating agencies on a variety of dimensions. In the cross-tabs, statistically discernible differences between sub-groups (different agency sizes, different regions, etc.) are identified. From the viewpoint of tracking development of the independent agency system, the most important differences are those between 2012 and 2014. In this report’s charts, statistically discernible differences between 2012 and 2014 are identified by marking the 2012 percentage with ^. To reduce clutter in already crowded charts , the statistical significance of other comparisons (e.g. among agency sizes) is not noted systematically in this report. Those who want to check the statistical significance of a particular difference can use the data tables.

Within the entire study population of 3628, the margin of error at a 95% confidence level is ± 1.6 percentage points. However, it is important to remember that the margin of error within a group, and between groups, is determined by the number of responses fromagencies in that group. Some of the sub-groups used in the analysis are relatively small, so caution must be exercised when interpreting those results. Footnotes are included wherever particular caution is warranted due to very small sample sizes.

The main categories used in the analysis and reporting, along with the total number of respondents in each, are detailed on the following pages.

Agency Revenue

Agencies range from one-person operations with less than $100,000 in insurance revenue to nationwide operations with more than $25 million in insurance revenue. These differences in size are closely related to many other differences among agencies, such as number of carriers, use of intermediaries, and mix of business.

For purposes of the analysis, size is defined in terms of self-reported insurance revenue. Six categories that have proven in prior years to differentiate agencies are used again in 2014.

Respondents were asked to estimate the agency’s 2013 revenue as a whole, including all locations. A total of 3010 respondents provided an estimate.

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Estimating the Size of the Agency Universe and the Distribution of Agencies by Size

On its own, the Agency Universe survey cannot provide information with which to estimate the total number of independent agencies in the U.S. In past years, an estimate of the total number of agencies and brokerages was obtained from the D&B database listings. However, due to changes to that database, the 2014 estimate of the total number of agencies and brokerages was derived from data cited by the Census of Business data, as well as data from the US Department of Labor, Bureau of Labor Statistics. However, we used the D&B database counts to approximate the proportion of agencies that fall into each revenue category, by drawing a stratified random sample of agencies, including subsamples for each of ten revenue categories. Using methods described in Appendix B, the proportion of independent agencies in each subsample was determined. This proportion was applied to the population of organizations in each size category to determine the total number of independent property/casualty agencies in that size category. The total number of independent insurance agencies was estimated by adding these category totals across all of the categories, and the weights to be applied to responses in each categories were determined by dividing the category’s weight (i.e. the percentage of total responses the category included) by the number of responses in the category.

Additional details on these methods can be found in Appendix B.

Weighting the Survey Data

To represent the agency universe accurately, the survey responses needed to be weighted by agency revenue size. For example, in relation to their numbers in the agency universe, many more Large and Jumbo agencies responded than Small and Medium-Small agencies. Therefore, it was necessary to give the responses from Small and Medium-Small agencies higher weights than responses from the Large and Jumbo agencies. In arithmetical terms, in preparing the weighted data each response is multiplied by the weight applicable to its revenue category. Appendix B provides more information on the weighting.

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Accessing Report Information

The report includes a Reader's Guide, which provides definitions and details about analysis that are essential to understanding the study results. Reading it before proceeding to the body of the report is strongly recommended.

Accessing Additional Information

The Agency Management Summary will focus on implications of the study findings.

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Reader’s Guide

Questionnaire Sections

The questionnaire is divided into 12 sections. The section numbers shown below will assist the reader in identifying the correct section for each question noted as the source for a graph in the report. For example, QA1 refers to question #1 in the “Your Agency" section.

A. Your AgencyB. Your Agency's Revenues and MarketsC. Market Access Providers D. The Carriers You RepresentE. Customer Service CentersF. Your Agency's StaffG. The Insurance Business EnvironmentH. Your Agency's FutureI. MarketingJ. Information SourcesK. About YouL. Your Agency’s Technology

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Reader’s Guide

The Unit of Analysis

In the Agency Universe Study, the unit of analysis is the agency. Most findings are presented as percentages of agencies or averages across agencies. The reader should keep in mind that these are findings about agencies, not revenue. They do not take into account the fact that revenues are quite concentrated in larger agencies.

Mix of Business

Using information on sources of insurance revenue, responding agency locations were classified into three groups based on their primary concentration.

Personal Lines Dominant (Weighted n=1238, 48% of agencies providing information)

70%+ insurance revenue from:

P&C personal lines commissionsP&C personal lines profit sharing, contingent commissions, and supplemental commissionsIndividual medical insurance commissions, bonuses, and feesIndividual life, annuities, mutual funds and other investment products

Commercial Lines Dominant (Weighted n=385, 15% of agencies providing information)

70%+ insurance revenue from:

P&C commercial lines commissionsP&C commercial lines profit sharing, contingent commissions, and supplemental commissionsValue-added services (e.g. risk management, claim administration, loss prevention)Retirement plan (401k, 403b, 457) commissions, bonuses and feesGroup medical insurance commissions, bonuses and feesOther employee benefits (e.g., dental, disability, life) commissions, bonuses, and fees

Balanced (Weighted n=980, 38% of agencies providing information)

Agencies not falling into either of the two "dominant" groups (but providing sufficient information to categorize revenue sources).

Note: 407 agencies were not assigned to a mix of business group because they did not provide the necessary information.For

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Reader’s Guide

Commercial Concentration

Agencies/offices writing commercial insurance were divided into three groups, based on their concentration of business within commercial lines. This was done in the cross-tabs so that responses from members of each group represent the opinions of agencies with sufficient experience in the market in question. Only agencies/offices answering the relevant question are included in these groups.

Small Commercial (Weighted n=1112, 90% of agencies providing information)

50%+ commercial revenue from small commercial accounts (total annual P&C premiums under $15,000) ANDAgency/office has at least 25 small commercial accounts

Medium Commercial (Weighted n=91, 7% of agencies providing information)

50%+ commercial revenue from medium commercial accounts (total annual P&C premiums $15,000-$99,999) ANDAgency/office has at least 15 medium commercial accounts

Large/Very Large Commercial (Weighted n=39, 3% of agencies providing information)

50%+ commercial revenue from large/very large commercial accounts (total annual P&C premiums $100,000+) ANDAgency/office has at least 3 large/very large accounts

Age

Agencies were classified into one of two groups, based on self-reported year when their agency was established.

New (Weighted n=267, 9% of agencies providing information)

Agencies established within past five years (2010 or later)

Established (Weighted n=2689, 91% of agencies providing information)

Agencies established before 2010

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Reader’s Guide

Geography

The study utilized the four U.S. Census regions and the nine Census Divisions, as shown below.

Northeast (Weighted n=550, 18% of agencies)New England (Weighted n=177, 6% of agencies)

CT, MA, ME, NH, RI, VTMiddle Atlantic (Weighted n=372, 12% of agencies)

NJ, NY, PA

South (Weighted n=1038, 35% of agencies)South Atlantic (Weighted n=491, 17% of agencies)

DC, DE, FL, GA, MD, NC, SC, VA, WVEast South Central (Weighted n=175, 6% of agencies)

AL, KY, MS, TNWest South Central (Weighted n=372, 12% of agencies)

AR, LA, OK, TX

Midwest (Weighted n=968, 33% of agencies) East North Central (Weighted n=551, 19% of agencies)

IL, IN, MI, OH, WIWest North Central (Weighted n=417, 14% of agencies)

IA, KS, MN, MO, ND, NE, SD

West (Weighted n=425, 14% of agencies)Mountain (Weighted n=198, 7% of agencies)

AZ, CO, ID, MT, NM, NV, UT, WYPacific (Weighted n=227, 7% of agencies)

AK, CA, HI, OR, WA

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Reader’s Guide

Community Types

Using U.S. Census data, agencies were classified into one of four groups based on the ZIP Code information contained in the sample. Where an MSA (Metropolitan Statistical Area) is part of a CMSA (Consolidated Metropolitan Statistical Area), we used the MSA to determine community population. For example, an agency in Stamford, CT would be counted as being in a medium metro area (Bridgeport-Stamford), rather than in the larger CSA including New York City.

Rural Areas/Small Towns (Weighted n=562, 19% of agencies)

Population less than 50,000

Small Metropolitan Areas (Weighted n=455, 15% of agencies)

Population 50,000 - 249,999

Medium Metropolitan Areas (Weighted n=570, 19% of agencies)

Population 250,000 - 999,999

Large Metropolitan Areas (Weighted n=1395, 47% of agencies)

Population 1,000,000 or more

Note that a few urbanized areas with populations somewhat greater than 50,000 have not been classified as MSAs by the Federal Office of Management and Budget. Nonetheless, we included agencies in these areas in the Small Metropolitan Area category.

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Acknowledgements

The 2014 Agency Universe Study has been carried out, analyzed, and reported under the direction of the IIABA Future One Research Task Force. Zeldis Research and Maynard Robison wish to acknowledge the invaluable guidance and help provided by the members of the research committee.

Sean AndersonDirector, Customer ResearchThe Hartford

Adam AnspachMarketing ManagerCentral Insurance

Jeff Bair, CICHead of Merchandising and Business DevelopmentForemost Insurance Group

Karen BartosikAVP Commercial Strategic MarketingChubb & Son

Rebecca BrattenMarket Research AnalystProgressive Insurance

JoAnna CareyMarketing Development ManagerForemost

Gerald ChiddickVice President - MarketingAmerisure Insurance

Allison DrummondManager, Marketing Insights and AnalyticsLiberty Mutual Insurance

Madelyn H. Flannagan VP, Agent Development, Education and ResearchIndependent Insurance Agents & Brokers of America, [email protected]

Michael FrankeMarket Research AnalystProgressive Insurance

Greg GrzywaczCustomer ResearchThe Hartford

Mel HirstVP, Sales Promotions and Agency Relations Erie Insurance

Kevin Jenne'Director, Agent & Consumer InsightsSafeco Insurance

Lisa M. KozlowskiCustomer and Market Insight LeaderWestfield Insurance

Dan MaloneyVice President of Sales and Marketing Encompass Insurance

Ralph MelhornField Management Regional DirectorTravelers

Patrice NolanMarket Research Analyst, Producer & Product DevelopmentCNA

Rose SheldonAIA Sales Education ConsultantAllstate

Matt SternatVP, Enterprise Market ResearchTravelers

Lynn SwansonSenior Consultant, Sales DeliveryAllied Insurance

Jeff TaylorAVP, Sales DevelopmentAllied Insurance

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Madelyn.Flannagan

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Acknowledgements

Maynard Robison, an independent consultant who has worked on the Agency Universe Study since 2000, directed the study. In this project, he worked very closely with the main research vendor, Zeldis Research Associates. Maynard can be reached at (215) 760-2351 or by e-mail at [email protected].

Since 1991, Zeldis Research has been designing customized market research to help clients understand their customers. Zeldis Research has extensive experience in the insurance industry, as well as consumer products, education, financial services, healthcare, and publishing, and offers the full spectrum of quantitative and qualitative techniques, including advanced analytic approaches.

With deep and broad sector experience and an understanding of the products relevant to the insurance industry, Zeldis Research helps clients understand consumer and business trends and the complex influences that could impact marketing efforts.

At Zeldis Research, this project was directed by Courtney Robertson, Senior Research Director, and Ken Zeldis, Partner. Courtney Robertson can be reached by telephone at (609) 737-7223, ext. 213 or by e-mail at [email protected].

For more information about Future One and to obtain a complete copy of this report please contact:

Madelyn H. Flannagan Vice President, Agent Development, Education and ResearchIndependent Insurance Agents & Brokers of America, [email protected](800) 221-7917 For

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Independent Agencies in a Time of Economic Recovery

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The Great Recession that began in 2008 depressed insurance premiums, particularly commercial insurance premiums, which contracted in each year 2008 - 2010.

This contraction in commercial insurance premiums reflected both reduced business activity generally and excess capacity for commercial insurance, placing downward pressure on pricing.

This trend reversed in 2011 when commercial insurance premiums rose by 5% or $11.4 billion, to a grand total of $239.9 billion.

Commercial insurance premium levels have a disproportionate impact on independent agencies and brokers, because they dominate the commercial insurance market (78.4% market share in 2011). Overall, they are particularly important to the largest agencies and brokers that write a disproportionate share of the channel's commercial insurance.

NOTE: Information reported on this slide comes from the IIABA's report "2011 Property-Casualty Insurance Market: Opportunities and Competitive Challenges for Independent Agents and Brokers." 2011 is the latest year for which data is available.

Impacts of recession and recovery


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After a 3% increase between 2010 and 2012, the estimated total number of independent agencies has leveled off at 38,500, following a low of 37,500 during the recession (between 2006 and 2010).

• Part of this stabilization may be due the lower founding rate of new agencies compared to 2012.

As the size of the independent agency universe steadies, a notable trend is the growing proportion of agencies with principals over age 65. (In 2014, 18% of agencies have principals over the age of 65 with at least 20% ownership – versus 10% in 2012).

• While the vast majority of agencies still do not anticipate a major ownership change in the imminent future, the number of aging principals is likely to herald a higher rate of agency ownership turnover in the next five to ten years or so.

In addition, in 2014, there are fewer Small agencies and an increase in Medium-Small agencies.

• This seems to continue a trend evident in 2012, and is presumably due to the growth of agencies that were Small in 2012 to Medium-Small by 2014, as well as mergers and acquisitions activity. It may also reflect the increasing challenge of maintaining business viability/profitability as a Small agency.

• While the trend was notable prior to 2014, changes in the sources and approach used to estimate the agency universe this year may have also had some influence on the size distribution estimate as well.

At the same time, business conditions seem to be increasingly favorable. Over two-thirds of agencies reported revenue increases between 2012 and 2013, while only 15% saw decreases in revenue between 2012 and 2013. The majority of agencies reported gains in both personal lines and commercial lines revenue.

Independent agency resilience


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Market access providers (particularly managing general agents and wholesale brokers) continue to play a large role in placing independent agency business, with usage rates comparable to 2012.

Use of market access providers spans revenue size categories. The 77% of Jumbo agencies who use them place a sizable proportion of business through market access providers (21% of personal lines revenue and 30% of commercial lines revenue), suggesting that some of these agencies specialize in placing certain types of risk while marketing others through third parties.

Such specialization is supported by survey feedback, in which seven in ten agencies with medium commercial lines accounts say they have particular expertise in specific industries (from which they derive the majority of their medium commercial lines revenue).

• In addition, for large commercial lines accounts, availability of industry-specific products is second only to price in terms of importance in carrier selection.

• Generally, then, there seems to be a growing need for coverages, products, and services geared towards specific industries.

A high rate of industry specialization may also help account for the fact that newer agencies are more likely than established agencies to be commercial lines dominant (23% vs. 14% of agencies). They also derive more of their commercial lines revenue from E&S and Specialty Lines P&C.

• Presumably, this is because new agencies try to find a suitable business niche (directionally higher proportions of newer agencies also say they specialize in specific industries compared to established agencies).

• New agencies also continue to be more diverse-minded in their employment and marketing efforts.

Industry specialization


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Predictably, social media use seems to be on the rise. • One-fifth of agencies use the assistance of a third-party to help build their social media presence, and 43%

include social media presence as part of their 2013 marketing program (versus 26% who included social media marketing strategies in their marketing program in 2011).

• Key reasons for use of social media include building the agency’s brand and attracting new customers., typically via Facebook and/or LinkedIn.

• Use of social media for marketing efforts may help account for the drop in use of personal visits and telephone calls for both prospecting and keeping in touch with customers (and for both personal lines and commercial lines).

At the same time, social media use is still in its fledging state among independent agencies. • Marketing the agency effectively on the internet is cited as a top technological challenge. • Only one-third (37%) agree that digital marketing has become a core part of their overall marketing effort. • Only one-third (33%) have formal social media content policies.• Fewer than one in ten are currently following insurance-related topics on Twitter.• In addition, few (11%) have expanded into more sophisticated digital marketing strategies (YouTube, blogs,

webinars, etc.).

Social media and digital marketing


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The Agency System

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The total estimated number of independent agencies stands at 38,500, similar to the 2012 estimate.

Total Number of Independent Agencies, 1996-2014

The Agency System

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The primary change from 2012 reflects a lower proportion of Small agencies, and an increase in Medium-Small agencies. This seems to continue a trend evident in 2012, and is presumably due to the growth of agencies that were Small in 2012 to Medium-Small by 2014 as well as mergers and acquisitions activity.

Between 2011 and 2012, industry premiums increased substantially. Very likely, because of this increase many small agencies passed from the Small to the Medium Small category.

While the trend was notable prior to 2014, changes in the sources and approach used to estimate the agency universe this year may have also had some influence on the size distribution estimate as well. An additional analysis was carried out to determine the potential impact of changes to one of the sources (see text box below).

15% of all independent agencies and brokerages are Small, and 57% are Medium-Small.

The Agency System

^ indicates significant difference 2012 - 2014QA9, Weighted n=3010

Agency Distribution by Revenue Size: 2012 vs. 2014

^Early in 2014, D&B (which plays a role in estimating agency distribution by revenue size) carried out procedures to eliminate inactive businesses from their database. To determine the impact of the change in composition of the D&B database, the 2014 D&B proportion of total agencies that fall into each category was used to re-weight the 2012 data. Results show a comparable distribution to that seen in 2014. (At the same time, the revised 2012 weights had little to no impact on other questions/findings).

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Number of Agency Locations by Agency Size

Relatively few agencies (5%) have locations in more than one state, although 54% of Jumbo agencies have a multi-state presence. Of those agencies with multiple locations, five out of six (86%) of the respondent locations to this survey were headquarters locations. Proportions of agencies with single versus multiple locations remains unchanged since 2012.

For all groups except Large and Jumbo, the majority of agencies have only one location.

QA1/A2, Weighted n=3000

The Agency System

5%

3%

5%

6%

7%

16%

54%

Multi-State

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Average Agency Age by Agency SizeYears

In 2012, the high rate of newer agencies was reflected in an increase in the estimate of the total number of independent agencies. This year, the estimate remained unchanged relative to 2012, in part due to the lower rate of new agency establishment.

Not surprisingly, newer agencies are more likely to be classified as Small agencies based on revenue, since it is likely to take time to grow the business.

One in ten agencies were established in the last five years, compared to almost two in ten (18%) in 2012. On average, agencies are about 37 years old.

^ indicates significant difference 2012 – 2014QA10, Weighted n=2956

The Agency System

Compared to longer-established agencies, newer agencies (founded since 2010) are more likely to: • Be Small (39% vs. 13%)• Be pass-through entities (95% vs. 79%)• Report stable or increased revenue from 2012 to

2013 (94% vs. 84%)• Be commercial lines dominant (23% vs. 14%)• Report more commercial lines and personal lines

revenue placed through market access providers (69% vs. 42%; 54% vs. 33%)

• Derive more commercial lines revenue from E&S and Specialty Lines P&C (15% vs. 11%; 10% vs. 6%)

• Be in the West (21% vs. 14%), particularly the Mountain region (13% vs. 6%)

• Be in large metro areas (57% vs. 46%)

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Agency Location – Community Type

The proportion of agencies in each community type has not changed since 2012.

Almost half of independent agencies are in large metro areas.

^ indicates significant difference 2012 – 2014Based on Agency Zip Code, Weighted n=3010

The Agency System

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Agency Location – Community Type by Agency Size

Based on Agency Zip Code, Weighted n=3010

About half of agencies are located in large metropolitan areas in all categories except Jumbo agencies (63% of which are located in large metro areas).

The Agency System

Since 2012, Large and Jumbo agencies have become slightly more concentrated in large metro areas, with fewer located in ruralareas/small towns.

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Agency Ownership

Bank ownership is most common among Large (7%) and Jumbo agencies (10%).

The vast majority of agencies are wholly owned by principals, the same percentage as in 2012.

^ indicates significant difference 2012 – 2014QA4/A5, Weighted n=2894QA9C, Weighted n = 2962

The Agency System

Parties involved in ownership of agencies in 2014 (% of agencies):4% Outside individuals2% Banks/credit unions/bank holding companies1% Other insurance agencies1% Other entities

Legal Organization:

• 81% of agencies are pass-through entities (sole proprietorships; partnerships; S Corporations, LLCs) (79% in 2012)

• 19% are C Corporations (21% in 2012)

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% Involved in Acquisitions and/or Mergers Past 2 Years By Agency Size*

As in 2012, about one in ten agencies have been involved in acquisitions or mergers within the past two years. Overall acquisition/merger activity has increased most among Large agencies.

*Among sole/headquarters locations.^ indicates significant difference 2012 – 2014QA6, Weighted n=2910

The Agency System

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Operated as Exclusive or Captive Agency in Past Two Years - 2012

9% of Small agencies have been exclusive agencies within the past two years. Of those that have operated as exclusive or captive agencies, one-third (34%) have worked with an agency franchisor such as Brightway or

Keystone in establishing their independent agency.

Less than one in ten independent agencies have operated as an exclusive or captive agency within the past two years, an agency conversion rate similar to that seen in 2012.

^ indicates significant difference 2012 – 2014QA11, Weighted n=2993; QA11A, Weighted n=100. QA11A not asked in 2012 or earlier.

The Agency System

Operated as Exclusive or Captive Agency in Past Two Years - 2014

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Agency Revenue

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The percentage of agencies reporting an increase in revenue between 2012 and 2013 varies by agency size category, with Small Agencies least likely to report an increase (58%) and Jumbo agencies most likely to report an increase (93%). For more detail see Appendix A.

The business conditions independent agencies face continue to improve. 70% of respondents saw revenue increases between 2012 and 2013, compared to 60% between 2010 and 2011. Only 15% saw decreases in revenue between 2012 and 2013, compared to 26% between 2010 and 2011.

^ indicates significant difference 2012 – 2014A9B/B2, Weighted n=2794

Agency Revenue

Change in Total Revenue 2012 vs. 2013Change in Total Revenue 2010 vs. 2011

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Nearly all agencies (98%) currently write both personal and commercial lines. As in past AUS studies, Small agencies that saw increased revenues experienced larger increases than others, in percentage terms. For more detail on revenue changes by agency size categories, see Appendix A.

About two-thirds of agencies cite increases in personal and commercial lines revenue between 2012 and 2013, up from the percentages of agencies who reported increases between 2010 vs. 2011.

^ indicates significant difference 2012 - 2014. QA9B/B2, Weighted n=2694; Weighted n=2690

Agency Revenue

Change in Personal Lines Revenue 2012 vs. 2013

Change in Commercial Lines Revenue 2012 vs. 2013

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Dominant Source of Revenue

“Dominant” is defined as 70% or more of revenue from personal or commercial lines (commissions plus extras, as defined in theReader’s Guide); “Balanced” are all agencies in between those two extremes.

It appears that since 2012, Jumbo agencies are becoming less commercial lines dominant and more balanced in their source of revenue. This may be due in part to the fact that commercial lines premiums have declined in recent years, resulting in less income for agencies and a re-focus on personal lines business.

Likelihood of commercial lines dominance versus personal lines dominance increases with agency size. Seven in ten Small agencies are personal lines dominant, with a similar proportion of Jumbo agencies commercial lines dominant.

^ indicates significant difference 2012 - 2014QB5A, Weighted n=2603

Agency Revenue

20142012

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Average % of Revenue and # of Accounts from Commercial Lines Account Size by Agency Size

QB7, Weighted n=2323; QB8, Weighted n=1730

In all except Jumbo agencies, small commercial lines accounts (under $15K annual P&C premium) provide at least half of all commercial lines revenue.

Agency Revenue

Average numbers of small commercial accounts have increased notably for Small agencies since 2012 (72 versus 45), but have decreased notably for Jumbo agencies (670 versus 975).

Jumbo agency respondents report an average of 8 Very Large accounts. Readers should keep in mind that these figures are for respondents’ offices, and in most cases except for Small agencies, the offices are not the whole agencies. Even in most Jumbo agencies, minorities of offices specialize in Very Large accounts.

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% of Total Commercial Lines Revenue From Each Product Category

On average, agencies derive four-fifths of their commercial lines revenue from standard products. Jumbo Agencies derive more income from other product categories.

B7A, Weighted n=2462. Question revised in 2014.

Agency Revenue

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% of Total Insurance Revenue

QB5A, Weighted n=2603; QB1B, Weighted n=364.

Three-fourths of agencies do not write group medical insurance. Of those that do, small group policies account for the vast majority of group medical revenue.

Agency Revenue

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Allocation of Agency Expenditures

Small agencies report that producer and owner compensation and operating expenses consume a larger than average proportion oftheir agency expenditures (47% and 34%, respectively).

Almost two-thirds of agency expenditures go toward compensation.

Agency Revenue

QB13, Weighted n=1832. Question not asked in 2012 or earlier.

^

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Percent of Agencies Outsourcing Each Function to Third-Party Contractors

Medium, Medium-Large and Large agencies are particularly likely to outsource computer/network and agency website services. Medium-Large agencies also cite higher than average use of third-parties for social media activities (32%), while Jumbo agencies cite

relatively high use of third parties for strategic planning (23%) and operations consulting (17%).

Seven in ten agencies purchase services from one or more third-party contractors, usually IT functions and/or website development/maintenance.

QG2, Weighted n=1121. Question not asked in 2012 or earlier.

Agency Revenue

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Marketing

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Average Marketing Budget by Agency Size(in thousands)

Carriers provide at least some marketing budget support for 46% of agencies, but 71% of Small agencies received no support from carrier programs.

Within agency revenue categories, average marketing budgets are very similar to 2012. Nearly all (95%) had some marketing budget in 2013.

^ indicates significant difference 2012 – 2014+ Caution: 31 participantsQI1, Weighted n=847; QI2, Weighted n=745

Marketing

% of Budgetfrom Carrier Programs

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Percent of Agencies Including Each Activity as Part of 2013 Marketing Program

Roughly two-fifths of agencies also count social media and print advertising among their 2013 marketing activities. Far fewer agencies (one in ten) promote digital content and online videos, although the rate of each rises among Jumbo agencies who

presumably have more resources to devote to these initiatives. Note that this data does not speak to the proportion of an agency’s marketing budget spent on each item.

The most common marketing activity was website development/maintenance, which two-thirds of agencies included in their 2013 marketing program.

QI3, Weighted n=1279. Question revised in 2014.

Marketing

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Functions/Support Customers Can Access Through Website or Portal(mentioned by at least 10%)

^ indicates significant difference 2012 – 2014QI4, Weighted n=767

Agencies that allocate marketing funds to their websites and/or portals continue to focus more on providing general information than on making web-based transactions possible.

Marketing

Mentioned by fewer than 10% in 2014: • Obtain certificates of commercial insurance (8%)• Policy information (e.g. payment schedules) (8%)• Access to client documents through secure client portal (8%)• Print documents such as personal lines insurance IDs (7%) • Online chat option (5%)• White labeling (2%)

In fact, there is a downward trend this year in the percentage of agency websites through which billing inquiries can be made. Predictably, Large and Jumbo agencies are more likely than smaller agencies to provide web-based transaction capabilities.

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44^ indicates significant difference 2012 – 2014QI5, Weighted n= 946, 974.

Referrals are key in commercial lines prospecting, while annual reviews, personal visits and regular telephone calls are the primary means of keeping in touch with customers.

Marketing

Commercial Lines: Use to Keep in Touch with Prospects/Customers

The percentage of agencies citing personal visits and regular telephone calls as a means of keeping in touch have dropped since 2012.

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45^ indicates significant difference 2012 – 2014QI5, Weighted n= 949, 982.

Referrals are key in personal lines prospecting as well, while annual reviews and telephone communications are the primary means of keeping in touch with personal lines customers.

Marketing

Personal Lines: Use to Keep in Touch with Prospects/Customers

The percentages of agencies reporting that they use telephone calls to keep in touch with prospects and personal visits to keep in touch with customers have dropped since 2012.

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Ways in Which Agency Uses Social Media(Among Those That Include Social Media in Marketing Program)

One in three agencies uses social media to follow carriers for product information, and one in four follow carriers for corporate news.

Building brand equity and attracting new prospects are primary reasons for using social media.

QI3F, Weighted n=420. Question not asked in 2012 or earlier.

Marketing

78%

72%

36%

38%

14%

11%

7%

1%

% Selecting Among Top Three Reasons Agency Uses Social Media

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Social Media Channels Used(Among Those That Include Social Media in Marketing Program)

Medium-Large, Large and Jumbo agencies are more likely than smaller agencies to use LinkedIn (47% of Medium-Large, 45% of Large, and 63% of Jumbo agencies use LinkedIn “often”).

Facebook is the primary social media channel used to keep in touch with customers and prospects, followed by LinkedIn.

QI3FB, Weighted n=508. Question not asked in 2012 or earlier.

Marketing

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% Reporting Agency Targets Each Population Group: Personal Lines


For personal lines, fewer than one-half of agencies target a specific demographic group from a marketing perspective. The Gen X generation is most likely to be targeted (29% of agencies).

Marketing

Small agencies tend to be more likely than larger agencies to target at least one specific group, and are especially likely to target Latino/Hispanics (27%) and African-Americans (28%).

Newer agencies (established within the past five years) are more likely to target a variety of groups, including the Gen X, Gen Y/ Millennials, Latino/Hispanic, and African-American markets.

% Reporting None of Above by Agency Size

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% Reporting Agency Targets Each Population Group: Commercial Lines


The demographics of business owners targeted for commercial lines are similar to that for personal lines, with the majority of agencies not citing a specific demographic target.

Marketing

% Reporting None of Above by Agency Size

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50^ indicates significant difference 2012 – 2014QI15A, Weighted n=780

Membership in business/civic groups associated with relevant demographic groups and employing principals from these groups are the most common steps taken to reach target markets.

Marketing

Similar to 2012, roughly half of agencies have not taken any specific steps to meet the needs of their market. Newer agencies are particularly likely to report employing principals or producers who speak a language other than English (22%) and

involvement with business/civic groups (39%).

Steps Taken to Meet Needs of Market

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Market Access Providers

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Market Access Providers Used

Small agencies are less likely to use wholesale brokers (33%), but are more likely to use an agency network/agency aggregator (29%). Jumbo agencies make very little use of Internet market access providers (2%).

Those who belong to an agency cluster/producer group have been members for an average of 12 years. Those belonging to an agency network/aggregator have been members for an average of 7 years.

80% of agencies use market access providers, and among these agencies, MGAs and wholesale brokers continue to play major roles in placing independent agency business.

^ indicates significant difference 2012 – 2014QC1A, Weighted n=993; QC1B, Weighted n=743; QC1C, Weighted n=756QC1YC, Weighted n=100; QC1YA, Weighted n=189. Questions not asked in 2012 or earlier.


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% of 2011 Commercial Lines Revenue Placed Through Market Access Providers

(Among Agencies that Use Market Access Providers)

^ indicates significant difference 2012 - 2014QC1C, Weighted n=756

Agencies that use them place a sizable amount of commercial lines business through market access providers, varying from over 50% of commercial lines business for Small agencies to 30% of commercial lines business for Jumbo agencies. Use of market access providers is similar to that seen in 2012.


% of 2013 Commercial Lines Revenue Placed Through Market Access Providers


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% of 2011 Personal Lines Revenue Placed Through Market Access Providers


^ indicates significant difference 2012 - 2014QC1B, Weighted n=743

Agencies that use market access providers place about one-third of personal lines business through them. Like commercial lines, Small agencies place a larger proportion of business through market access providers, presumably because they have fewer direct appointments.


% of 2013 Personal Lines Revenue Placed Through Market Access Providers


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QC1B, Weighted n=106, 201, 72, 245. Question not asked in 2012 or earlier.

Access to standard and specialty markets is one of the most important reasons for using various types of market access providers, although restrictive carrier sales volume requirements and ability to compete with larger agencies are also top considerations.

Top Reasons For Use of Market Access Providers(% Ranking Among Top Five Reasons)


= Top three reasons for using each type of market access providerFor

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Agency-Carrier Relationships

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Average Number of Carriers

Since 2012, the percentage of companies that have carriers for commercial specialty lines and life and health has decreased, while the percent that have bond-only carriers have increased.

Jumbo agencies tend to have more carrier relationships: personal lines (excluding specialty) 12.0, commercial lines (excluding specialty) 31.8, commercial lines specialty 7.7, life and health 13.6, and bond-only carriers 4.5.

The average numbers of carriers represented for standard commercial lines, specialty personal lines and bond-only carriers has increased since 2012.

^ indicates significant difference 2012 - 2014QD1, Weighted n=2362


% of agencies with carriers for each insurance-type

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Retention and renewal rates differ little among the agency size categories, although larger agencies remarket higher proportions of their commercial lines business and smaller agencies remarket larger proportions of their personal lines business.

Agencies retain almost 90% of their business from year to year, including business renewed with the same carrier and that retained by the agency but with a different carrier. On average, they remarket about 30% of business each year.

QI12B, Weighted n=954, 961QI12C, Weighted n=863, 865

Commercial Lines

Personal Lines


% of Existing Book Retained/Remarketed Each Year (In Terms of Premium)

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On average, agencies write 51% of personal lines business with their #1 carrier, 21% with their #2, and 11% with their #3 carrier. Despite having the second highest penetration of independent agency personal lines writers, Foremost is among the top three carriers for

only 11% of agencies writing personal lines, presumably because it is a specialty personal lines carrier. With the exception of Progressive and Foremost, several top carriers have seen small, but significant declines in penetration since 2012. Jumbo agencies are more likely than all other agency size categories to represent Chubb (65%) and Fireman’s Fund (35%).

Four carriers have personal lines relationships with more than one-third of agencies writing personal lines: Progressive, Foremost, the various Liberty Mutual Insurance (LMI) carriers and Travelers.

QD8, Weighted n=1149QD9A, Weighted n=1065QD10, Weighted n=1013


Personal Lines Carriers Represented(mentioned by at least 10%)

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The vast majority of Jumbo agencies represent Travelers (89%) and The Hartford (83%). A number of carriers not in the top ten Small Commercial carriers generally have substantial penetration among Jumbo agencies: Hanover (39% of Jumbo agencies); Cincinnati (33%); and Chubb, Harleysville, ACE, Central Insurance, and Hartford Steam Boiler (28% each).

Since 2012, Small Commercial agency universe penetration has increased for Progressive (from 46% to 56%) and decreased for State Auto (from 18% to 8%).

On average, agencies write 57% of small commercial premium with their #1 carrier, 20% with their #2, and 9% with their #3 carrier.

Progressive, Travelers, Foremost/Zurich Small Business, and The Hartford each have small commercial lines relationships with more than a third of independent agencies.


Small Commercial Lines Carriers Represented(mentioned by at least 10%)


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Most Important Reasons for Choosing Top Carriers for Small Commercial Lines Accounts(Selected Among Top 5 Reasons by 10% or more)

Small agencies are more likely to mention speed of obtaining quotes as a top reason, while Jumbo agencies seek out underwriting flexibility, coverages specifically designed for the client’s industry, and writing both workers comp and other coverages.

Price and ease of obtaining quotes are among the top reasons for choosing a carrier for small commercial lines accounts.

QD14B, Weighted n=572. Question not asked in 2012 or earlier.


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Progressive’s penetration has increased significantly since 2012 (from 25% in 2012 to 42%). At least half of Jumbo agencies represent Travelers (75%), The Hartford (69%), CNA (69%), Liberty Mutual (63%), Chubb (63%), Hanover

(50%), and AIG (50%) for medium commercial lines. On average, agencies write 56% of medium commercial premium with their #1 carrier, 20% with their #2, and 9% with their #3 carrier.

For medium commercial lines, Travelers, The Hartford and Progressive have the highest penetration, followed by Liberty Mutual and Foremost/Zurich Small Business.


Medium Commercial Lines Carriers Represented(mentioned by at least 10%)


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Most Important Reasons for Choosing Top Carriers for Medium Commercial Lines Accounts(Selected Among Top 5 Reasons by 10% or more)

“Second-tier” criteria (behind price) revolve around underwriting flexibility, responsiveness, and underwriter relationships.

Most independent agents cite price as a top factor in selection of a medium commercial lines carrier, followed by ease of obtaining quotes.

QD18A, Weighted n=323. Question not asked in 2012 or earlier.


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Among agencies with industry specialization(s), an average of 58% of medium commercial lines revenue comes from the specific industries in which the agency specializes.

Four in ten agencies specialize in construction and contractors, and almost half of those agencies feel improvement is needed in terms of specialized products and services.

QD18B, Weighted n=397; QD18D, Weighted n=bases vary by row; D18C, Weighted n=225. Questions not asked in 2012 or earlier.


Percent Who Specialize or Have Particular Concentration/Expertise in Specific Industries

(mentioned by more than 5%)

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Predictably, Jumbo agencies represent more carriers than smaller agencies for large commercial coverages. This year, agencies report a higher concentration of accounts with their #1 carrier. On average, agencies place 64% of their large/very large

accounts premium with their #1 carrier (up from 56% in 2012), 17% with their #2 carrier (down significantly from 20% in 2012), and 6% with their #3 carrier (down from 8% in 2012).

Travelers, The Hartford, and Liberty Mutual are top carriers for large commercial lines.



Large Commercial Lines Carriers Represented(mentioned by at least 10%)

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Most Important Reasons for Choosing Top Carriers for Large Commercial Lines Accounts(Selected Among Top 5 Reasons by 10% or more)

Over half of agents say that price, industry-specific coverage, and underwriting relationship and flexibility are key carrier selection criteria for large commercial lines accounts.

QD23, Weighted n=222. Question not asked in 2012 or earlier.


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Preferred Channel for Carrier Communications About Capabilities and Appetite Updates

Compared to larger agencies, Small agencies are slightly more likely to prefer phone (9% of Small agencies ranking as most preferred, versus 1% for Jumbo agencies) and less likely to prefer face-to-face interactions (21% versus 39% for Jumbo agencies).

Direct email and face-to-face interaction are the preferred means of carrier communication with agencies.

QD24, Weighted n=2331. Question not asked in 2012 or earlier.


% ranking among top 3

60%

59%

39%

34%

31%

26%

23%

17%

7%

3%

3%

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For both new and renewal business, Small agencies are most likely to average 20%+ of policy premium (27% of Small agencies) while Medium-Large, Large and Jumbo agencies are more likely to average 15-17.49% (36%-39% of these agencies).

QD3D, Weighted n=2065, 2071. Question not asked in 2012 or earlier.

For the majority of agencies, commissions average between 10% and 17.5% of policy premium for standard personal lines auto business. This is the case for both new business and renewals.


Average Percent of Policy Premium Received from Carriers on Standard Personal Lines Auto Business

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Use of Carrier Marketing Support

Jumbo agencies are particularly likely to use printed marketing pieces without carrier co-branding (73% use at least sometimes) as well as unbranded website content (63% use at least sometimes).

Although agencies get a wide variety of support, they are most likely to use carrier support for agency advertising and co-branded print marketing pieces.

QI2B, Weighted n=1118. Question not asked in 2012 or earlier.


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Preference for How Customers Get Routine Customer Service

The majority of agencies strongly prefers that customers get routine customer service from the agency rather than carriers. However, a small but significant minority prefer carriers to provide routine customer service.

QE12, Weighted n=1228, 1226. Question not asked in 2012 or earlier.


Personal Lines Commercial Lines

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The highest users of customer services centers, Large and Jumbo agencies, are most likely to use the centers for both personal lines and commercial lines services.

Two in ten Small agencies, and six in ten Jumbo agencies, use carrier customer service centers.

QE1, Weighted n=1159. Question not asked in 2012 or earlier.


Percent of Agencies Using Carriers’ Customer Service Centers*

* Percent of agencies who “have contracts with one or more carriers in which their customer service centers provide non-claims service to accounts and are responsible for any errors and omissions, in return for a reduction in the commission they pay you.”

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Agency Staff

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All agencies have at least one agency principal so distribution for that position is not charted (2014 mean = 1.7; 2012 = 1.6). The average number of agency principals varies from 1.3 for Small agencies to 3.3 for Large and 8.1 for Jumbo agencies.

On average, agencies report a total of 6.1 staff members across all positions (median = 4.0), ranging from 3.0 staff members for Small agencies to 75.5 staff members for Jumbo agencies.*

The average size of agency staffs (6.2) has not changed since 2012.

* Base for total mean and median calculation is respondents providing an answer for number of employees for all positions (Weighted n=1257)^ indicates significant difference 2012 – 2014Boxed number shows average number in each position among all agencies.QF1, Weighted n=1299-1301

Agency Staff

Agencies With at Least One Staff Member (Full Time or Part Time) in Each Position by Agency Size

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% of Agencies With Each Employee Type by Gender and Ethnicity# of Full-Time Equivalents For Each Employee Type

There were no significant differences 2012 – 2014.QF1A/F2/F3, Weighted n=1258, 373, 695, 896, 266

Agency staffing breakouts by gender and ethnicity are generally comparable to 2012.

Agency Staff

Almost all (92%-96%) agencies in the Medium size category or larger have at least one male principal/senior manager, significantly more than the proportion of Small and Medium-Small agencies with male principals or senior managers (73%-85%).

5% of newer agencies (established within past five years) have at least one American-Indian or Alaska Native principal, versus 1% of established agencies.

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Agencies with Minority Principal(s) vs. Other Agencies: Key Differences*

*The ethnicity break-outs were defined by F3, a Version 1 question. As a result, only these agencies can be profiled against questions in one version of the questionnaire.

The United States is moving toward a “majority minority” population, in which minority groups outnumber what has been the majority population group, non-Hispanic whites or Caucasians. In the long run, the independent agency system needs to address and reflect this fundamental demographic change.

Agency Staff

To help assess where independent agencies stand in this regard, we compared agencies with at least one principal from a minority group to those with no minority principals.

Some caution is warranted given small sample sizes, although differences noted reached statistical significance. The half of the sample asked about staffing included 92 agencies with any non-white ownership and 871 agencies with no non-white ownership. On a weighted basis, 9.5% of agencies have at least one minority principal while 90.5% have no minority principals, versus a population that is about 36% non-white.

Although agencies with minority ownership are smaller than average (27% Small vs. 16% of agencies with no minority ownership), on average they are much younger, and they may well be growing more rapidly than agencies with no minority ownership.

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About one-third of agencies hired new producers between 2012 and 2014, similar to the hiring rate seen between 2010 and 2012.

^ indicates significant difference 2012 – 2014QF5, Weighted n=1221, 1218

Agency Staff

Number of New Personnel in Past Two Years

As would be expected, rates of hiring increase in relation to agency size (for example, 75% of Jumbo agencies hired a new producer in the past two years, and 84% hired new support staff).

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Type of Compensation Offered to Producers

Three in ten offer health insurance, and two in ten offer life insurance/other employee benefits as well as a pension or 401(k). Other types of compensation are offered by fewer than 10% of agencies.

Of course, larger agencies are more likely to offer multiple types of compensation than smaller agencies with fewer resources.

The majority of agencies compensate producers with commission and salary, and four in ten also offer bonuses.

QF13, Weighted n=1113. Question not asked in 2012 or earlier.

Agency Staff

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Type of Formal Training Provided to New Producers

Almost half of agencies also offer new producers an introduction to insurance concepts and coverages as well as training on sales skills development.

These three top areas of training are also deemed most valuable to agents. Larger agencies are more likely to offer various forms of training, and are particularly likely to value training on sales skills development

(75% of Large agencies and 72% of Jumbo agencies).

Seven in ten agencies offer formal training for new producers, most often involving carrier-specific product knowledge.

QF8B, Weighted n=907, 900. Question not asked in 2012 or earlier.

Agency Staff

52%

41%

50%

21%

20%

14%

10%

% Selecting Among Top Three Most Valuable Areas of Training

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Use/Interest In Carrier-Provided Sales Training

Almost half of agencies have sent producers to carrier-provided sales training, and another third would like to do so. One-fourth are not interested in this type of training.

F8C, Weighted n=1103; F8D, Weighted n=506; F8E, Weighted n=845. Question not asked in 2012 or earlier.

Agency Staff

34% of Small agencies, versus 83% of Jumbo agencies, have sent producers to carrier-provided sales training. Almost one in three (28%) Small agencies say they are not interested.

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The proportion of agencies with formal social media policies varies, from a high of 67% among Jumbo agencies to a low of 27% among Medium-Small agencies. A social media content policy was defined in the survey as a policy that describes what agency personnel can and cannot post on the agency’s social media websites/accounts.

# of Staff Hours Per Week Devoted to Social Media Activities*

Agencies that incorporate social media into their marketing programs spend an average of 3.5 staff hours per week on social media activities.

QI3C, Weighted n=398; QI3D, Weighted n=497. QI3C revised in 2014. QI3E not asked in 2012 or earlier.

Agencies With Social Media Content Policy for Staff*

Agency Staff

* Asked among those that include social media in marketing program.For

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Technology

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Technology Challenges - % Ranked 1, 2 or 3

Half of agents feel that dealing with multiple carrier interfaces is a top technological challenge. Marketing the agency effectively on the Internet, the overall cost of technology, and keeping pace with technology advances are also key challenges.

QL1, Weighted n=964. Question revised in 2014.

Technology

Small agencies feel particularly challenged to market their agency on the internet; Jumbo agencies are most likely to be challenged in staff adoption of new workflows/technologies.

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Perceived value of comparative raters is relatively high (generally, 60% or more).

Half of agencies use comparative raters, with use of EZLynx and PL Rating most widespread.

QL7C, Weighted n=1123; QL7B, Weighted n=Bases vary by comparative rater. Questions not asked in 2012 or earlier.

Comparative Raters Used Most Often For Personal Lines

Technology

+ Caution: Base size less than 20. For

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Eight in ten agencies use agency management systems; AMS360 and TAM continue to have highest penetration.

^ indicates significant difference 2012 - 2014QL8A, Weighted n=1078

Agency Management Systems Used(mentioned by at least 2%)

Technology

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85^ indicates significant difference 2012 - 2014QL8B, Weighted n=663

Among users of agency management systems and/or comparative raters, most agencies can access multiple carriers in real time through the systems.

Technology

Number of Carriers Accessed in Real Time Through Agency Management System or Comparative Rater

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QL10, Weighted n=594-726. Question revised in 2014.

Agencies place a great deal of value on agency management system functions such as customer view/search and inquiries for personal lines.

Technology

Value of Transactions/Functions Through Agency Management System: Personal Lines(Among Agencies that use an Agency Management System)

6/7 on 7‐point scale, 7=extremely valuable

Carrier loss runs are important to 63% of Jumbo agencies.

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QL10B, Weighted n=401-480. Question revised in 2014.

Real-time auto and homeowners quotes are the most valued functions of comparative raters.

Technology

Value of Transactions/Functions Through Comparative Rater: Personal Lines(Among Agencies that use a Comparative Rater)


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88QL12, Weighted n=559-697. Question revised in 2014.

All commercial lines transactions through an agency management system are valuable to a majority of agencies. Like personal lines, customer view/search and inquiries are most valuable – but only by a slight margin.

Technology

Value of Transactions/Functions Through Agency Management System: Commercial Lines(Among Agencies that use an Agency Management System)


*Removed from question base for data shown in graph.

Jumbo agencies are most likely to value claims reporting (76%) and carrier loss runs (75%).

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Between six and seven in ten agencies use personal lines, commercial lines, and direct bill commission statement download tools.


Processing Technologies Used

Technology

E-policy delivery is more common than e-billing. For some processing technologies, usage increases with agency size, with Jumbo agencies particularly likely to use the technologies. For

example, 78% of Jumbo agencies use paperless office technology for personal lines, 62% do so for commercial lines, and 72% of Jumbo agencies use e-mail encryption.

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Activity notifications from carriers are most common form of communication technology used (57% of agencies), while mobile apps are least common (less than 10% of agencies).


Electronic and Communication Technologies Used

Technology

Jumbo agencies are particularly likely to use tablets/smartphones (49%) and an intranet (52%); Small agencies are most likely to text with clients (41%).

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Attitudes Towards Technology6/7 on 7‐point scale, 7=strongly agree

One-third (37%) of agencies emphasize digital marketing, varying from 44% of Small agencies to 38% of Jumbo agencies. Over half of Jumbo agencies have implemented a security policy (57%) and written a disaster recovery plan (56%).

Fewer than half of agencies feel they have made significant advances in productivity through use of new technologies, down from the half of agencies who felt this way in 2012.

^ indicates significant difference 2012 - 2014QL17, Weighted n=945-987

Technology

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Perceptions of Electronic/Digital Resources6/7 on 7‐point scale, 7=strongly agree

Few measure return on investment for digital or social media marketing, or for traditional marketing. In fact, the percentage of agencies doing so has dropped since 2012.

55% of agencies established within the past two years (versus 29% of established agencies) say they have seen cost savings by offering customers paperless communications.

Roughly one-third of agencies have realized cost savings by using paperless communications. A similar proportion feels that insureds are equally receptive to e-documents and paper documents.

^ indicates significant difference 2012 - 2014QI12, Weighted n=420-976. * Item base revised in 2014. **Asked only among those who include digital/social media in marketing program.

Technology

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Attitudes and Perceptions

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Extent to Which Agencies Find Each Item Challenging6/7 on 7‐point scale, 7=extremely challenging

Generally, Small agencies feel more challenged by most of these items. Notably, however, agencies of all size categories are equally likely to say that maintaining experienced producers is challenging (36% of

Small agencies compared to 39% of Jumbo agencies).

Growing commercial lines and personal lines business and finding carriers who maintain their commitment to agencies’ markets are identified as top challenges for agents.

*/** Asked only for respondents who write personal lines/commercial lines, respectively.QG4, Weighted n=1022-1127. Question not asked in 2012 or earlier.


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Insurance Business Environment6/7 on 7‐point scale, 7=strongly agree

Six in ten want training for selling on value, and just over half say that reputation and brand influence the carriers they choose to market. About half also need a way to identify prospects searching for insurance on the Web, varying from 64% of Small agencies to 43% of

Jumbo agencies.

Despite the abundance of technological options, 71% still want carrier reps they can meet face-to-face.


*/** Asked only for respondents who write personal lines/commercial lines, respectively.^ indicates significant difference 2012 - 2014QG1, Weighted n=1091-1164

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Insurance Business Environment (cont’d)6/7 on 7‐point scale, 7=strongly agree

Most respondents believe that insureds are still purchasing insurance in traditional ways, leaving carrier decisions to agents and reporting limited use of/need for mobile apps.


*/** Asked only for respondents who write personal lines/commercial lines, respectively.^ indicates significant difference 2012 - 2014QG1, Weighted n=1091-1164

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Agency Perpetuation Planning

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The average age of principals with 20% or more ownership in their agencies is 56 years old, with 18% of those principals age 66 or older (compared to 10% in 2012).

^ indicates significant difference 2012 - 2014QH9, Weighted n=993


Age of Principals With 20+% Ownership

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Agency Perpetuation Tools In Place

From a list of eight tools evaluated, only four are currently in place at more than 10% of independent agencies. There have been no changes in the use of agency perpetuation tools since 2012.

14% of agencies, and 27% of Small agencies, have none of the listed agency perpetuation tools or plans in place.

^ indicates significant difference 2012 - 2014QH10, Weighted n=993.


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Have Formal Business Plan

Over half of Medium-Large (62%), Large (72%) and Jumbo (93%) agencies have formal business plans.

Only half of agencies have a formal business plan, usually including some type of written goals for growth and/or retention.

^ indicates significant difference 2012 - 2014QH4, Weighted n=1094


Included in Business Plan

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Most Recent Plan Preparation/Update

* Options in 2012: 2011 or 2012, 2010, Prior to 2010.^ indicates significant difference 2012 - 2014QH5, Weighted n=555

Agencies that have formal business plans update them frequently, suggesting that they are an important part of the operation.


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Time At Which Agency Anticipates Major Ownership Change (involving at least 20% of agency ownership)

The vast majority (82%) of agencies do not anticipate a major ownership change for at least three years. Six in ten do not anticipate a change for more than five years.

QH11, Weighted n=1133. Question not asked in 2012 or earlier.


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Ties to the Industry

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The decline in readership for Independent Agent may be due in part to the expanding number of sample sources in 2014. Results for IIABA members are shown on the next page.

Readership of e-newsletters increased by 5% between 2012 and 2014. This may have contributed to a decline in print readership. Information on the much longer list of publications included in the research is available in the cross-tabulations.

Independent Agent remains the most common information source. Readership of several sources as decreased, even as the average number of sources read increased from 2012.

^ indicates significant difference 2012 – 2014QJ1, Weighted n=1083

Information Sources Read Regularly – All Agencies(mentioned by at least 10%)


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105^ indicates significant difference 2012 – 2014QJ1, Weighted n=491

Among IIABA members, Independent Agent’s readership continues to be nearly twice that of any other publication.

Information Sources Read Regularly – Agencies From IIABA Member List(mentioned by at least 10%)


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% Following Insurance-Related Topics on Twitter

Fewer than one in ten are currently following insurance-related topics on Twitter.

QJ3, Weighted n=1155. Question not asked in 2012 or earlier.


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Professional Organization Memberships – All Agencies(mentioned by at least 5%)

* The list shown to respondents included nine additional organizations, none of which had membership above 4%. ^ indicates significant difference 2012 – 2014QJ2, Weighted n=1112

Other than IIABA and, to a lesser extent, PIA, professional organizations have relatively low membership among independent agents.


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Professional Organization Memberships – Agencies From IIABA Member List(mentioned by at least 5%)

* The list shown to respondents included nine additional organizations, none of which had membership above 4%. ^ indicates significant difference 2012 – 2014QJ2, Weighted n=510

Among agencies from the list provided by IIABA, self-reported membership in IIABA has not changed significantly since 2010.


Among IIABA members, membership in PIA has grown since 2012.

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Awareness and Use* of IIABA Initiatives

About half of independent agencies are aware of the Best Practices Program, and about one-third are aware of Project CAP and ACT. Among those aware, Project CAP sees highest use (44%).



* “Use” = “currently participate in or use study findings from any of these programs.”For

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Awareness and Use* of IIABA Initiatives – Agencies From IIABA Member List

Seven in ten IIABA members are aware of the Best Practices Program, and half are aware of Project CAP. Among those aware of each program, Project CAP has highest involvement levels.



* “Use” = “currently participate in or use study findings from any of these programs.”For

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Appendix ASupplementary Data

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Table A-1Changes in Total Revenue by Agency Size

+ Caution: 4 participantsA9B/B2, Weighted n=2785

Change in Total Revenue (2012 to 2013 and 2010 to 2011)

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Table A-2Changes in Personal Lines and Commercial Lines Revenue by Agency Size

+ Caution: 6-10 participantsQA9B/B2, Weighted n=2680; Weighted n=2679

Change in Personal Lines Revenue 2012 vs. 2013

Change in Commercial Lines Revenue 2012 vs. 2013

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QK1, Weighted n=3007; QK2, Weighted n=2999

Respondent Profile

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115QK4A, Weighted n=2339QK4B, Weighted n=2049

Respondent Profile (cont’d)

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116QK5, Weighted n=1986QK3, Weighted n=2322

Respondent Profile (cont’d)

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Appendix BAdditional Details on Methods

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Estimating the Total Number of Independent Agencies and their Distribution by Size

The Agency Universe Study includes estimating the total number of independent property/casualty agencies in the United States. This is one of the AUS research objectives because other sources, such as the various studies carried out by the Census Bureau and the Dun & Bradstreet database, do not differentiate between life/health and property/casualty agencies or between exclusive and independent agencies.

To estimate the total number of independent property/casualty agencies and their distribution by size categories, as well as to weight individual responses in the survey data, we used methods similar to but not exactly the same as those used in the past few studies.

First, as in the past we started from the Dun & Bradstreet database, which is considered to be the most comprehensive database on U.S. businesses (excepting U.S. Census data, which is not disclosed for specific firms). We drew extracts from D&B through their Hoover’s online system. We selected records from D&B using the following criteria:

NAIC code 52421, insurance agencies and brokerages

52421 is the organization’s primary NAIC code; thus, we excluded businesses for which insurance agent and/or broker activities are secondary lines of business

Not home-based businesses. We excluded home-based businesses because we think very few if any independent property/casualty agencies fall into this category, mainly because of the need for face-to-face interaction in the insurance agent’s office. This is not to say that no independent agencies operate in offices attached to or even part of residential structures but not actually used as living space.

U.S. based businesses, or businesses that derive most of their revenue from the United States; the main example of a non-U.S. based brokerage that derives a great deal of its revenue from the United States is Willis, headquartered in London.

Agency or brokerage headquarters or sole location only; we used this criteria because we wanted to count organizations, not locations.

The total count of organizations meeting these criteria appearing in D&B/Hoover’s database and including revenue estimates was significantly lower than that obtained in 2012. This difference is most likely the result of recent maintenance and updates to the D&B database. Early in 2014, D&B carried out procedures to eliminate inactive businesses from their database. It is unclear how the changes may have differentially impacted insurance agencies and/or independent P&C agencies specifically, but the changes reduced the total number of insurance agencies and brokers in the database substantially. For this reason, we explored other sources for an estimate of the total number of agencies and brokerages, but we used the D&B database counts to approximate the proportion of independent P&C agencies that fall into each revenue category.

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Estimating the Total Number of Independent Agencies

To determine the total number of agencies/brokerages of all types, we consulted Census of Business data, as well as data from the US Department of Labor, Bureau of Labor Statistics. According to the Bureau of Labor Statistics, 2013 employment for insurance agencies and brokerages and insurance-related activities was 943,200.

• Assuming 5.1 employees per agency/brokerage establishment (according to the Census of Business), we can assume there are 184,941 agency and brokerage establishments.

• If we assume an average of 1.4 locations per agency with this number (based on the mean number of locations seen in both the 2010 and 2012 AUS research), we can then assume a total of 132,100 unique agency and brokerages.

• We used this number (132,100) as our estimate of the total number of agency and brokerages, and allocated the percent of agencies in each revenue category based on D&B counts. See Table 1, Column B.

We then turned to the D&B database counts to approximate the proportion of these agencies that fall into each revenue category. See Table 1, Columns C and D.

The next step was to determine what proportion of agencies within each revenue category are independent property/casualty agencies. Hoover’s/D&B counts as insurance agencies and brokerages firms selling or placing insurance, regardless of the type of insurance involved and regardless of whether the organizations are independent or exclusive, that is contractually obligated to place all or almost all of their business with a single carrier. The same lack of sub-categories is true of the U.S. Census of Businesses and the separate Census Survey of Business Owners.

To do this, similar to the processed undertaken in 2012, we drew a stratified random sample of agencies from the D&B database, as shown in Table 1, Column E. For organizations with $25,000,000 or more in revenue, we were able to rely primarily on the Business Insurance Top 100 list, cross-referencing it against the D&B/Hoovers data. The Business Insurance Top 100 listing is generally considered the authoritative listing of the largest insurance brokers and is based on information provided to Business Insurance by the organizations themselves. Thus, it was not necessary to use formal procedures to assign these agencies to agency types. For those categories, the “sample” numbers provided are the numbers of agencies actually reviewed.

For the smaller agency size strata, we used sample sizes large enough to keep margins of error to +/- 5.6% for the most populous strata and +/-7.2% for those with fewer organizations. The result was a total sample of 2321 agency/brokerage listings.

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Having drawn the sample of agencies, the next task was to determine the proportion of agencies in each stratum that are independent property/casualty agencies, using a series of methods.

First, we Googled organizations and used resulting information to determine whether the agency was or was not an independent property/casualty agency.

For those agencies unable to be classified based on information found online, we attempted to call and interview agencies to determine whether they sell P&C insurance and are independent agencies. We attempted to contact all of these agencies to administer a very brief questionnaire and succeeded in completing interviews with about one-fourth of them. As in the past, we assumed that agencies that cannot be reached by telephone after a number of attempts during business hours are not independent property/casualty agencies, simply because being available to serve customers is a necessary feature of IAs. Similarly, any organizations with disconnected telephone lines or residential numbers were assumed to not be independent property/casualty agencies.

For those agencies that answered the telephone (or had an answering machine/service) but did not complete the interview, we made after-business-hours-calls to see if their answering machine message indicated the type of agency they were. Similar to 2012, messages that mentioned no business at all were classified as “not independent property/casualty agencies,” on the assumption that independent agencies will want to publicize what sort of business they are.

After these steps, the few agencies we were not able to designate as “independent property/casualty agencies” or “not independent property/casualty agencies” were excluded from subsequent calculations.

Columns F through I of Table 1 show the results of this classification, and the resulting calculations for the total number of independent property/casualty agencies. Column H shows the percentage of agencies in each category that are independent property/casualty agencies. In Column I, these percentages are multiplied by the corresponding figures in Column D to obtain an estimate of the numbers of independent property/casualty agencies in each category. These numbers are added together to provide the total estimate of independent agencies.

Our estimate of the total number of independent property/casualty agencies is 38,656 which – rounded to 38,500 – is the same as the 2012 estimate.

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**There were a few categories for which the estimated proportion of independent agencies was higher this year than in 2012. To help verify our estimate, we pulled a second random sample from two of these categories (.25 to .499 and .50 to 1.24999) and had a second coder conduct the classification process. For both categories, the second estimate was consistent with the initial estimate (within 1%).

**

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Weighting the Survey Data

Survey data are weighted to make the survey results representative of the entire population. Table 2 (on the next page) provides an overview of how this was done for the 2014 Agency Universe Study.

• First, we developed weights for the ten revenue categories we asked about in the survey. As shown in Column F, weights were obtained by dividing the estimated percentage of all independent agencies in each category by the number of survey responses for that category, and then multiplying this by the number of total survey responses (n = 3010). These ten categories were used to weight the survey data, to maximize the precision of the weighting.

• In the banner cross-tabulations and report, we combined the ten revenue categories into six reporting categories, as shown in Columns H - J of Table 2. For example, we combined the “under $100,000” with the “$100,000 – 149,999” group, and so forth to obtain the reporting categories.

• Column J shows the percentage of 2014 responses in each of the six reporting categories, and Column K shows the comparable percentages for 2012. The percentage of Small agencies has decreased while the percentage of Medium-Small agencies has increased. Other categories have changed by only 1% of agencies or less.

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Calculating Weights for Survey Responses

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2014 Agency Universe Study - Independent Agent · About Future One and the 2014 Agency Universe...

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Transcript of 2014 Agency Universe Study - Independent Agent · About Future One and the 2014 Agency Universe...