2021 Best Practices Study Update Released
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Despite early concerns in 2020 regarding the coronavirus pandemic, Best Practices agencies adapted quickly to a remote work strategy to serve their customers and posted remarkable results, according to the 2021 update of the Best Practices Study by the Big “I" and Reagan Consulting.
The Best Practices Update is the final one in its three-year cycle, examining the firms that qualified as a 2019 Best Practices Agency. The study provides critical performance benchmarks in six agency revenue categories ranging from under $1.25 million to over $25 million.
“Top-performing agencies went above and beyond expectations to help their communities during the difficult environment of the coronavirus pandemic," says Madelyn Flannagan Big “I" vice president of agent development, education and research. “This isn't the first time the independent agent channel has persevered through tough times—agencies can look to these industry leaders to measure, evaluate and learn from winning agency operations strategies as we look toward the future."
The Best Practices Study analyzes takeaways from nominated Best Practices firms throughout the nation for outstanding management and financial achievement, in categories such as income and expense distribution; revenue and profitability growth; sales and service staff compensation and productivity; technology expenses; and property-casualty and life-health carrier representation.
“These stellar agencies demonstrated the importance of seizing opportunities despite challenges," says Tom Doran, a partner with Reagan Consulting. “In particular, organic growth and sales velocity persevered remarkably well in light of the pandemic-driven realities for the year, nothing less than a huge win for the industry."
Key findings from the update include:
- Organic growth was better than anticipated. Organic growth averaged 3.7%. While this is down from 7.0% in the 2020 Best Practices Study, given the coronavirus restrictions in place, this organic growth result was surprisingly robust and exceeded by a wide margin projections made early in the pandemic.
- Sales velocity held despite challenges. Sales velocity moderated from 15.5% in the 2020 Best Practices Update to 13.2% in 2021—a victory in the pandemic era.
- Profitability hit an all-time high. Profitability, as measured by pro forma earnings before interest, income taxes, depreciation and amortization (EBITDA), averaged 26%—up 6.7 points compared to 2020. This profitability surge is largely a result of COVID-19 cost savings, with travel and entertainment expenditures falling to 0.7% of net revenue in 2021 from 2.1% in 2020. Property-casualty contingency income, a major profitability lever, increased from 6.6% of net revenue in 2020 to 8.1% in 2021.
- Mergers & acquisitions continued its run. With 718 reported transactions, more agencies sold in 2020 than ever before in the industry's history.
- Shareholder and producer ages hold steady. The weighted average shareholder age (WASA) was 53.5 years in the 2021 update, and the weighted average producer age (WAPA) was 49.7. Internal perpetuation for agencies with materially higher WASA and WAPA scores may prove challenging.
This is the 28th edition of the annual Best Practices benchmarking analysis. The annual Best Practices Study began in 1993 as a joint initiative between the Big “I" and Reagan Consulting and studies leading agencies and brokers in the country to help independent agents build the value of their agencies.
To order a copy of the 2021 Best Practices Study update, visit the Big “I" Best Practices webpage.
