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5 Trends Poised to Disrupt Producers’ Financial Success

5 Trends Poised to Disrupt Producers’ Financial Success

5 Trends Poised to Disrupt Producers’ Financial Success
October 18
09:44 2018

5 Trends Poised to Disrupt Producers’ Financial Success

By Michael Wayne

Unless you own your agency, there’s a good chance you’ve thought about the fact that your book of business isn’t actually your book of business. In case you haven’t been paying attention, mergers and acquisitions are on the rise. While that may be good for some, it may not be good for you. In fact, everything you’ve worked for and all the plans you have in place could be in jeopardy. Now may be the time to take a step back and consider how current trends could affect your personal bottom line.

What do you mean, “We’ve been sold”?

Private equity firms are targeting independent agencies for acquisition at an increasing rate because of high valuations. Strong growth accounts for the attraction, and so do quick ROI, low risk, high retention rates, and almost guaranteed income. Even when the economy is faltering, insurance is a necessity, which helps to make agencies a strong investment.

Why are M&A continuing?

The economy has improved and is thriving. As long as interest rates remain low and equity markets are stable, there is no reason to think M&A won’t be a vital component of growth in the agency/brokerage segment. For private equity firms, this is creating a cycle: purchase an agency, keep it for several years, sell it, repeat.

One negative side effect for the insurance industry is that seasoned producers are leaving before their replacements have reached similar levels in their books of business. From an investor’s perspective that means that inevitably the time will come when available firms with high returns are few and far between.

What happened to my commissions?

Above all else private equity firms want to maintain or improve the status quo when it comes to the performance of their acquisitions. Top producers may be left holding the bag by owners who sell their agencies and move on. That bag can be a jumbled mix, and it typically includes ultimate responsibility for drumming up new business. It also may include a private equity firm’s decision to lower commissions to reach specific goals. Absent an ironclad agreement that M&A are not to affect commission levels, producers can find themselves with no voice in the matter.

Where is everybody going?

The average age of producers is moving past 60. Many of these individuals will be eligible for retirement soon. At this point the Millennial generation is not poised to flood the market with replacements. Without an influx of new blood, agency owners must try to persuade Baby Boomers to remain in the workforce longer to provide insight and impart experience to a generation that may be less than enthusiastic. What’s more, producers who are left behind after an acquisition may not want to assume leadership responsibilities or serve as mentors to younger producers.

Premium rates are changing again?

Most lines are seeing premium decreases whereas others are increasing. For instance, in June 2018, HealthPayer Intelligence reported that health insurers in several states have proposed 2019 rates that could increase between 10% and 90% above this year’s rates.

Obviously lower rates bring in less revenue, but the upswing in the economy has caused organizations and individuals to look for increased limits and additional lines of coverage. It’s essential for producers to monitor rate trends and adjust expectations accordingly.

Explore your options

Ideally you have a good read on your agency’s leadership. In any event you need to look around and ask yourself some fundamental questions about what’s happening with your agency:

  • Is leadership looking/being pressured to sell?
  • Is leadership investing in technology?
  • What is the agency’s succession plan?
  • Where would I stand if leadership sold the agency today?

If you think you may find yourself in a pressure-filled situation as the result of your agency’s being acquired, where you’re being told to accept less when you’re being asked to do more, you need to evaluate your plan and explore your options.

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