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Since 1993 the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a "must have" for those agencies that want to become the best they can be. The 2007 Best Practices Study provides critical performance benchmarks in six agency revenue categories ranging from Under $1,250,000 to Over $25,000,000. Agencies can measure, evaluate, and compare results for agency operations including:
This year's study offers a more comprehensive look at the 195 agencies selected as the 2007 Best Practices Agencies. In addition to their financial and operational results, the study also takes a look at a variety of management issues including:
Several new performance benchmarks have been added including a more detailed breakdown of revenues and expenses, and the "Rule of 20" score that indicates whether shareholder value is being created. (For more details see below.)
What's New This Year Revenue and Expense Breakout In the past the study has consolidated revenues and expenses into fairly broad categories making some comparisons difficult. Factors such as corporate structure (e.g., C corporation versus S corporation) further complicated expense comparisons because of what was or was not reflected on the income statement. This year the study provides greater detail for both revenues and expenses which provides more meaningful benchmarks for better "apples-to-apples" comparisons. The new breakdowns include: Source of Revenues — Bond revenues have been separated from Commercial P&C commissions & fees for a more accurate look at P&C sources of revenues. A new line, Value Added Services, has been added under both P&C and L&H to show fees derived from the delivery of such services. Compensation Expense — Both Payroll and Benefits have been broken down to provide a better understanding of the participating agencies' costs—what costs are somewhat fixed (payroll taxes) versus discretionary costs (retirement benefits, insurance, etc.). Selling & Operating Expense — These expense categories now include greater detail, including any depreciation and amortization expense associated with the category. This allows for a more accurate picture of the total expenses incurred as both cash (e.g. monthly lease payment) and non-cash expenses (e.g. computer depreciation expense) are captured. The "Rule of 20" Score In recent years, Reagan Consulting has developed a metric called the "Rule of 20" to provide a quick means of calculating whether or not an agency is creating significant value for its shareholders. It is the sum of an agency's pro forma EBITDA margin times 50% plus their organic revenue growth rate. So, for example, an agency that generates an EBITDA margin (as a percent of revenue) of 20% and grows organically by 10% achieves a "Rule of 20" score of exactly 20%. (20% times 50% plus 10% = 20%.) The higher the score, the better. The secret to the Rule of 20 is the weighting of the relative importance of organic growth versus EBITDA when it comes to creating shareholder value (the weighting is 2 to 1). Generally speaking, an outcome of 20 means an agency is generating a shareholder return of approximately 15%-16%, which is commonly viewed as the "expected" rate of return for a well-run insurance agency. A score of less than 20 indicates room for improvement, while a score above 20 is outstanding. In 2006, only one public broker, Brown & Brown, achieved a Rule of 20 outcome of 20 or more, as is shown in the table below.
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The
comprehensive 2007 study can be purchased from the Independent
Insurance Agents & Brokers
of American (IIABA) Education Department. Order forms can be downloaded
at http://bp.reaganconsulting.com/ or at www.independentagent.com.
For more information please call 1-800-221-7917.
About the Study The History The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (IIABA) to help its members build and maintain the value of their most important assets, their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or adapted for use in improving agency performance, thus enhancing agency value. The IIABA retained the principals of Reagan Consulting to create and perform the first Best Practices Study. Annual updates conducted by Reagan Consulting continue to provide important financial and operational benchmarks, and the study is recognized as one of the most thoughtful, effective and valuable resources ever made available to the industry. The Process Once every three years, the IIABA asks insurance companies, state association affiliates, and other industry organizations to nominate for each of the studies' revenue categories those agencies they believe to be among the better, more professional agencies in the industry. The nominated agencies are then invited to participate. They must be willing to share key business practices/philosophies and to complete an in-depth survey detailing their financial and operational year-end results. Those results are then scored and ranked objectively for inclusion on the basis of operational excellence. This year, the beginning of a new three-year study cycle, more than 800 independent agencies throughout the U.S. were nominated to take part in the annual study, but only 195 agencies qualified for the honor. To be chosen, the agency had to be among the 25-35 top-performing agencies in one of six revenue categories. Their year-end results and business practices were compiled to create the 2007 Best Practices benchmarks. Taking part in the Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in the country. Those agencies that believe they have the qualities of a Best Practices Agency and wish to be nominated should contact their state association. About the Best Practices Gateway Website The electronic Executive Update of this study can be accessed via the websites of IIABA (www.iiaba.com) and Reagan Consulting (www.reaganconsulting.com) or directly at (http://bp.reaganconsulting.com/). From the Best Practices Gateway home page users can to do the following:
Other Best Practices Studies and Tools In addition to the annual Best
Practices Study, many other useful
studies, resources, and tools are available to help agencies improve
their performance and enhance the value of their businesses. Two
of the most frequently used tools are The Agency
Self-Diagnostic Tool and the Joint Agency Company Planner. These Best Practices tools
are part of a complete line of Best Practices products and services.
Order forms can be downloaded from (http://bp.reaganconsulting.com/). If You Have Questions If you have questions about the information published in the 2007 Best Practices Study please contact the IIABA Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545. |