As we look back on 2022, here are three studies from the Big “I" on the state of the independent agency channel and the lessons that can be drawn from them as we move into 2023:

Agency Universe Study: Number of Independent Agencies Grows

The number of independent insurance agencies increased and business conditions for agencies remained favorable in 2022, according to the 2022 Agency Universe Study, which illustrated the resilience of the independent agency distribution channel.

“The 2022 Agency Universe Study shows the resiliency of the independent agency system as it continues to grow and adapt through the challenges of the last couple of years," says Bob Rusbuldt, Big “I" president & CEO. “It is amazing that during the pandemic the independent agency system added nearly 4,000 new agencies. The study also offers insights on how agencies can better prepare themselves for the future. Staffing and marketing are issues for agencies, and the Big 'I' continues its support of independent agencies through resources, programs and guidance to face these challenges head-on." 

However, while the majority of agencies reported revenue increases, the percentage was lower than in the previous study released in 2020. While the agency universe may be finding itself at the tail end of the coronavirus pandemic, COVID-19's impact on agency revenue is just now starting to be felt.

“We see a little bit less growth in some of the agency revenue," said Kristina Witzling, executive vice president at Zeldis Research Associates, during the “2022 Agency Universe Study Highlights" webinar. “2020 was really an uncertain time … they were impacted in their operations, but they didn't really see the revenue changes until 2021-2022, and it's starting to hit now."

The Agency Universe Study by Future One, a collaboration of the Big “I" and leading independent agency companies, is hailed as the most comprehensive look at the independent agency system. The 2022 iteration of the study marked a triumph in agency adaptability in the face of adversity.

“As the independent agency channel recovers from the coronavirus pandemic and weathers economic uncertainties, technology adoption continues to prove itself critical to continued success," says Chris Boggs, Big “I" vice president of agent development, education and research. “Agencies are demonstrating flexibility and progress in digitalization as the insurance industry works together to incorporate tech solutions that support agents' roles as trusted advisers." 

Here are six findings from the 2022 Agency Universe Study:

1) The number of independent agencies increased. In 2022, the estimated total number of independent property-casualty agents and brokers in the U.S. stood at 40,000, an increase from 36,000 in 2020. While mergers & acquisitions activity continued to impact the agency channel, the increase in the number of agencies was driven by small agencies, as agents established their own agencies or moved from the captive to independent space.

2) Business conditions were generally favorable. The majority of agencies—62%—reported increases in total revenue between 2020 and 2021, but this proportion was lower than the 70% in 2020. Twenty-five percent reported a decline in revenue, with an average decrease of 22%. In particular, fewer agencies reported personal lines revenue increases in 2022, 60% compared to 67% in 2020. More than 1 in 5 said the pandemic impacted their operations and revenue.

3) Technology has become a crucial part of operations and customer service. Nearly half (47%) said they have offered more digital solutions to clients due to the pandemic. Usage of mobile apps from carriers increased to 40%, up from 32% in 2020, and apps for clients doubled, now 20% up from 10%.

Yet, challenges with technology continued, with 41% of agencies cited dealing with multiple carrier interfaces as a challenge. While only 7% used a commercial lines rater, 23% planned to do so. One-third saw the need for more carrier application programming interface (API) integration with agency management systems (AMS) and 51% sought more operating efficiencies to help service customers.

4) Principal aging remained stable. The average age of agency principals was 54 years old, with 17% age 66 or older. More than 8 in 10 agencies had a perpetuation plan, on par with 2020, but it often centered around children and family. Meanwhile, similar to 2020, 4 in 10 agencies anticipated some ownership change in the next five years.

5) Finding qualified staff and marketing were key agency challenges. Forty-one percent found it challenging to find and screen job candidates with strong potential, the No. 1 challenge of 2022, which gained slightly from 39% in 2020. The second most challenging issue was having a significant marketing or advertising budget at 36%, up from 30% in 2020.

6) Inclusion gains some ground. In 2022, 47% of agency principals were women, a gain from 42% in 2020, and 83% were white, compared to 88% in 2020. Medium-sized and larger agencies were especially likely to have male principals or senior managers. One in 4 agencies added staff in 2022, and 19% leveraged independent contractors, primarily producers.

In addition to the Big “I," the Future One coalition includes the following company partners: National General, an Allstate company; Amerisure; Central Insurance Companies; Chubb; CNA; Foremost, a Farmers Insurance Company; Grange Insurance; Hartford Steam Boiler (HSB); Liberty Mutual Insurance/Safeco; Nationwide; Progressive Insurance; Selective Insurance; The Hanover Insurance Group; The Hartford; Travelers; and Westfield Group.

Market Share Report: Independent Agents Dominate Commercial Lines

The independent agency channel placed 62% of all property-casualty insurance written in the U.S. in 2022, according to the Big “I" 2022 Market Share Report, which also pointed to independent agencies' dominance in commercial lines, finding that nearly 88% of all commercial lines written premium was placed by the independent agency channel.

The annual Market Share Report compiles and analyzes property and casualty premium data from AM Best and provides insights for agencies and carriers on current market shares by distribution type. 

While independent agencies were the clear leaders in commercial lines, independent agencies in the U.S. also placed 37% of all personal lines premium. Overall, independent agents placed approximately 62% of all p-c premium written in the U.S.

Of the $765 billion in total premium written in the U.S., personal lines accounted for approximately 50% of the total premiums, just over 38% came from commercial lines, and the remaining 12% was “unclassified" coverage that could not easily be categorized as either personal or commercial lines. Independent agents place approximately 85% of this “unclassified" business.

“The demise of the independent agency channel has been predicted by various sources for many years, but the Market Share Report affirms the reality that independent agents have and continue to place the majority of all p-c business," Boggs says. “In particular, independent agents continue to prove their dominance in commercial lines."

Within the top 10 lines written by independent agents, workers compensation was the only line that did not see at least some growth in the percentage written by the independent agency channel between 2017 and 2021. All other lines saw the percentage written by independent agents remain steady or grow. 

Best Practices Study: Highs in Organic Growth and Profitability 

As the independent agency channel moves past the coronavirus pandemic and into uncertain economic headwinds, Best Practices agencies demonstrated strong organic growth and profitability, according to the 2022 Best Practices Study by the Big “I" and Reagan Consulting.

The Best Practices update is the first one in its three-year cycle, examining the newly qualified Best Practices firms throughout the nation that have been recognized for outstanding management and financial achievement. The annual study, conducted jointly in a longstanding partnership between the Big “I" and Reagan Consulting since 1993, provides critical performance benchmarks in six agency revenue categories ranging from under $1.25 million to over $25 million.

“The past few years have brought challenges for independent agencies and their clients, but top-performing agencies have demonstrated resiliency as they've weathered these obstacles to grow their businesses and even break study records in numerous categories," Boggs says. “These industry leaders are setting the bar and demonstrating the independent agency channel has never been healthier."

Best Practices agencies are writing the playbook for success and agencies can look to these strategies to guide them toward operational excellence as they seek to better serve their clients. In particular, the organic growth and profitability metrics are the cornerstones of Best Practices agencies.

Most notable, Best Practices agencies charted a significant increase in organic growth. “This performance in a pandemic is nothing short of remarkable," said Tom Doran, a partner with Reagan Consulting, in the “2022 Best Practices Highlights Webinar" held after the study's release.

Key findings from the 2022 Best Practices update include:

1) Organic growth surges. At 9.2%, organic growth was 2.5 times last year's results of 3.7%. Organic growth increased in all six revenue groups in this year's study.

2) Profitability remained at all-time highs. At 26.2%, Best Practices agency profitability went up slightly from 26.0% last year.

3) The Rule of 20 achieved a record high. The Rule of 20, calculated by adding 50% of profitability to organic growth, reached a record high of 24.0 in this study versus 18.0 in the previous study. The Rule of 20 is the best metric to gauge overall agency health, according to Reagan. 

4) Mergers & acquisitions bolstered growth. In the 2022 study results, 22.3% of Best Practices agencies acquired a business, up from 16.4% in the previous study.

5) Producer recruitment and development proves challenging. Net unvalidated producer payroll (NUPP), a measure of producer recruitment and development, remained at 1.1% of net revenues compared to 1.2% in the previous study. A healthy NUPP investment would be 1.5%-2.0%, according to Reagan, which is an indication that agencies should consider redirecting a portion of today's record profits toward investing in new producers.  

6) Shareholder and producer ages hold steady. The weighted average shareholder age (WASA) was 53.2 years, and the weighted average producer age (WAPA) was 48.6. Agencies should manage these two metrics carefully as lower WASA and WAPA are critical to long-term agency perpetuation. 

As the independent agency channel heads into an uncertain 2023, Doran encourages agencies to focus on the metrics in the Best Practices Study. “We encourage our industry to continue getting younger," he says. “One of the dynamics that we've struggled with for the last three decades of this study is that we've struggled to track and develop enough young talent in the industry."

“Profitability is super important, but growth is really the most important driver of our economic viability, and so we want to continue to focus on new business activity," he adds.

AnneMarie McPherson Spears is IA news editor.

For more information on Big “I" research, check out the Big “I" Research webpage and the Big “I" Best Practices Study webpage.