Today's Viewpoint: A MarshBerry Publication

According to respondents from MarshBerry’s 2021 Organic Growth Pulse Study (Study), insurance agencies and brokerages indicated, on average, that their revenue increased by 9% during 2020. Even with economic challenges in 2020, 70% of respondents indicated that profitability at their firm was higher in 2020 vs. 2019. Respondents reported an average EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) of 23.0% for 2020 with more than half of respondents expecting higher profitability in 2021, driven by hardening pricing, economic recovery, and continued growth.

More than 70% of respondents in the Study indicated they believed their growth was driven at least in part by the hard market. On average, 3.6% of revenue growth was attributable to the hard market environment. The hard market environment is currently being driven by several factors that include: the increase in severity of losses, low interest rates, and prior years of softer pricing. The severity of losses is unlikely to abate, given the rise of catastrophic natural events in the property market and ransomware losses in the cyber market. Interest rates may also remain low, with the Fed keeping the target range of the benchmark federal funds rate at zero to 0.25% at its latest April meeting, unchanged since March 2020.

Study respondents reported organic growth at an average of 7.5% with the another 1.5% from acquisition growth. The 7.5% organic growth rate reported during the Study is significantly higher compared to the average in MarshBerry’s proprietary financial management system Perspectives for High Performance (PHP) – which was 4.6% for 2020. It should be noted, however, the Best 25% of all agencies in PHP saw 14.8% organic growth during 2020.

While hiring producers is the top focus that respondents named as most important to improving organic growth, they also saw this area as the biggest challenge. Non-producing salespeople was the leading challenge for insurance brokerages, and the lack of producers came in second in the Study. Again, this was consistent with respondents’ views in 2019 as well, with non-producing sales staff being the top challenge.

Looking forward into 2021:

  • Respondents expect a total growth rate of 9.6%, with a bump in organic growth (8.5%) and acquisition growth of approximately 1.1%. According to the Study, the Best 25% projected 16.5% organic growth and 0.7% acquisition growth. It’s likely that the market will see an uptick in growth for many firms due to the hard market conditions and increased economic activity.
  • Respondents were optimistic that the overall economy would be better in 2021, with over 60% seeing an improvement. This tracks with The Federal Reserve’s confidence around U.S. economic growth, as it raised its GDP forecast to 6.5% for 2021 in March, above its 4.2% forecast from December 2020.
  • Approximately 20% of respondents expect some growth due to acquisitions in 2021.
  • Respondents are more confident about economic growth and the profitability of their businesses.
  • Staffing continues to be both an important driver, as well as a challenge, for growth goals. Hiring new producers and focusing on larger accounts ranked as the top two most important categories.

While companies in MarshBerry’s Organic Growth Pulse study experienced economic challenges in 2020, they still saw revenue growth and better profitability year-over-year. For 2021, they are even more hopeful about growth of their firms driven by the improved economy. Even with the better economic backdrop, firms still face ongoing challenges like hiring new producers and other sales-related issues that could impede growth targets. Companies could mitigate these concerns with strategic and operational roadmaps.Subscribe to MarshBerry’s Today’s ViewPoint blog for the latest news and updates and follow us on social media.  

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