While it would seem that the number of insurance agencies in the U.S. is shrinking judging from the steady stream of acquisitions by private equity buyers and growing brokerages, the number of independent agencies actually grew in the first two years of the COVID-19 pandemic.
In fact, an amazing 4,000 independent agencies were launched during those two years, with the overall number up to 40,000 in 2022 from 36,000 in 2020, according to the “2022 Agency Universe Study” by the Independent Insurance Agents & Brokers of America, conducted in conjunction with Zeldis Research in cooperation with Future One. That broke a period of stagnation when the number of independent agencies fell between 2018 and 2020.
The study looks at many statistics about independent agencies operating in the U.S., including their numbers, revenue base and sources, number of employees, ownership, mix of business, diversification of products, technology used, non-insurance income sources, and marketing methods.
The numbers indicate an industry that’s resilient, still ripe with opportunities for those that think outside the box and can operate as a modern insurance agency. The increase in agencies was largely driven by small operations willing to join the fray. The following are some of the main findings from the study.
Most agencies see revenue increases — The study found that 62% of agencies enjoyed revenue increases between 2020 and 2021, compared to 70% in 2020, while 25% saw their revenues decline. About 22% of agents said that the pandemic has negatively affected their operations and production.
Technology adoption and challenges — On the tech front, one of the biggest challenges agencies face is dealing with multiple carrier interfaces, with 41% citing this as a challenge.
Also, 33% said they would like to see more carriers improve their applications’ ability to integrate with their agency management system.
Only 7% of agencies said they are using a commercial lines rater, but another 23% said they plan do so in the next year.
The survey also found that 47% of agencies are offering more digital solutions to clients as a result of the pandemic. The use of carrier mobile apps increased to 40%, compared to 32% in 2020, while apps for clients rose to 20% from 10% two years earlier.
Online competition — Agencies also report that they are struggling to compete with insurance website portals, which allow customers to purchase coverage online. This is particularly the case on the personal lines front.
About 35% of agencies said direct purchasing of personal lines policies would significantly affect their agency in the next two years, and 25% said they were concerned about the effect of small companies purchasing their coverage online.
Principals think about the future — The average age of agency principals was 54 in 2022, compared to 55 in 2020, and 17% of principals were 66 or older. With many agents in the “near retirement” zone, it’s comforting that eight in 10 of them have a perpetuation plan, although those plans usually focus on children and family, not an outside party.
Also, 40% of agencies expect ownership changes to varying degrees in the next five years.
Big challenges — The top six challenges insurance agencies face are:
- Attracting and retaining talent (40%).
- Marketing and advertising budget constraints (36%).
- Obtaining enough leads (35%).
- Making the personnel, tech and other expenditures necessary to grow significantly (33%).
- Investing in a strong online presence (32%).
- Remaining competitive with Insurtech direct carriers (31%).
Inclusion and equality alive and well — The number of women who are independent agency principals continues to grow. In 2022, 47% of principals were women, up from 42% in 2020. That’s the case in smaller agencies, while mid-sized and larger agencies were more likely to have male principals or senior managers.