Are insurance agency numbers decreasing, increasing, or is it anyone's guess?
Updated: Feb 25, 2022
According to an article in Business Insurance on January 7, 2022, MarshBerry Capital showed a total of 3,301 acquisitions in the last five years.
A report released on January 19, 2022 by Optis Partners, reported 3,733 acquisitions in the last five years.
The IIABA estimated there were 36,000 independent agencies in 2020 (Agency Universe Study, 2020, IIABA, p. 17), a decrease from 36,500 independent insurance agencies in 2018 (Agency Universe Study, 2019, IIABA, p. 16) and 38,500 independent insurance agencies in 2015. Going all the way back to 2004, they reported there were 39,000 agencies.
BRP, a publicly traded broker that makes quite a few acquisitions, reported there were 37,000 agencies in their 2021 10k (page 10).
Clearly, assuming everyone's numbers are correct, new independent agencies are being created almost as fast as agencies are being eliminated by acquisition. That by itself is pretty interesting. Creating agencies from scratch today is so much easier than 10 years ago due to the plethora of aggregators willing to help people create new agencies. A select few have great training, systems, and support for start-ups.
This begs another question though. Premiums are only growing about 3.5% annually and much of that increase is due to premium inflation. This means that for the start-ups to survive, much less succeed, they must be taking business from someone. If they are taking business from someone, might the acquirers be buying business that is escaping out the back door?
Little public information exists because most of the buyers are private equity (which really means they are using pension fund money and debt for those who do not know where private equity gets all its money). Using public information from the publicly traded brokers and subtracting for acquisitions and premium inflation, my calculations suggest the publicly traded brokers are collectively maybe growing 1% annually. They are not even keeping up with GDP growth. That suggests they are buying wasting assets as accounts and employees leave. I suspect the number is far worse with many of the private equity buyers.
The IIABA's latest Market Share Study adds to this point because they show Direct Response insurers taking market share at a rapid pace (albeit mostly from captive agents).
Might insurance distribution just be one of those rare industries where the optimal size of a distributor is small? Or is it that buyers buy because they don't know how to grow organically, and size is not the factor? I'm not sure of the full cause and effect. I know where I’d get my lead list if I was a good producer in an old-fashioned privately owned agency.
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