Insurance Agencies & Brokerages

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 123,700 insurance agencies and brokerages in the US act as the “sales arm” of the insurance industry. Insurance agencies represent insurance carriers and sell policies to customers looking to minimize risks. “Captive” agents are affiliated with a single carrier. Independent agents may represent a variety of carriers. Brokers represent customers, and work with multiple carriers to determine the policy that best fits customer needs.

Cyclical Sales

The insurance industry is cyclical and premiums vary considerably depending on market conditions.

Government Regulation

Government regulation can affect insurance premiums, coverage, and commissions.

Industry size & Structure

A typical insurance agency or brokerage operates out of a single location, employs about 7 workers, and generates $1.2 million annually.

    • The insurance agency and brokerage industry includes 123,700 companies that employ about 853,400 workers and generate about $153 billion annually.
    • For property/casualty insurance, "direct writers" (captive agents, direct sales via Internet, and affinity groups) account for 52% of sales and "agency writers" (independent agents and brokers) account for 48%, according to A.M. Best.
    • Direct writers account for about 70% of personal P/C insurance sales, while agency writers account for 71% of commercial P/C insurance sales.
    • Independent agents account for 49% of new life insurance sales, captive agents account for 38%, direct marketers for 7%, and others (such as stockbrokers) for the remaining 6%.
    • The industry is highly fragmented with the top 50 firms account for 28% of industry sales.
    • Large companies include Marsh & McLennan Companies, Aon Corporation, and Arthur J. Gallagher.
                              Industry Forecast
                              Insurance Agencies & Brokerages Industry Growth
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              Apr 10, 2022 - Home Insurance Rate Increases Driven By Extreme Weather
                              • Homeowners are seeing rate increases of 3% to 30% in their homeowner’s insurance premiums, according to S&P Global Market Intelligence. A key reason for home insurance rate hikes is the rise of extreme weather and natural disasters. The number of claims from natural disaster losses has risen by 700% since the 1980s, according to the Insurance Information Institute. Population migration to areas where the risk of extreme weather is high compounds the problem. Fifty counties facing the highest share of heat risk saw a 4.7% population growth from 2016 to 2020. The counties with the highest drought, fire, flood, and storm risk experienced a 3.5%, 3%, 1.9%, and 0.4% growth in population, respectively, Redfin reports.
                              • Small business owners who thought that pandemic-related losses would be covered by business disruption insurance have mostly discovered otherwise. Some insurers inserted clauses excluding coverage for “loss due to virus or bacteria” a few years after the SARS outbreak, according to the Philadelphia Inquirer. Several states – including New York, Oregon, Pennsylvania, Rhode Island, and Washington – have introduced legislation to prevent insurers from denying business interruption claims resulting from COVID-19-related losses. None of the proposed state-level legislation passed, according to Moody’s Investor Service.
                              • More than 2,200 COVID-19-related business interruption insurance lawsuits had been filed in the US by March 14, 2022, according to the COVID Coverage Litigation Tracker (CCLT) maintained by the University of Pennsylvania’s Carey Law School. Insurers have secured motions to dismiss more than 95% of COVID-19-related business interruption lawsuits in federal courts, according to the CCLT. More than 75% of cases in state courts have been dismissed. Many of the dismissed cases involved policies with virus-specific exclusions. A fresh wave of business interruption suits involving larger companies could signal a shift, however. Large firms often have tailored policies that don’t include the virus-exclusion clauses that are typically sold to smaller businesses, according to The Wall Street Journal. The law firms representing large companies have extensive experience in insurance coverage lawsuits which could signal long and expensive legal battles.
                              • Additional guidance regarding COVID-19 issued in April 2021 by the Centers for Disease Control and Prevention (CDC) may undermine business interruption claim arguments that assert physical damages due to the coronavirus clinging to surfaces. The CDC guidance suggests the virus primarily spreads through the air. The agency said, “It is possible for people to be infected through contact with contaminated surfaces or objects (fomites), but the risk is generally considered to be low.” However, some attorneys have filed suits that allege airborne viral contamination does cause physical damages. Such arguments, including in cases involving mold, have been successful for plaintiffs in the past.
                              • Insurers are raising premiums to cope with increasingly severe accidents and ballooning inflation, according to The Wall Street Journal. Many firms offered car insurance customers rebates and discounts early in the pandemic amid less driving and fewer accidents. Insurers’ margins are shrinking as higher vehicle values boost the cost of repairs and replacement. Shortages of new vehicles have driven up rental car rates, which increase insurer costs for policies that provide rentals to drivers whose cars are being repaired. Allstate plans to raise rates by an average of 7.1% across 25 states, and some firms are aiming for double-digit increases. However, in some states, rate hikes are subject to approval by state regulators before being imposed on consumers. Consumer prices for new cars and trucks were up 12.2% in January compared to the same month a year earlier.
                              • The pandemic hastened the use of web-based meeting tools as agents worked from home. As insurance companies move to reduce fixed costs, some firms are rethinking their real estate footprints. In early 2022, State Farm announced it planned to fill more than 3,000 full- and part-time jobs and that many of the positions would offer hybrid work arrangements. A State Farm spokesperson said the company had no plans to transition back to full-time in-office work for most employees.
                              • Americans are buying more life insurance during the coronavirus pandemic. Total life insurance new annualized premiums increased 18% year over year during the first three quarters of 2021, according to the Life Insurance Marketing and Research Association (LIMRA). The 2021 spike in premiums was the largest nine-month rise in 25 years. Nearly two-thirds of carriers reported increases in life insurance premiums, including nine of the top 10 companies. Global life insurance claims due to COVID-19 reached $5.5 billion in the first three quarters of 2021, compared to $3.5 billion for all of 2020, according to insurance broker Howden. The industry had expected payouts to decline in 2021 due to vaccine rollouts, but the emergence of the Delta variant likely contributed to more life insurance claims. The rise in claims was most pronounced in the US, India, South Africa due to COVID-19 fatalities among younger, unvaccinated groups. Claims activity in 2020 was more subdued, primarily because most fatalities were among the elderly who do not typically take out life insurance policies.
                              • The significant spike in mergers and acquisitions (M&A) activity during the pandemic led to a near doubling of M&A insurance rates, according to Insurance Journal. Insurance policies for M&A typically protect buyers against seller misrepresentation of performance targets or order books. Sellers tend to buy M&A policies to cover possible problems with deal exits. The value of Global M&A activity was $1.07 trillion in the third quarter of 2021 compared to the $770 billion in deals in Q3 2020, according to S&P Global Market Intelligence. The rising volume of deals has encouraged M&A insurers to raise rates. Some brokers suggest dealmakers’ limited ability to perform due diligence during the pandemic also pushed M&A insurance claims higher.
                              • Russia’s invasion of Ukraine could increase the risks of cyberattacks and insurers should reassess their potential exposures, according to CyberCube. Insurers also face claims risks in the event of cyber-physical attacks on critical infrastructure. CyberCube recommends that insurers and re-insurers, especially those with significant books of business in Eastern Europe, stress-test their portfolios. However, CyberCube suggests companies in countries that have imposed sanctions on Russia – which include the US, EU countries, the UK, and Japan – are at increased risk of retaliatory Russian cyberattacks. Property and casualty insurers that offer cyber coverage also face the increased potential for higher claims costs, according to Fitch Ratings. Most cyberattack coverage is underwritten in North America.
                              • Ratings for the US property/casualty insurance industry returned to pre-pandemic levels in 2021 as firms shored up balance sheets and operating results improved, according to ratings agency AM Best. The number of ratings upgrades rose to 54 in 2021 compared to 38 in 2020, despite ongoing industry challenges including COVID-19-related impacts, inflation, and higher loss costs.
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