Whether you currently own an insurance agency or are considering acquiring an existing agency, this is a great time to be involved in the industry. Several contributing factors, including beneficial legislation, macroeconomic conditions, and a hard market resulting in increased premiums, have been catalysts to a continued growth in the insurance industry for many agencies nationwide.
There’s no time like the present. Industry revenue is determined in large part by commissions, which in turn are affected by premium pricing and quantity of transactions. The hard market of the past five years has resulted in an increase in premium prices in both the health insurance and P&C markets. Add to the equation the increase of disposable income nationally, and it comes as little surprise that brokers and agents have achieved above expected commissions.
At the same time, capital intensity remains low overall for insurance brokers and agencies in the U.S. A recent industry survey estimates that approximately $0.04 of every $1.00 spent on wages will be allocated to capital investment. (Of course, capital intensity can vary greatly by company size. Larger companies often have extensive distribution networks, in which large amount of capital is invested, while a very small office with little or no staff and modest technology would have a much lower level of capital investment.)
The economy is on your side. The decrease in unemployment and the enactment of Tax Cuts and Jobs Act (TCJA) in December 2017 collectively led to an uptick in disposable income across the United States. Different studies estimate that disposable income will continue gains from 1.6 to 2.8 percent through the early 2020s. The growth in disposable income expectantly would bring a greater need for insurance policies, as the consumer has more assets on the line.
Homeownership in the United States likewise is increasing, which most often means increased sales of homeowners insurance. Specifically, more and more Millennials (previously known to be opposed to owning) are taking the plunge into purchasing a residence, with buyers under age 35 representing the largest demographic increase in homeownership.
The anticipated growth in the homeowners insurance market likely will be matched by increased revenues from auto insurance premiums in the near future. The rising prices are fueled by various factors, including an increase in driving distractions as people use more technology in vehicles, and losses caused by natural disasters. In 2017 alone, three major hurricanes amounted to $75 billion to $100 billion in losses, ravaging profit margins for carriers. P&C underwriters were pushed to make changes and increase premiums, which bodes well for insurance agency owners if they can demonstrate to clients the continued importance and value of maintaining their coverage.
Trust insurance industry specialists. If you are considering purchasing an insurance agency in the coming months or expanding your current agency operations, contact Springtree Group for assistance. As a privately owned company of entrepreneurs helping entrepreneurs, we consult, finance, invest, acquire and sell in insurance related businesses. We offer a full spectrum of M&A, lending and financial performance services and products to agents and brokers in the insurance space, and have long-standing relationships with strategic partners to provide you with customized loan options that are provided exclusively for the insurance agent and brokerage community.
The insurance industry market is hot for acquiring a new agency. The professionals associated with Springtree Group offer a unique perspective from having built, managed, and sold our own companies, and we would be privileged to offer the same level of care and detail to help you do the same. For a free valuation interview or to learn more about our services, please contact us online.