Recently, we are seeing an increasing number of small agency owners sell their agencies well before traditional retirement age because they feel they have no other option. While the agency owners share a number of reasons for selling, the most common answer they are sharing is a meaningful change in their carrier relationships.
In almost every discussion with small agency owners, they cite increasing growth demands, shrinking commission levels, new contingency formulas and increasing complexities in managing their business with the lack of support from their carrier partners.
We know this is not a new issue, however the new phenomenon that we are experiencing in the small agency space is they are now joining the ranks of midsize and large agencies trying to sell their agencies to build economies of scale instead of focusing on organic growth in their hometown communities.
According to Big I National and Reagan Best Practices Study, small agencies (less than $1.25M in revenue) consistently have the highest organic growth rates of any agency type.
However, the aforementioned mounting pressures are causing small agency owners to reassess their business strategies and seek out a sale or realignment of their independence in order to achieve scale.
This may be a part of the natural evolution of the independent agency system – the big get bigger and the small go away.
Traditionally, we have been a business model that supports independent ownership and an entrepreneurial spirit where agency owners in large numbers have decided to cut against the current trends. Many of those decisions were based on the unwavering support of their carrier partners.
Whether it’s anecdotal or the development of a trend, small agents are reporting to us that they feel increasing pressure from their carriers to scale their operations in order to maintain appointments, commission levels, their agency independence and insurance careers.
It is a concerning trend to hear from many of the most profitable small agencies that they feel this type of pressure. These agencies help build the foundation of the independent agency system and need ongoing support to grow their businesses and serve their communities.
If you are a carrier reading this article and your business model is still based on supporting small agencies with steady production and profitable books of business, please let us know. We have a lot of agents who are losing faith in the current system and want to do business with carrier partners who share their core values which includes supporting independent business people owning insurance agencies.
Please reach out to Jeff Smith at firstname.lastname@example.org or (614) 552-3056 if you would like to discuss this further or join the conversation with OIA’s Carrier Relations Committee on this topic and more.