A newly released study suggests that independent insurance agencies are surviving, if not entirely thriving, despite the challenges of industry mergers, the growth of online sales channels, and the COVID-19 pandemic. While the findings were labeled "good news for the independent agency system" by Bob Rusbuldt, president and CEO of the Independent Insurance Agents & Brokers of America (IIABA), researchers found some key areas where agencies need to improve if they are to survive the coming years.

Key Takeaways

  • A new study suggests that the number of independent insurance agencies in the U.S. has plateaued at about 36,000.
  • The surveyed agencies report that their business is growing, but more slowly than in recent years.
  • Looking ahead, independent agencies are concerned about online competition as well as their own need for a more diversified staff.

Independent Agencies See Slower Business Growth

Conducted by Zeldis Research in cooperation with Future One, the 2020 Agency Universe Study canvassed 1,437 respondents to better understand how agencies have fared recently, as well as to identify any potentially helpful business strategies. Future One, a collaborative effort between the IIABA and several prominent independent insurance agencies, conducts these surveys on a biennial basis.

The survey’s findings indicate that the number of independent agencies has plateaued at about 36,000, amid a boom in mergers and acquisitions within the industry. This latest figure marks a slight reduction from the 36,500 agencies in 2018.

Furthermore, researchers found that while business conditions continue to get better, respondents said they were experiencing growth at a slower rate than normal. According to the survey, 70% of agencies reported total average revenue increases of about 20% between 2018 and 2019. While that may sound like good news, it again shows a slight drop off from 2018 survey, which saw 76% of respondents reporting an average increase of about 25%.

As independent agencies see slower growth and a general reduction in their numbers, some experts feel that could have an impact for the average consumer. Randy VanderVaate, president and owner of the independent life insurance broker Funeral Funds of America, warned that fewer independent agencies could mean less access to agents.

"An insurance agency is a one-stop shop for all your insurance needs… [that can] help consumers get quotes from multiple insurance companies without having to call each one manually," he said. "Less access to independent insurance agencies means the consumer will be forced to work with captive agents who only work for a specific insurance company. They will have no choice but to take the prices offered, which in most cases are more expensive compared with other companies."

Emerging Sales Channels Pose a Threat

Researchers also found concern among the agencies over how technology is changing the industry.

One reason for their disquiet is the potential impact of some emerging purchase channels. Responding agencies said they were keeping a close eye on how these channels will affect an independent agency’s consumer segment, especially in regard to personal lines.

According to the study, 35% of the agencies believed that the direct purchase of personal lines through insurance companies will have a sizable impact on their agency over the next two years. An additional 27% reported feeling the same way about non-insurance website purchases. And nearly 25% said they were concerned about "small commercial direct purchase or purchase through emerging online providers," according to the researchers.

Agencies are attempting to meet these challenges, in part, by focusing more of their marketing strategy in the digital realm. Nearly 60% of respondents said they intended to up their social media and digital marketing efforts, with 49% saying they planned to create and maintain their agency website and 30% saying they were looking into boosting their search engine optimization.

COVID-19 Hit Some Agencies Harder Than Others

With the COVID-19 pandemic still ongoing, researchers looked into how the disease affected independent agencies. No strangers to COVID-related disruptions themselves, since the survey was supposed to be fielded last March but postponed until September, researchers found that certain parts of the industry were harder hit than others.

According to the survey, approximately one agency in four said they’d experienced a "significant impact on their operations, revenue, and commercial lines customer base" as a result of the pandemic. Smaller agencies (34%) and newer agencies (32%) were more likely to experience a pandemic-induced impact on their revenue.

Nearly half of the entire respondent pool said their agency was "well-prepared to deal with COVID-19’s impact on their business," though just about 5% said they had done any disaster recovery planning for a pandemic. Only 20% of those without a plan said they intended to create one now.

Of course, without such planning, a future disaster could mean further reductions in the number of independent agencies. If that happens, Ju Li, a former strategy manager at EverQuote, said consumers could be left looking to larger corporations for help. "The big insurance agencies that will fill the void are run exactly like a big insurance company or insurance marketplace," he said. "Their sales reps will relentlessly pursue you to close a deal."

A Need for Greater Diversity and Inclusion

Many respondents said they were looking to bring about more inclusion in the industry, where women and people of color are underrepresented.

For example, nearly 90% of agency principals are White and just 42% of agency principals are women, with larger agencies especially likely to have men in principal or senior manager roles. Researchers found that newer agencies were more likely than older ones to have at least one African-American principal, although the percentage was still small (12% for the newer agencies versus 5% for the established ones).

Age was also a factor. According to the survey, the average age of principals remains consistent with 2018’s findings at 55 years old. At least 17% of respondents said they had principals who were 66 or older. Since many principals will begin aging out of their positions soon, it’s no surprise that 90% of agencies have a perpetuation plan, though most involve children or other family members. About 40% reported expecting an ownership change in the next five years.