Optimizing Agencies for Higher Growth and Valuation

We see two key themes. One is a shift of focus from inorganic growth through M&A to integrating those acquisitions and driving organic growth. The recent wave of consolidation is slowing down due to the smaller pool of available agencies, higher acquisition multiples, and elevated interest rates. Many agencies are now focusing on integrating and optimizing their platforms, especially those that have been highly acquisitive. Initiatives like unifying systems, standardizing processes, training, and cleaning and maintaining data integrity become critical.

The second key area is managing the looming talent crunch: the accelerating retirements of producers and account executives, among other positions, and the constant challenge of recruiting, validating, and retaining people with deep insurance knowledge is essential to create and support organic growth.

There’s lots of risks, including technology risks, operational risks, and those related to providing appropriate and adequate insurance coverage. An example of a technology risk that’s more external is cyber risk—but an internal technology risk might be integrating technology, harmonizing systems, and getting consistent adoption across platforms.

From a coverage perspective, it’s making sure agents have specialized knowledge to deal with the increasing complexity of risks so they have time to ensure what we think of as good insurance hygiene, such as reading insurance policies carefully and understanding gaps in coverage in things like building ordinance or flood, or carriers changing exclusions on their policy forms. From an E&O perspective, we’ve seen a shift on things like policy checking, where we go from checking for discrepancies to reading policies for context, severity and adequacy, while leveraging APIs and automation to increase process integrity and tracking.

Two key areas of focus would be industry fragmentation and the aging demographic of the industry. There are thousands of different agencies and carriers, each with their own systems, processes, and almost countless risk characteristics. It makes it challenging to digitize, automate, and maintain processes effectively.

On the second point, over the next 15 years, 50% of insurance professionals are likely to retire. That’s an incredible amount of intellectual capital that could potentially be lost, and you cannot simply backfill lost professionals and industry knowledge with automation. What we see best-in-class agencies do is four things: perpetuate insurance knowledge in systems, processes and people; substantially increase the productivity of their existing workforce; leverage technology and automation where applicable; and gain access to an increasingly specialized global talent base.

Tasks involve a narrow set of steps, while processes are typically more complex, involving multiple steps and requiring coordination across different people, systems, and parts of an organization. Understanding this distinction is really helpful in identifying opportunities for cost reduction and productivity improvement. We have approached this by documenting 55,000 standard operating procedures and organizing them by process, function, task, step, and sub-step, in order to help our clients optimize end-to-end processes.

It’s also useful to think about the total cost of ownership of a process, including both the direct costs and the indirect costs of managing that work, while looking at how you can elevate experienced professionals to support more revenue growth. The long-term value of improving processes rather than tasks leads to better resource utilization, cost savings, and improved overall performance, which contributes to sustainable organic growth.