IA Valuations has worked with hundreds of independent insurance agencies over the past eight years. While working with clients and discussing their pain points, we hear two themes pretty consistently: agencies continue to struggle with growth and talent acquisition. Many owners are actively searching for and recruiting next-generation talent, but the industry and its potential for a rewarding and fruitful career remain a best-kept secret. Owners have tried various approaches, and when disappointed with the results, essentially abandon the idea of backfilling NextGen talent and potential future agency owners.
Additionally, in our work advising both buy-side and sell-side transactions, we have noticed a sea change in post-deal operations/integration. Ten years ago, it was common for an agency acquirer to purchase an agency, cut jobs, and re-route the work to call centers. Those practices have changed dramatically in the past few years. now, acquirers are looking at acquisitions not just in terms of buying a book of business, but rather, at acquiring talented insurance professionals along with the book.
On a hunch that agencies are not being competitive in their pay and benefits offering compared to other industries, we decided to look at our proprietary IA Valuations database to see what agencies are doing in regard to paying benefits, both retirement and non-retirement benefits. We thought by comparing the data, we might find some answers as to why agencies are struggling to break through and hire high-potential talent.
No Retirement Benefits Paid
Our first exercise was to take a look at the number of agencies that are paying zero in retirement benefits. We divided the database into various revenue bands and looked at the percentage of agencies that are not paying anything at all in terms of retirement benefits.
Overall, we see that nearly 40% of all agencies do not pay any retirement benefits. The smallest agencies are the least likely to pay benefits, while the largest agencies all pay for retirement benefits.
Now, contrast those numbers with a view of all employees nationwide. According to the U.S. Bureau of Labor Statistics, as of March 2023, the percentage of U.S. workers with access to retirement plans was 70%. That is 30.9% greater than our agency universe average, nearly doubling the access rate from our data.
Given the bulk of our clients fit into the first two revenue bands, we see a great opportunity for those agencies to begin offering retirement benefits as one of their recruiting tools.
Reasons Employers Do or Do Not Offer Retirement Benefits
There are many factors that influence a company’s decision to offer, or not offer, retirement benefits. According to research by the Pew Research Foundation, there are several things that factor into this decision.
Small employers who do offer retirement plans do so for myriad reasons, but primarily to attract and retain workers and improve their financial futures. A limiting factor that may pose a burden on smaller employers is the cost associated with managing workplace savings plans. Some suggest that by offering benefits to attract and retain talent, employees can realize annual savings tied to lower employee turnover.
Compared to larger employers, small businesses generally incur higher fees when offering a retirement plan, compared to larger employers who can spread their fixed costs over more participants. Additionally, plans with more assets under management generally tend to have lower costs. Another advantage for larger employees is the ability to have dedicated staff members in charge of managing the retirement benefits offering.
For Those Agencies Offering Benefits, How Much are They Spending?
For the independent agencies that are offering retirement benefits, how does their spending track with other industries? We pulled the data, by revenue band, to give you an idea of what these agencies are spending.
The charge above shows the amount spent on retirement benefits as a percentage of net revenue. The trend line shows an average right around 1.5%, which is near the total overall average.
Comparing Independent Agencies to the Overall Market and the Insurance Sector
The Bureau of Labor Statistics provides data on the overall benefits paid to private industry workers and individual sectors.
This graph shows the amount spent on retirement benefits as a percentage of total compensation. This demonstrates that independent insurance agencies are lagging not only in the total private employer market, but also in the Finance & Insurance Sector.
The Way Forward
Independent agencies have struggled for many years to find quality talent to replace an aging workforce. Many factors contribute to this, and it appears that compensation and benefits could be a major factor. For the agencies that are struggling to find talent, but are not paying any benefits at all, or are paying below market benefits, this is your call to action. We often say the independent agency world is a best-kept secret, and those who find it will have an opportunity for a satisfying and lucrative career. To ensure that you have the talent to continue your agency into the next generation, it is time to start offering pay and benefits that will attract and retain the best and brightest talent.
For a personal analysis of your agency’s pay practices or advice on your agency’s specific situation, please reach out to Craig Niess at craig@iavaluations.com.
By: Craig Niess, CVA, MBA
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 270 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.
The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.
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