* While the U.S. economy contracted in the second quarter of 2020 (Q2) at a rate not seen in 70 years, the insurance brokerage industry is a "shining star" with median organic growth of 4.4%, according to Reagan Consulting.
This is the rate of growth for the six-month period that ended on June 30, compared with the same six-month period in 2019, as noted in Reagan Consulting's quarterly Organic Growth and Profitability (OGP) survey.
Although the result dropped from the strong Q1 rate of 6.6% and is the lowest organic growth rate recorded by the OGP Survey since Q3 2017, "it is an encouraging and perhaps surprising result given the COVID-related headwinds," says Jim Campbell, Reagan Consulting partner., A[R],A[R]Several factors contributed to this result, he says:
P-C RATE INCREASES
Rate increases appear to have continued and, for some markets and coverages, accelerated through Q2. These increases helped offset potential losses from cancellations and/or exposure reductions and enabled median commercial P-C organic growth of 4.7%.
For many firms, the anticipated hit to employee benefits revenue from COVID-related layoffs has not yet materialized, Campbell says: "Although down from 5.5% for Q2 2019 and from 5.8% in Ql, median organic benefits growth was a respectable 4.2%." Likely contributing to this result is a bit of recovery from the April peak unemployment rate of 14.7%, along with the decision by some companies to furlough employees in lieu of layoffs, he notes. Furloughed employees typically retain their benefits.
A spreading pandemic, global shutdowns and social distancing hardly seems a recipe for strong new business results, says Campbell. Yet new production rates for the OGP Survey participants remained solid through Q2. Sales velocity, measured as the current year's written new business as a percentage of the prior years commissions and fees, reached a Q2 median of 11.5%, down only modestly from the 2019 (pre-COVID) rate of 11.9%.
Looking ahead, the median forecast for full-year 2020 organic growth of 5.0% is noteworthy on two fronts, Campbell says. "First, the 5.0% forecast exceeds the actual Q2 median of 4.4%, indicating strong expectations for the second half. Second, it represents a significant jump from the Q1 full-year forecast of 4.1%, suggesting optimism is increasing",A[R],A[R]Year-to-date profitability for brokers is strong, with both EBITDA margins and operating margins at...