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How much turnover is there in the commercial insurance brokerage industry in the US?
Hi! Thank you for your question about the turnover in the commercial insurance brokerage industry in the US.
In short, the brokerage industry has been struggling to compete due to online competitors and insurers directly selling to customers. Technology implementation has been a major challenge to the industry in addition to regulatory hurdles, healthcare reforms and an ageing workforce along with high attrition. The turnover rate can be anywhere between 52% to 87% in the commercial insurance brokerage industry. I found the griffithfoundation, insurancemag, irmi and insurancenewsnet to be the most helpful in answering this question. I have provided a deep dive of my findings below.
OVERVIEW
The industry includes individuals and businesses that primarily act as agents or brokers in selling insurance policies and annuities. Industry participants earn commission income, mostly as a percentage of the premium of insurance policies sold. The total market size of the industry in the US is $157 billion growing at a CAGR of 3.7% over the past five years.
CHALLENGES
The industry faces competitive pressures from direct insurers attempting to reduce reliance on brokerages and agencies by selling products directly to customers and online brokerage businesses taking advantage of lower cost online sales. Workforce utilization of technology is also increasingly becoming important to attract customers. Technological advancements, major healthcare reforms altering the needs of consumers and changing regulatory environment requiring costly compliance functions are challenges to the brokerage industry. Another issue is the average age of a US insurance agent – 59 which would lead to one-fourth of the industry’s work force would retire by 2018.
TURNOVER
Though a dated LIMRA international study, the four-year retention rate for agents in 2004 was 13% which indicates a very high turnover rate of 87%. Further, the cost of hiring a new employee is roughly 20% of the position’s salary. According to Bureau of Labor Statistics, the mean annual salary for insurance agents was $47,450 in 2011 which implies the cost of replacing an average employee roughly $9,490. MarshBerry study estimates that 52% of employees terminated in 2012 were also hired in the previous three years. A rampant practice in the industry has been recruiting brokers from another firm to also lure the client. FINRA has come out with regulations to educate the clients on the costs of switching and also address the issue of conflict of interest. Another reason for brokers switching firms is due to the increasing use of technology in the industry and hence, brokers are switching to firms that use more technology.
While I have researched extensively to source a more updated number on the turnover rate, the information is not available. However, it can be estimated to be high based on various media reports. Lastly, the leading US commercial retail brokers are Marsh & McLennan Cos. Inc., Aon PLC, Willis Towers Watson PLC among others. (Alliant)
CONCLUSION
To conclude, the brokerage industry has been struggling to compete due to online competitors and insurers directly selling to customers. Technology implementation has been a major challenge to the industry in addition to regulatory hurdles, healthcare reforms and an ageing workforce along with high attrition. The turnover rate can be anywhere between 52% to 87% in the commercial insurance brokerage industry.
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