Benchmark survey shows decline in smaller brokerage profits

The average annual net income of Canada’s most profitable property and casualty insurance brokerages is between Cdn$800,00 and Cdn$1 million, with the average industry profitability equalling 25.3% of total brokerage income, according to a benchmark survey by Vancouver’s Berris Mangan Chartered Accountants.It was also found that small brokerages’ (less than Cdn$500,000) profitability has declined by 0.9% since 2005, and that only 11% of Canadian brokerage offices have sales greater than Cdn$1 million.The study compares and analyzes financial and operating data, sales mix, cost structures, branch sizes and employee survey results from more than 200 brokerage offices from across Canada, a company release says.Researchers also compared the sales mix to expenses and profitability and found that investment in information technology tends to have a negative impact on profitability, as opposed to marketing and advertising expenditures, which have a positive effect on profitability.”The profitable brokerages increase overall expenses by 7.6% since 2005 compared with the less profitable brokerages that increased expenses by only 1.6%,” information from the company says.”More profitable brokerages rely less on commissioned producers but replace this expenditure with alternative compensation arrangements and training.”