Industry Insights Vol IV, Issue 2
Insurance Broker Profitability Remains Steady – But Will It Last?
While insurance brokerages have seen impressive profitability over the last 15 years, supported by a strong economy, a positive rate environment, and strong organic growth, this profitability trend could be at risk – as signs point towards a slowdown in economic growth.
Despite the recent volatile macroeconomic environment — impacted by heightened geopolitical tensions, reciprocal tariffs, slowing GDP (Gross Domestic Product) growth, and continued inflation concerns — insurance brokers still managed to achieve stable EBITDA (earnings before interest, taxes, depreciation, and amortization) margins in 2024. Based on MarshBerry data, for the average firm, the 2024 EBITDA margin was 19.6% – flat compared to the prior year.
Overall expenses for brokerages have also remained flat (if not elevated). While insurance brokers have been generally successful at managing compensation expenses, which is typically their largest expense, the average broker maintained total payroll expenses at 52.8% in 2024, matching 2023, but higher than the 50.7% seen in 2022. Despite a strong U.S. labor market, there is a potential talent shortage impacting the insurance brokerage industry, which may contribute to higher payroll costs going forward.
Operating and administrative expenses in 2024 both saw a slight uptick over 2023. Changes were slight but broad-based across all operating expenses, indicating rising costs due to continued inflationary pressures.
Preparing for a potential slowdown in profitability
The outlook on economic conditions is not overly positive for 2025. In the first quarter of the year, U.S. GDP shrank by 0.3%, marking the first contraction in three years, as businesses stocked up on imports and consumer spending slowed. This compares to the +2.4% growth in Q4 2024 but falls below the 0.4% to 0.8% growth expected by economists.
In the face of slowing growth and rate increases, firms can implement strategies to boost organic growth and increase efficiency. One tactic is hiring producers with niche experience in a specific industry to drive new business and increase sales velocity. Sales velocity differs from organic growth in that it doesn’t include revenue driven by increases in premiums and capacity – but is simply the amount of new business written year over year. The sales velocity metric helps firms see how much revenue is coming from lift vs. new sales, which becomes particularly important as rate increases slow down. It’s imperative that brokerage firms manage pipelines, filling the funnel with true new business and not simply riding rate increases.
It will be interesting to see if insurance brokers are able to sustain their current margins in the face of continued inflation and a tight labor market. April 2025 jobs data showed that the labor market was resilient despite trade policy uncertainties and market volatility with 177,000 jobs added, above expectations for 138,000.1 However, there were also net downward revisions of 58,000 in March and February. It remains to be seen whether the labor market will cool even further this year as economic growth slows and new tariff policies are enacted. That could give brokers some space around their compensation expenses.
A Flood Of Changes: Considering The Future Of The National Flood Insurance Program (NFIP) Under Trump
2024 was another active year for catastrophic weather-related disasters, with hurricanes Helene (in September) and Milton (in October) estimated to have caused approximately $50 billion in insured losses, according to Swiss Re.2 Part of those damages came from flooding, which often is not covered by traditional homeowners’ insurance. Flood insurance is available through private insurance providers as well as state or federal sources.
The largest single provider of flood insurance is the federally sponsored National Flood Insurance Program (NFIP). This program covers approximately 3.1 million properties in the U.S., providing $1.3 trillion in coverage.3 However, under the current Trump administration, the NFIP may be at risk for elimination.
What is the NFIP?
Administered by the Federal Emergency Management Agency (FEMA), The NFIP was established in 1968 and has been a cornerstone in providing flood insurance coverage to millions of Americans, particularly in high-risk areas. The NFIP differs from other disaster assistance programs in that it is not directly funded by taxpayers. The NFIP was designed so that residents in at-risk areas pay some of the recovery costs of a disaster through federal insurance before the event, with individual policyholders funding at least part of their recovery from flood damage. A core design feature of the NFIP is that communities in at-risk areas are not required to participate in the program by any law or regulation but instead participate voluntarily in order to obtain access to NFIP flood insurance.4 However, it’s important to note that flood insurance is mandatory in order to obtain a mortgage from a federally regulated or insured lender.
Does the Department of Government Efficiency (DOGE) spell the end of the NFIP?
There are a number of factors that could lead to the NFIP’s elimination as soon as this year. As of March 2025, the NFIP’s authorization has been extended only until September 30, 2025, necessitating congressional reauthorization to continue its operations beyond that date. But the program is currently $22.5 billion in debt, and the Trump administration’s overall attitude toward excessive government spending (as reflected by the creation of DOGE) in general, as well as its negative attitude toward FEMA in particular, may not bode well for the NFIP’s continuation. Moreover, some of the Trump administration’s previous actions, such as revoking the Federal Flood Risk Management Standard (FFRMS), may indicate a desire to reduce federal involvement in flood risk mitigation specifically.
Will Risk Rating 2.0 help?
In 2022,FEMA introduced a new pricing methodology, known as Risk Rating 2.0, which represents the biggest change to the way the NFIP calculates flood insurance premiums since the program began in 1968. Under the change, premiums for individual properties are tied to their actual flood risk, and flood zones are no longer used in calculating a property’s flood insurance premium. Instead, the premium is calculated based on the specific features of an individual property. Risk Rating 2.0 incorporates a range of flood frequencies and sources, and if policyholders are currently paying less than the full risk-based rate for their property, their premiums will increase over time until they reach the full-risk rate for their property. But the General Accounting Office (GAO) estimated that it will take until 2037 for 95% of current policies to reach full-risk premiums,3 and some see the changes simply as a way of kicking the debt problem down the road, possibly exacerbating the situation.
Implications for local insurance brokers
If the NFIP is eliminated, then the responsibility to provide flood coverage will shift exclusively to private providers. Local insurance brokers will need to play a more critical role in helping homeowners navigate flood insurance options. In particular, brokers will be forced to find sources other than the NFIP to secure coverage that satisfies the banks issuing mortgages in their area.
As the September 2025 reauthorization deadline approaches for the NFIP, it would be wise for brokers to become more familiar with the wide range of private flood insurance providers available, while staying on top of ongoing changes.
Product innovation and diversification may provide new alternatives for homeowners in affected areas, with Excess & Surplus lines (E&S) potentially filling the gap. Some of these alternatives could prove to be transformative, and certain carriers currently have products in development so that consumers don’t have to knock on FEMA’s door. In addition, new flood-modelling technology and the application of satellite imagery in predictive analysis could help bring new possibilities to market for consumers in affected areas. Whether any of those applications will prove feasible and ever see the light of day is uncertain.
One thing is certain though, brokers should not wait for the potential shutdown of the NFIP before learning about the other options available. The complexity of the situation could give brokers the opportunity, sooner rather than later, to strengthen their position as essential advisors guiding clients through complex insurance landscapes and risk-mitigation strategies.
A Rare Combined Ratio For Health Insurance Carriers
Preliminary data that constitutes the combined ratio for health insurance carriers in 2024 is pointing towards the industry exceeding 100.
The combined ratio represents a percentage of incurred losses and expenses versus earned premiums, so any ratio over 100 means that the sector is experiencing underwriting losses. It’s important to note that a ratio in excess of 100 does not necessarily mean that the industry is unprofitable in the aggregate since companies tend to maintain profitability due to investment returns that are not included in calculating the combined ratio.
Although all the relevant data has not yet been reported, so it remains possible that the combined ratio for 2024 slips back below 100 when all data is in. However, to date (as of 5/28/25) roughly 40% of industry reported premiums are with companies that have combined ratios over 100.
Why is the ratio rising?
An examination of the underwriting data reveals that the ratio has been driven higher by an increased number of claims. A review of earnings calls and filings from some of the larger carriers provides these insights into current, claims-related trends:
- UnitedHealth Group reported a sharp rise in care utilization, particularly in its Medicare Advantage business. In Q1 2025, utilization was double the rate of 2024.
- Cigna faced higher medical costs, especially in its Stop-Loss products, which led to a Medical Care Ratio (MCR) of 83.2% for the year, exceeding its initial guidance.
- Humana encountered higher incurred claims and rising prescription drug costs, particularly for specialty medications.
- CVS Health dealt with elevated costs from non-participating providers and adjustments in completion factors for claims.
What consequences could this have?
Ultimately, unprofitability by health insurance carriers will support the continued trend of rising health insurance premiums for consumers. The chart below shows, on average, the amount of premium paid for a month of health insurance for one person. The orange line tracks the dollar amount, and the blue bars reflect the percentage increases.
How will 2025 look?
The comments contained in the Q1 2025 earnings calls and filings are consistent with an environment in which claims expenses are increasing. Such an increase could mean a higher than usual hike in premiums in the next year, which, in turn, could mean an increase in organic growth for brokerage firms with sizeable employee benefits books.
Sources:
- https://www.jpmorgan.com/insights/outlook/economic-outlook/jobs-report-april-2025
- https://www.swissrfine-prine.com/press-release/Hurricanes-severe-thunderstorms-and-floods-drive-insured-losses-above-USD-100-billion-for-5th-consecutive-year-says-Swiss-Re-Institute/f8424512-e46b-4db7-a1b1-ad6034306352
- A Brief Introduction to the National Flood Insurance Program in the 118th Congress, https://www.congress.gov/crs-product/IN11049
- https://www.congress.gov/crs-product/IF12810