Producer Recruitment Is the Cost of Protecting Margins

For four years the hard market did the selling. Rates went up, premiums went up with them, and commission revenue climbed on business agencies already had on the books. It was possible, in that stretch, to post a good year without recruiting anyone, without building a bench, without ever answering the uncomfortable question of who was going to be writing new business in 2031.

The market has softened. And the industry's best-performing agencies, the ones who by definition should have seen it coming, spent last year cutting the one investment that would have prepared them for it.

The number that should stop you

Every August, the Independent Insurance Agents and Brokers of America and Reagan Consulting publish the Best Practices Study, now in its thirty-third year of partnership. Agencies are nominated by carriers and state associations, screened, and sorted into seven revenue bands from under $1.25 million to over $100 million. 

The 2026 update, released August 12, reports on calendar year 2025. Organic growth decelerated in six of seven revenue bands, landing in a range of 6.2 to 10.2 percent against 8.7 to 11.3 percent the year before. Profitability held up: pro forma EBITDA margins ran 23.2 to 30.7 percent, and the top quartile of the smallest band posted 42.5 percent. On the surface that reads as a soft landing.

Then there is net unvalidated producer payroll, which measures what an agency is spending on producers who are not yet paying for themselves. Reagan's stated healthy benchmark is 1.5 to 2.0 percent of revenue. Study-wide, the figure was 2.0 percent a year earlier. In the 2026 update, across all seven revenue bands, it ranged from 0.0 percent to 1.7 percent.

Zero. Somewhere in this study is a band of high-performing agencies that spent nothing on the next generation of producers.

The study's own language is unusually direct about what that means. "Agencies must continue investing in new producer development to ensure their growth engines are ready to pick up the slack as the P&C market softens." That is not a suggestion buried in an appendix. It is the finding.

Why this happened, and why it made sense at the time

Unvalidated producer payroll is the most visible discretionary cost on an agency P&L, and it is the only one that shows up as pure expense for eighteen to thirty-six months before it shows up as anything else. When rates are climbing on their own, a new producer looks like a margin problem with a hopeful story attached. Cutting them, or simply never hiring them, is the fastest way to protect an EBITDA number that a lender or a buyer is watching.

So agencies protected margin. The 2026 numbers say they succeeded. Margins held while growth slid, which is what you would expect from a firm that stopped spending to grow. This is a coherent set of decisions and it produced a coherent result. It is also, in a softening market, the wrong one, because organic growth that was arriving on renewal rate increases now has to arrive on new business, and new business arrives through people.

The age problem hiding in the sales numbers

Sales velocity, the share of prior-year commission written as new business, exceeded the 12 percent healthy threshold in five of seven revenue bands. The under-$1.25 million band led the entire study at 16.6 percent, which sounds like small-agency vitality until you read the next sentence.

In most revenue bands, producers aged 36 to 45 write the largest share of new business. Agencies under $1.25 million are the exception: there, producers aged 46 to 55 generate nearly half of that band's study-leading total.

The arithmetic is unforgiving. The smallest agencies in the study are winning on new business, and they are winning it with people who will mostly be gone inside fifteen years. That is not a sales culture. That is a handful of veterans carrying a book, and when they retire or get bought, the velocity number goes with them. Producer recruitment is not a nice-to-have in that picture. It is the difference between a firm with enterprise value and a firm that is really a large personal book with a sign out front.

What an owner should take from this

Three things follow, and none of them are cheap.

Know your own NUPP before you argue with the benchmark

Most agency owners under $10 million in revenue have never calculated it. The math is not complicated: total compensation paid to producers who have not yet validated, minus the commission those producers actually generated, divided by agency revenue. If the answer is zero because you have no unvalidated producers, that is the answer, and it tells you your growth is entirely dependent on people who are already fully booked. Run it before your 2027 budget, not after.

This is the same discipline we have argued for in the context of auditing your stack: you cannot manage a number you have never looked at.

Treat the validation window as a design problem, not a hope

The reason agencies flinch at hiring producers is that the failure rate is real and the carrying cost is front-loaded. The response is not to skip the hire. It is to shorten the runway deliberately: a defined book to inherit on day one, a named mentor with time actually blocked for it, a written activity standard for the first ninety days, and a validation schedule everyone signs. Our guide to a first hire lays out the structure; the Best Practices data is the argument for why you cannot keep deferring it.

Agencies that hire a producer and then hand them a phone and a territory are not running a producer development program. They are running a lottery and calling the losses proof that hiring does not work.

Fix the comp plan before you fix the pipeline

An unvalidated producer paid on pure commission from day one is being asked to fund the agency's growth out of their own savings. Most cannot, so they either leave or drift into servicing renewals, which is the quiet way a producer role turns into an account manager role with a producer's title. A subsidized draw that steps down on a published schedule costs real money and it is the entire point of the NUPP line. If your commission structure makes a new producer's first eighteen months economically irrational for them, the plan is the problem, not the candidate.

The market timing argument

Softening P&C rates do two things at once to an agency. They shrink the revenue that arrives without effort, and they make every retained account slightly easier to defend and every new account slightly easier to win, because the pricing conversation stops being an apology. A producer who could not get a meeting in 2023 can get one now.

Which is why the timing of the pullback is so awkward. Agencies cut new producer investment during the years when producers were hardest to make productive, and they are entering the years when producers are easiest to make productive with the thinnest benches they have had in a decade. Reagan expects that to reverse. Webb Milward, a partner at the firm, put it this way in the release: "We expect most Best Practices agencies to adopt new strategies including additional investment in producer recruitment and development that will help them continue to grow and thrive in the softer market."

Note the tense. Expect. It has not happened yet in the data.

What the profitability number is really telling you

Charles Symington, president and chief executive officer of the Big "I," framed the study's headline as resilience: "Best Practices agencies are meeting the evolving P&C insurance market from a position of strength. Even as organic growth moderates, these agencies have still been able to deliver solid profitability thanks to operational efficiency and sound leadership. Their performance shows success comes from building a resilient business, which is what the independent insurance agency channel has always done."

He is right about the strength, and the operational efficiency is real. But a margin held by not investing and a margin held by running a better business look identical on a one-year income statement and diverge completely over five. The Rule of 20, which adds half of EBITDA margin to organic growth as a rough proxy for shareholder return, ranged from 19.3 to 26.1 in the update, down from 19.0 to 29.5. The top end came off hard. That is what it looks like when growth stops subsidizing the score.

None of this argues for hiring recklessly. Agency profitability is not a vice, and an agency that hires three producers it cannot mentor will have three failures and a worse balance sheet. The argument is narrower: a firm with a NUPP of zero has made a decision about its own future, whether or not anyone in the building has said so out loud.

The question to put on the agenda

Before the 2027 planning meeting, answer one thing in writing. If your two highest-producing people left in the next thirty-six months, through retirement, a competitor, or an acquisition, what percentage of new business would the agency still write?

If that number frightens you, the Best Practices data is not about other agencies. Building a sales culture that survives the departure of any one person is slow, expensive, and the only thing that turns an agency into an asset. The soft market is the window. It will not stay open indefinitely, and the firms that used the hard market to build a bench are about to find out they were right.