Growing your insurance agency should be at the top of your to-do list every day, but there are many ways that you can make that growth happen. The first and most obvious way is to sell more policies. Establishing growth goals using traditional strategies from sales, renewals, cross sells, upsells, lead generation, referral plans, and more is the time-honored traditional path to build your agency book. This is often referred to as organic growth.
Another way to grow is via acquisition. This method has the potential to boost your agency growth substantially.
- Buy an agency. Buying an insurance agency means just what it implies – lock, stock and, barrel. You purchase all the tangible assets – the bricks & mortar, the staff, the name, the website, as well as the book of business.
- Buy a book of business. Buying an insurance agency book of business is buying a line or a segment of business, without the building, the logo, the name, the physical assets, or the people. Just the accounts and the client relationships.
There are other growth strategies, such as partnerships, product line expansions, and more. But in today’s post, let’s take a deeper dive on growth by acquisitions, reviewing some of the key considerations for success.
Buying an insurance agency or a book of business can be an involved, time-consuming, and expensive process. Conducting thorough due diligence can be the difference between success and disappointment so it’s important to go into the process with that understanding. A quote by author Terry Goodkind comes to mind: “If the road is easy, you’re likely going the wrong way.”
Key considerations in buying an insurance agency or book of business
To start, you should establish your goals. What is it that you want to achieve? Do you want to grow geographically? In a specific line of business? To eliminate competition or to strengthen your competitive edge?
Once you’ve determined your goals, consider getting the counsel of professionals to assess your own agency for planning purposes. An outside consultant specializing in agency valuations can help you with a snapshot of your own business health, your strength, and weaknesses. They can help you assess what you can afford and test your acquisition assumptions and goals. In many cases, the right consultant can help you find target prospects and help you through the process until closing, too.
Next: research, research, research. Find out what’s out there. Keep an ear to the ground in your own network and think about agencies in your region where an aging principal might be considering retirement. Ask your insurance underwriters and your business partners. Check popular insurance publications such as Insurance Journal and Agency Equity for listings. Research M&A consultants and brokers. You can even run ads on social media or put a notice of interest in agency acquisition on your website or blog.
Homing in on an acquisition target
When you find a target prospect, find out why the current owner is selling the agency or book. Is the owner retiring or are there viability issues? You want to evaluate the agency reputation in the market, staffing, client relationships, and agency book. Would it make sense to have the current owner play a role beyond the sale or not?
Before you get too far down the line, there are two steps you should take once talks look serious:
- Execute confidentiality agreements.
- Check in with your E&O insurer early to alert them to the potential acquisition. Find out if they have any guidance about particulars in your planned acquisition. See: How [E&O] Policies Respond When Buying or Selling an Agency
When you’ve taken those steps, it’s time to kick the tires. Be sure you know the agency you are buying inside and out. Review the target agency’s operations, assets, liabilities, book of business, finances, financial health, and carrier appointments. Does the agency own the right to its account expirations? Is it a good book of business with growth potential? Are there considerations related to licensing, regulatory requirements, or disclosures?
Once you’re satisfied, you need an attorney to help draw up a buy-sell agreement. The buyer and the seller should have separate attorneys representing them in this process. See: Characteristics of a Good Buy-Sell Agreement.
Buying an insurance agency: What NOT to do
One of the best ways to learn what to do is by learning from the mistakes of others who have gone before you. Experts who work in the field of M&A say that there are a fair number of agency acquisitions that turn sour. Common reasons cited include:
- Overpayment. Make sure you understand agency valuation. Establishing Agency Value.
- Overestimating the upside potential.
- Rushed or thin due diligence that results in unforeseen problems.
- Integration problems. Marrying the new agency culture and operation with the old can be tricky.
For more potential problems, see Acquisition of Insurance Producers: Common Pitfalls.
Don’t let all these caveats discourage you, however. Acquisition is a great growth strategy if you approach things carefully and with diligence. One final piece of advice: Check in with friendly, non-competing peers who’ve executed a successful acquisition and get their advice about what they would advise to do and not to do based on their experience.
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