Keys to a successful perpetuation for independent insurance agencies

According to the “Big I” 2020 Agency Universe Study, nine in ten independent insurance agencies state that they have a perpetuation plan, though it often centers around children and family. Four in ten anticipate an ownership change in the next five years. Yet many generational succession plans may not offer the retiring owner(s) the best option. Selling to, or merging with another agency may yield more, and often the next generation lacks the desire or business acumen required to take on ownership.

Building and running an insurance agency requires a great deal of hard work and sacrifice. Agency principals often focus on sales and growth, and not their exit strategy, especially in the early days of building their business. Whether you are hoping for a family member or producer to take over the reins when the time comes, or you hope to find an outside buyer, there are things you can do now to maximize the value of your agency in support of a wide range of future outcomes.

  • Know your book of business. Know where your business is and who is writing it. Business placed with top-tier companies will be more desirable (and easier) for a larger number of prospective buyers than business placed with an assortment of regionals. Carrier alignment and contract management are one of the factors that can make your agency more attractive.
  • Be diligent with your data. Whether you opt for an agency management system, CRM, or both, having your client and prospect records up to date and consistently maintained will be key to accurately valuing or transitioning your book.
  • Track and improve revenue. Having the data is great, but being able to use it to aggregate carrier data, cross-sell, track lead sources, evaluate producers and other key metrics is even better, regardless of your succession plan.
  • Really (really) work on your retention rate. Potential buyers will be interested in knowing what your agency’s retention rate is, and what is driving it. A certain amount of client runoff is expected in any sale, but a strong retention program that can be picked up by subsequent owners is very attractive.

You laid the groundwork, and you are ready to think about the next step, and who your ideal successor looks like. For most, leaving clients in good hands with the least amount of disruption is important. Unless you are planning on hitting the road for faraway places, it is likely you will still live and interact in the community that supported you over the years.

Like-agency sales tend to go easier with clients and staff. Agencies of similar size and make up tend to have a smoother and shorter transition period. Principals may consider negotiating a stay-on arrangement where they help implement a unified changeover. Typically, this may take 6-12 months, especially if your agency specializes in one or more industry niches.

Belonging to an agency network can work to your advantage. Using insurance company strategic partners that pay higher commissions, bonuses and profit sharing will add to your income today, and your business value when needed. When timing your agency perpetuation, let your network know, as they can help with the process and perhaps line up potential buyers.