Using Ownership to Retain Producers and Staff To Build Your Independent Agency

This post is part of a series sponsored by InsurBanc.

The insurance industry has one of the economy’s lowest unemployment rates, at 1.6% as of April 2023 according to the Bureau of Labor Statistics (BLS). Within the industry, the BLS forecast 6% growth from 2021–’31 in jobs for insurance agents, meaning 52,700 openings for insurance agents are projected each year, on average.

Considering numbers like that and their own experience, independent agency leaders likely would agree that demand for producers is high and supply is low.

These same leaders probably have put significant effort into attracting and developing new producers. However, agency leaders might not have paid as much attention to retaining experienced producers. Retaining an existing producer can obviate the need to attract a new agent.

One way to keep producers/key employees is to turn them into insurance agency owners. An agency that has talented, experienced agents on board might consider offering a share of ownership to them through internal perpetuation.

Here’s an example: InsurBanc funded a loan to two experienced insurance producers who worked for a small agency in the Northeast; each used the loan proceeds to purchase 5% shares of the firm. The owner found that, through this internal sale of a portion of the agency, he was able to retain these talented individuals.

Some owners might dismiss this approach because they’re not ready to sell their agency. But selling a share doesn’t automatically mean that the owner envisions these producers as majority owners of the business in the future.

Rather, equity ownership can be a way to recognize key employees today, giving them incentive to stay and rewarding them for service and performance. It also gives select producers motivation to grow the business because they’ll benefit from cash flow and profits in the firm.

What’s the first step in using perpetuation as a retention tool? If an agency principal has on staff a valuable producer/key employee, he or she can pull that person aside and start talking to them about the possibility of an internal perpetuation.

Converting producer to producer-owner also can lead to valuable training and mentoring time. The principal can help the new producer-owner learn the business from an ownership perspective and adapt to a management role. So over time, the agency not only has a very good producer, but also a leader who can guide operations, financing, sales leadership, technology and other important functions.

Functionally, the financing for such an internal perpetuation of an equity share of an agency is straightforward. Suppose the agreed-upon price (usually decided upon after the agency principal orders a third-party valuation) for a 5% share is $200,000. To finance the internal sale, the producer who is buying the equity share would take out a loan in that amount from a bank. The producer uses the loan proceeds to buy that equity share from the principal. Such a scenario is appealing to many principals because they don’t need to reach into their own pocket to finance the sale of shares.

After the sale, the agency acts as a market for the producer’s shares should the producer be unable to pay the loan back (due to disability or death). Under those circumstances, the agency would step in and buy back those shares at the outstanding loan balance.

Sources:

Industries at a Glance: Insurance Carriers and Related Activities: NAICS 524. Workforce Statistics: Employment and Unemployment: Unemployment rate, Apr. 2023. U.S. Bureau of Labor Statistics. www.bls.gov/iag/tgs/iag524.htm#workforce. Accessed May 24, 2023.

Occupational Outlook Handbook. Job Outlook. U.S. Bureau of Labor Statistics. www.bls.gov/ooh/sales/insurance-sales-agents.htm. Accessed May 24, 2023.