Purchasing an Agency? Make Sure Your Books of Business Align

By | July 20, 2023

This post is part of a series sponsored by InsurBanc.

When it comes to purchasing an insurance agency, onboarding the entire book of business is extremely important. Otherwise, the sale price may not reflect the agency’s true value to you.

An important conversation to have presale is this: Do the markets align between buyer and seller?

1. What are your relationships with the carriers involved?

Are both appointed with carriers involved in the sale? Certain carriers are sensitive to whom they appoint. If the agency you are purchasing does a majority of business with such a carrier, and you have no relationship with them, it could be a problem. You could be in a situation where you’re trying to buy a piece of business and you can’t write that business with the market it’s placed with.

The buyer needs to ensure, presale, that such appointments will transfer, as the revenue estimates of the sale are tied into such appointments. The seller should facilitate introductions and discussions with any carriers that you do not already have a relationship with. Find out what is needed in order for the carrier’s appointment to carry over. There should be no uncertainty in that relationship by the time the sale is consummated.

2. Do you have experience with different lines of business or niche products you’re purchasing?

Do you write those lines of business now? If not, do you have the expertise in order to sell and service that product? It’s not necessarily bad if you’re buying an agency that has a book of business that significantly differs from what you do now. It could be a very profitable line of business. It might even present an opportunity to round out your lines of business or even add new lines of business. But if you don’t have experience selling those products, then it’s going to be a challenge to sustain that. Be prepared to address this upfront.

Make sure you have the people and systems in place to cash in on that opportunity. It can look very attractive to purchase an agency that specializes in a certain niche and has a high profit margin. But that margin requires a certain level of expertise and service capabilities. Making sure that you can bring both to the purchase is important.

3. Do the agency profiles align?

Perhaps the firm you are looking to purchase is more commercially oriented while your agency focuses more on residential. Will that be a problem? Again, do you have the expertise to sell in both the commercial and residential markets?

4. Do your demographics align?

Perhaps the customer base of the agency you want to acquire is older than yours. Does that affect profitability now or in the foreseeable future? Also, if the new agency has CSRs that service the book, do you have the staff in place to continue to do so? Without someone in-house with the knowledge to manage those accounts or be able to address the specific nuances to that product line, having the appointment could be all for naught.

Industry experts, including an industry lender, well-versed in these and other issues that should be addressed presale, can ensure that the book you purchase will perform at the same level post-acquisition, and that the revenue earned by that agency will remain after the sale is consummated. Be smart!

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