February 18, 2008
Insurance Agency purchase discussion.
Q: - lets say you have an opportunity to pick up an independent insurance agency (that uses a highly recognizable underwriter’s name) that already has a book of business of approx 3500 mixed policies, would this be lucrative? Could you estimate?
A: The opportunity is intriguing; A large or profitable agency is going to come at a price. The million dollar question: is the price too high? You didn’t mention how much premium is generated by the 3500 policies, so we’ll look at some other factors.
Any agency undergoing change is going to experience some run-off of existing business. To estimate how much will run off I’d do analysis by first breaking down the book of business:
Personal lines vs. commercial lines and access to both.
Preferred market vs. standard (or high risk) and again access.
Any life& health, group life, disability: what kind, with who, and how stable
Consider what types of business you want to write and see how competitive you are in those markets.
Other factors to consider:
Loss histories
Profitability
Retention
After crunching numbers, an analysis of current agency management would be in order; since you’re stepping in to replace existing agents, how are you going to do?
Are you replacing the most popular guy in town or an agent who’s been semi-retired for the past 5 years? Is the book looked after or has it been neglected? High maintenance or on auto-pilot? Are the principal or sub-agents moving to positions where they will compete against you? Why don’t they want to buy the agency (there’s a million dollar question).
Are you able to fill the shoes or are the shoes too small and you can do better?
Is the agency what your looking to build or are you using the appointments to grow in a different direction?
How cooperative is the current owner? Is current management working with you or against you to keep your business walking out the door? Are CSRs and other key personnel staying? What is their incentive to stay? What is the cost to keep them? Are you on the hook for their health plan, pension, 401K, profit sharing?
Finally, unless you have a large bucket filled with cash you’re probably financing the agency purchase. What are the terms and expectations from the finance company. Is it straight financing or an Agency Purchase firm? What are their expectations for growth? If your first year is the worst you’ve ever had, will you survive or be bankrupt?
Lots to consider. Good luck in you decision making.
Editor’s note: Any agency owner who’d like their link added to this site, please leave a comment.
