There is a bit of an allure to buying an insurance agency. Growing quickly without much effort, the art of the deal, and taking out a competitor.
What could go wrong? Generally speaking, you will always make money on an acquisition however, you may lose sleep, and hair and gain 10 lbs. Merging two businesses can be a challenge there is a lot to be considered.
So often agency owners get wrapped up in a deal and they don’t get out easily. In this blog, we want to make sure that you look at agency acquisitions with eyes wide open and ready to embrace the good the bad, and the ugly.
This will help you identify what a fair price is and really what an onboarding process looks like.
When buying an insurance agency my top 3 tips are:
- Don’t fall in love with the deal it will cloud your judgment
- Not every agency will be a good fit it’s okay to be picky
- Understand that not all clients and teams will most likely make it through the process
As much advice as there is about what to do – we want to share with you what not to do to help strengthen your strategy.
Do Not Skip Due Diligence In Buying An Insurance Agency
We all get excited when there is an opportunity to buy an insurance agency. Maybe the lead called you or maybe you have been prospecting them. Remember, either way, the owner is selling you and you are selling them.
Many agency owners in a sales process may inflate their actual agency numbers or feel their agency is elite and premier. The reality is the due diligence process exists to confirm and clarify the actual details of the opportunity. In our strategy – it’s all talk until you see the details.
Let’s face it we all have skeletons. Maybe it’s a bad team member, high loss ratios, or a carrier threatening to pull your agreement.
Every single agency has some bruise on the business. When buying an agency don’t neglect finding the pain point. It will become your pain point and knowing and understanding it are critical to how you proceed.
It doesn’t mean walk away but it does mean proceed with a plan. For many agency owners in acquisition mode they focus on the math – will it make money? Now this is critical. Without that walk away!
However, we miss some of the other areas to consider:
- Is the agency growing or shrinking (and not due to a hard market) – It’s harder to turn around a ship that is off-track
- What is the client demographic – If they are rocking all monoline 6-month autos it may not be the best fit for you, or if you have the bandwidth it is an opportunity
- History – what is the brand reputation with carriers and the community don’t doubt that sometimes the other local agents would not touch it with a 10-foot pole and they are looking elsewhere
- Age of book – If you are buying all 70+ clients you need to identify how to make that work and find new ones
- Property – many agencies want to put rent or buying a building in the deal you have to identify if that makes sense
- Carriers – do they match or have a contract you need or is it all brokered business that will take some elbow grease
- Staff – Are they demanding you keep some staff? This is a red flag.
- Name – sometimes sellers are so proud of what they have created they really believe the name matters it may but it be your decision, not theirs
The bottom line is everything listed above is figure-outable, for the right price. In addition, I stress before you get into the heart of the deal clearly write down your boundaries and stick to them. It’s so easy to get caught up in the deal you forget you’re trying to make a good business decision and you have a current book and team that will be impacted.
Factoring In the Agency’s Reputation In Buying An Agency
For many of us, we believe that all agencies must run about the same – well I can tell you by beginning in over 1000 agencies there is a lot of variance.
One factor to consider is the agency’s reputation. As I’m sure you can imagine there are facts and feelings on agency reputation however, go into your sale with eyes wide open on what you are getting and why.
Remember, almost every agency has a hidden blemish so you want to ensure you conduct your due diligence.
Work With Your Carrier Representatives
The carrier reps know a lot. If you have similar reps make sure to connect with them. Now, the carrier rep may be ecstatic to have you scoop up this agency and rehabilitate them. Interview the carrier reps (if there is no non-disclosure).
They can give you lots of information on their growth, team, and reputation at the carrier. Again this may not stop your sale but you may have some work to do.
Online Reviews
These are another great insight into what you are buying. If the agency has lots of good reviews this is a great sign. If they have only a handful you may need to dive a bit deeper.
If there are some bombs on their reviews it’s a great discussion to have. How the community views this agency will be critical to negotiating the price as well as understanding what you are getting.
Review Other Partners
Maybe you use the same glass company or restoration company or are part of a networking group together. Ask some questions to understand how people view the agency and owner.
Another great opportunity is to review the agency owner’s social media and do a Google search. Remember you will acquire these online reviews and any negativity that may exist on the internet. It will help you understand what needs to be cleaned up!
Reviewing Carrier Profiles
If you can find an agency that matches your carriers that is ideal! Your team knows the companies, you probably share the same marketing reps and it makes the deal and transition very easy.
The best part you probably tier up higher with your companies and in many instances, the carriers are very excited and supportive of the acquisition.
More likely than not you acquire an agency that has a less diverse company profile. In this situation, you may be able to assist your clients in finding better and less expensive coverage.
If an agency has lots of business with brokers you need to be prepared that there will be some work in rewriting them to your markets. We find in many agencies that have heavy acquisitions there may be 100+ companies. Not everyone has logins to every company making it hard to service.
When you come together you do still want to focus on keeping a tight and right carrier portfolio.
One note, if the agency you are buying has a unique market it’s not a given that the market will automatically appoint your agency. Some carriers have very strict guidelines based on geography on who they appoint. It’s important you understand this before you purchase the agency.
Lastly, if the agency you are purchasing is part of a network you may want to review their contract. In some aspects it may be a great opportunity to join, on the other hand, some contracts are very strict and it can hold up your sale. Need help making two agencies become one? Consider our Agency Assessment.
Getting the Agency Staff and Culture Alignment Right When Buying An Insurance Agency
There is truth – if your agency is not running well adding more people and policies into the mix may not be the best move. We have a saying: more people, more problems. When merging two different teams together it can be a challenge from processes to personalities.
In fact, we find most of the staff from the selling agency don’t make it much past the one year mark. It’s always easier to create a new relationship than change one that is in existence. Want to know how your agency stacks up? Take our Agency quiz.
Both agencies have a team that has value. There is expertise, and knowledge of the client, the systems, and carriers. What you have to identify is how to harness that power together.
Where possible it’s a great idea to find the best parts of each agency and work to connect them. Ultimately, the team must do things uniformly but many agencies rush this part.
It doesn’t have to be on day one (heck many of your team may be doing things differently). As long as you have an identified roadmap that is shared with each team member so they know what’s next and why you will succeed.
One way to help align the agency cultures is to spend time together. We love to connect the teams at fun outings, share a bit about each other, and start integrating either video meetings or in-person meetings.
When people know each other a bit personally and professionally that transition can go smoother. When a nameless faceless person is telling you how to change that rarely goes well. Try to find ways to connect everyone rather than tell the agency you are acquiring it your way or the highway.
Ever wonder how your team or the agency you are buying team handles new business? Check out our secret shopper call program:
Agency Acquisition Financial Projections
Here is the good news, Very rarely do you lose money on an agency acquisition they are almost always profitable. However, you may lose sleep, people, and some clients along the way. Too many agents get wrapped up in the art of the deal and what this causes is you to be blinded and potentially overpay for an agency.
What you want to understand financially is:
- How much of the owner’s personal expenses are tied to the agency
- What are their loss ratios – Is this going to positively or negatively impact your books
- Staff compensation Are they over or underpaid
- Expenses around merging systems and locations
- Is the book growing or shrinking?
- Will this bump you to another carrier tier or commission tier?
- How are you going to coordinate the deal? Is it cash up front or paid our based on retention?
- What tax and loan implications may this have?
- Is this the right deal or are you tying up valuable resources for another better deal?
You want to acquire this agency to make money and so you need to be diligent. We recommend if the book is larger you invest in a valuation to confirm from a 3rd party the true value of the agency.
Integrating the Tech Stack
It’s pretty common for the purchasing agency to have a more robust tech stack than the selling agency. Imagine learning a whole new system, and process and having a new boss all at once.
Crazy right? Well, one common item we suggest to agencies is to start with just integrating the team so they can get to know each other. The tech integration is often long, expensive, and tedious.
Target to integrate technology about 6 months after the acquisition. You can bump that up faster if things are going well.
One great feature of combining agencies is scale. When you can cut out duplication of systems you gain some profit margin. Ensuring the new team is trained and equipped to handle new technology is important.
Remember your team has been using it for a while this new team has to learn everything new. When you are onboarding the new team to your technology you do need to identify a drop dead date to shut off the other systems. You will find that people will continue to go to those systems until the very last moment.
When acquiring an agency you want to understand their tech stack to identify how much change is really coming. In addition, just because the agency has the same system as you do not assume they use it the same way or to the same capacity you do – for many agencies their management system is nothing more than a filing cabinet and there may not be much detail in there.
This will have to be addressed sooner or later to manage your agency’s E&O exposure. If the agency is using their system consistently you will want to identify the cost for the system transfer.
Working With the Previous Agency Owner
When working with the previous agency owner you have to remember this is their life’s work, it can be incredibly personal for them.
This may be a family legacy or a scratch agency but for many of the agency owners while they are ready to sell they may not be ready for change. It’s common for agencies to allow the past owner to stay on. However, in my experience, this rarely goes well. Imagine – could you work for someone else? When perpetuating a family this is slightly different but when buying an agency be prepared for the owner to get a little emotional.
There are some agency owners who want to bounce and leave and never look back. Then there are some that want to sell but keep everything the way they like to do it.
Here is an example, if an agency owner remarketed every account and your agency standard is different – be ready for a WWE-style wrestling match. Or, you don’t write monoline policies and they do. The list continues.
The most important thing you need to establish is that the staff is managed and led now by you and your team. Out of habit many team members still go to the past owner. Their strategy may be different and not in compliance with your strategy. Ensure that you establish a clear organizational chart to limit any future drama.
Conclusion When Buying An Insurance Agency
Here are the top things you want to make sure you do NOT do when buying an agency:
- Get emotionally involved in the deal
- Not establishing clear leadership for the new team
- Rush the integration and not be kind to the new team’s process
- Expect everyone will get along on day one you need to plan to bring everyone together
- Allow the previous owner to stay on without clear guidelines
- Establish a roadmap and budget for integrating technology
- Avoid doing real due diligence on the agency
