Make Sure Your Agency Appeals to Buyers

Selling to an outside party is a popular perpetuation plan among independent agencies: According to the latest Future One Agency Universe Study, 24% are considering courting outside buyers.

Selling is appealing for many reasons, including the number of well-capitalized buyers that are currently seeking successful, growing agencies. Last summer, Al Diamond, president of Agency Consulting Group, Inc., told IA that “for every seller, there’s probably 15 or 20 buyers.” That’s the definition of a seller’s market—but to succeed, you have to understand what these savvy investors are looking for.

Earlier in my career, I worked in private equity, focusing on insurance agency valuation and acquisition. Today, I see increasing investor interest in personal lines revenue. Why? Because smart investors see predictable cash flow when they look at an agency with a strong, growing book of personal lines business. They see less rate risk and minimized retention risk because it’s spread across hundreds or thousands of policies. That makes for more equity value in the agency, which makes it a ripe target for investment.

What’s less intuitive is the substantial impact consolidation can have on growth and profitability. Consolidating your agency’s personal lines business to fewer, sophisticated carrier partners can help increase base commissions and profit sharing, save on operating costs and reduce the number of processes, systems and products your employees need to understand. Focusing on fewer partner carriers puts you in a better position to maximize your compensation.

The Agency Universe Study reports that on average, agencies already write 83% of personal lines business with their top three carriers. Is scattering the remaining 17% across as many as eight other personal lines companies really good for business? Or would moving that business to one of your lead personal lines markets result in higher base commissions, increased profit sharing, more satisfied agents and an enhanced revenue stream?

Consider how a smart agency buyer would answer those questions.

Gary Fischer is senior vice president of Safeco distribution strategy and operations support.