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2023 Agency Growth Study: Agencies Anticipate Ownership Changes

With 40% of the agency principals surveyed older than 60 years old and 20% older than 65 years old, half of agencies will experience a major change of ownership in the next 10 years, according to the study.
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2023 agency growth study: agencies anticipate ownership changes

Half of agencies will experience a major change of ownership in the next 10 years, according to the “2023 Agency Growth Study" from Liberty Mutual, Safeco and State Auto Insurance, which found that 40% of the agency principals surveyed are older than 60 years old and 20% are older than 65 years old.   

The study surveyed more than 1,100 independent insurance agency team members, including more than 450 agency principals and owners, posing the important question: What will happen to your insurance agency when the principal retires or can no longer run the agency? 

Perpetuation planning is a pressing issue as many agency principals near retirement age. While there are many different options for selling or perpetuating an independent insurance agency, there are two main methods—internal perpetuation or an external sale. However, agencies are encountering obstacles during both methods, the study says.

Internal perpetuation is the most popular plan among agency owners, according to the study, with 42% of principals who expect an ownership change in the next five years planning for a family member to take over.

A further challenge identified as facing agencies in their perpetuation planning is the shortage of available talent in the insurance industry in general. On the one hand, more than half of agency principals surveyed identified finding and recruiting talent as their biggest management challenge and a top obstacle to the future of their agency ownership. On the other hand, the current uncertain economic outlook is forcing some corporations to pull back on hiring, as well as forcing large-scale layoffs that are putting experienced employees back into the job market that could benefit the insurance industry, the study said.

Meanwhile, external perpetuation may have been an attractive option over the past number of years, the number of merger and acquisition deals declined 27% in the third quarter of 2023. While this trend opens the door for agencies seeking to grow through acquisition, agency owners need to be cognizant of the ever-changing M&A market and the options available to sell an agency, especially those who own small property & casualty agencies

Further, perpetuation plans differ for different sized agencies, according to the study. Agencies with more than seven employees are most likely to plan for other principals to buy out a departing owner or principal's interest, while those agencies with fewer than seven employees are more likely to consider selling to an outside party. 

And while many agency owners want to keep their agency in the family, family members aren't the only option for internal perpetuation. Hiring externally and investing in leadership development can give agency owners more options for internal perpetuation.

More than half of millennial and Generation Z agency employees—those under 41 years old—and about a third of Generation X employees— between 42-57 years old— aspire to lead an agency one day, the study found, with 62% listing “inspiring leadership to provide mentorship and career guidance" as the top characteristic they look for in an ideal employment situation. 

However, only 42% of younger employees say their manager is actively developing them for leadership. And only 38% of women working in frontline roles saying their manager is developing them for leadership, compared with 55% of men in the same age group. Agency owners may be overlooking promising female employees who could be great candidates for succession, the report says.

As more than half of the agencies that plan to perpetuate in the next five years have had the current leadership in place for more than 20 years, the wealth of industry knowledge held by agency owners is immense, the study says. Taking a long-term view toward mentoring future generations, as well as investing in technology, are best practices that can help owners identify their goals for the perpetuation process, maximize the value of the agency and develop future agency leaders. 

Olivia Overman is IA content editor.

Wednesday, December 20, 2023
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