There may never be a better time to buy an independent insurance agency than in the next five years.
If you didn’t know anything else about the environment for agency acquisitions and I told you the following, what would you think?
When I consider those three facts I see opportunity. In the first place there are a lot of people who are getting close to “normal” retirement age and whose biggest retirement asset is likely their business. So, they want to sell.
When half the workers in an industry are retiring in a short period of time when business risk for the owners increases. Increased risk raises the urgency to sell. Premiums and commissions are up owners tend to think this is a good time to get out. Also, buyers may have more profits themselves to make purchases. This means more transactions, more attention to selling and more opportunity for buyers.
Some other unique things going on in the economy make this an excellent time to consider investing in an agency. Low interest rates create the opportunity for buyers to finance acquisitions for less or support higher offering prices. The increasing demand by insurance companies for agencies to “grow or go” creates pressure on marginal agency owners to sell. The quickening pace of technology change further pressures older owners to sell rather than invest in new capability.
Some caveats to my optimism for acquirers is also in order. Obviously, higher premiums and commissions means higher agency prices. Technology changes coming to the industry means increased customer turnover risk. And the challenge of finding qualified employees which is driving some owners to sell will be a significant business issue for agents who are expanding through acquisition.
On balance, though, I think the opportunity for well positioned, and well prepared agents, to prosper by purchasing books of business or agencies is excellent. In my next post I’ll talk about how to get ready.