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Transitioning Your Agency For Success

Over the next ten years, we estimate 580 agencies, representing $6.5B in premium will change hands. Our data indicates that over 45% of the agency owners in the state of Ohio are currently 55 years old or older. According to the 3-year trend, 12% of agencies will perpetuate internally, 64% agencies will sell to another agency, and 24% will sell to brokers as a result of private equity money.

580 agencies, representing $6.5B in premium will change hands in the next 10 years.

The merger and acquisition activity in our insurance marketplace is at an all-time high, and this trend is not expected to slow down any time soon.  Many agency owners in the state of Ohio are currently working past the age of 65.  In addition, a significant percentage of agency owners are at or nearing retirement age, and this means that they will soon be weighing their options on transitioning the ownership of their agency.  The Ohio insurance marketplace is facing a significant shift in ownership during the next decade, and we want our agency owners to be informed and well-prepared as they navigate their way through the transition of their agency.

Regardless of your decision to perpetuate internally or sell externally to another agency or broker, it is critical that you are prepared and have all the information you need in order to make the best business decision regarding the transition of what is most-likely your single largest asset.  Here are some suggestions on how to be prepared and informed as you transition your agency:

Determine your goals & prioritize

As you decide what path is right for you as you plan for the transition of your agency it is important for you to ask yourself what are the factors in this decision that are most important to you?

  • Is keeping your agency in the family what is most important to you?

  • Is remaining as a positive influence in your community important to you and your legacy? 

  • Is ensuring that your clients continue to have the same level of service and relationship with the agency most important you? 

  • Is your client’s ability to stay with their current carriers important?  

  • Are you most concerned about your staff and their future as you transition your agency? 

  • Is getting the highest price for your agency your top priority? 

As I meet with agency owners who are planning for their retirement and agency ownership transition the answers vary.  There are no right or wrong answer to these questions as they are personal to you and your agency. However, in order for you to have clear goals and realistic expectations as you plan for your agency’s transition, it is very important that you to prioritize what is most important to you. For instance, an agency owner who prioritizes keeping the agency in the family, knows that they may not get the absolute highest price possible for their agency.  An agency owner that prioritize their clients and staff and is open to the idea of selling their agency to another agency that shares the same culture, carrier mix and approach may also not get the absolute highest possible price, but that isn’t their #1 priority.    

Get Informed

Once you know your goals and have them prioritized, it is important that you get all the information you can to help you make the best decision for your agency, clients, staff and family.

First, get a Fair Market Valuation of your agency as soon as possible. Do not wait. Knowing your agency’s value is an important first step in your business planning process.  This will allow you to understand your risks, identify areas of opportunity to improve your agency’s value prior to your agency’s transition.  If you wait to get a valuation at the time of the sale, you will not have any time to implement changes that could significantly improve your value. 

Know the market

Second, if you are interested in selling to another agency, gain a complete understanding of the marketplace and market demand for your agency.  Do not limit your options to agencies that you know – there are many, many agencies in the Ohio marketplace and it is likely that there are interested in purchasing your agency.  We can help you determine the agencies that fit nicely with your specific goals and prioritization.  If you limit your options to agencies that you currently know, you will miss out of the opportunity to explore all of the options and find the best fit from a carrier mix, systems and culture perspective. All other things being equal, an agency that is best aligned with your goals is more likely to pay a higher price than an agency that is not perfectly aligned. Agency Link is a service that can match up your agency with other agencies looking to buy.  It is data-driven based on factors like carrier mix, agency management system, use of service centers, product mix, and culture. 

Get started now

The best advice we can give you is START.

We understand that the transition of your agency is a big decision and there are many factors to weigh as you plan for your future.  Many agency owners struggle with redefining their role and the idea of no longer being a part of the agency on daily basis is hard. Others are fearful that perpetuating their agency internally isn’t feasible, financially so they put off even having a conversation about it. Time is scarce - the agency owners that I know are very, very busy people.  They are 100% focused on serving their clients and running their agencies, so there is little time left to spend on planning for their future – I get it!

I also know that an agency that transitions without a plan in place or as a result of an unexpected life event is more likely to be financially and emotionally difficult for everyone involved.  The OIA consulting team can help you document your goals, create a plan, understand your marketplace an ensure that the transition of your largest asset and life’s work is a planful and a positive experience. We will be your quarterback and help you every step of the way through the process.  We will help you understand your options and ensure that you have the plan in place that is best suited for you, your clients, your staff and your family.

Ready to learn your agency's value?

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Selling your agency can be just like selling your house

About a year ago, my neighbor put their house on the market. It sold in 3 hours for $30K over asking. I’m sure you’re asking, what did they do? It’s simple, they did their research; they knew the market and they knew how to strategically price it for multiple offers.

If you were going to sell your house, what would you do? Would you sell it to the only person that knows that it is for sale or would you want to understand the market, create demand and give all possible buyers the opportunity to make an offer?

Most people want as many buyers to be aware that their house is for sale so they can find the best possible match and get the best possible price – therefore they list their house with a real estate agent or “put their house on the market”. My opening story proves, by listing your house at the right time with the right conditions, you can receive multiple competing offers for your house based on the demand in the marketplace.  A high demand and receiving multiple offers is the best possible scenario for you as the seller because it gives you choices – and the ability to find the best fit for you and your situation.  Wouldn’t you want to know that there are several great options to consider when it comes time to sell your agency?”.

Agency Link is the marketplace for your agency!

The basic principles between selling your house and selling your agency are the same with one huge exception – CONFIDENTIALITY. We know that selling your agency is not something that you want your competitors, clients, and carriers to know you’re considering as that could be detrimental to your business.  When you know that you want to sell your agency, we can list your agency confidentiality so you can understand the marketplace, find the best fit for your agency and ultimately locate the best buyer based on your specific criteria without the risk of losing any business.

Here is how Agency Link works:

Know your agency’s Fair Market Value

It is important for you to know the value of your agency as you enter the process of selling your agency.  You will need to obtain the Fair Market Value in order to adequately assess any offers you may receive for your agency.

Define Your Priorities

It is critical that you decide what is most important to you as you sell your agency.  We will need you to tell us exactly what you are looking for in a buyer and what is most important to you as you sell your agency. 

  • Are you looking for an agency that has the same or similar carrier mix so you can ensure that your clients can stay with their same carriers?

  • Are your employee’s futures what is most important you?

  • Is maintaining the location and current management of the agency the highest priority for you?

  • Are you looking for the highest price for your agency?

It is important to understand that priorities are different for everyone. There is no right or wrong answer, but it is important that you are clear on what is important to you as you consider your options.

List your agency

You will complete a list of questions about your agency and communicate your priorities to OIA so we can fully understand your agency and what is most important to you as you sell your agency.

Complete a confidential search

OIA will complete a confidential search to find the agencies that are looking to buy that best fit your criteria.  The search will be 100% confidential meaning that the potential buyers will NOT know your agency name at this point in the process. They will be given enough information to make a preliminary offer for the seller to evaluate, but the name of the selling agency will not be revealed. The selling agency will pay a fee to OIA to conduct the search.  If you choose not to pursue any of the potential buyers, OIA will conduct another search until you find a buyer that you are interested in pursuing.

Assess the matches

The selling agency will be provided a list of potential buyers, their offers and listing of all of the areas of matches between the selling agencies priorities and the buying agencies priorities or characteristics. Again, the potential buyers will not know the name of the selling agency at this point in the process, but the seller will know the names of the potential buyers.

Select a fit

Once the selling agency chooses a fit, the potential buyers that were not selected will be notified that their preliminary offer was rejected.  The selected potential buyer and seller will execute a NDA agreement in order to move to the due diligence and negotiation process.

Legal representation

Both the potential buyer and seller will obtain separate legal representation that will lead them through the due diligence and negotiation phase.  OIA will not represent either party in this phase of the process.  Our role is to create a market and provide the sellers with several offers for their agency.

Fee to OIA

Once an agreement has been reached between agencies that OIA has linked together for this transaction, OIA will be paid a fee for their services that is equal to a percentage of the transaction.  The original search fee that was paid to OIA will be deducted from the percentage fee that is charged at the time the agency sale has been completed.   For further details on the fees, please contact OIA.

If you are looking to sell your agency, which is likely to be your single largest asset, it is in your best interest to have a solid understanding of the marketplace.  OIA can help you every step of the way with our Agency Link program.   

Based on our demographic data on over 1,300 agencies in Ohio, we know that 45% of our agencies will transition their ownership over the next 10 years.  Any agency that is interested in buying an agency should be listed on Agency Link. There is no fee for an agency to be listed as a potential buyer on Agency Link.  You can expect that we will keep in contact with all potential buyers on a quarterly basis to ensure that your preferences are up to date and accurately reflect what you are looking for in an agency.

To get started, list your agency on Agency Link. For more information on Agency Link, please contact Carey Wallace at Carey@ohioinsuanceagents.com.


How OIA Can Help You Value and Perpetuate Your Agency

When Seth Zaremba of Zinc Insurance and Michael Davis of Michael L Davis Insurance met, they new they had similar interests in the insurance industry. Utilization of Indium market access, an interest in motorsports, and they conveniently live down the street from each other -- this match was meant to be!

When Davis decided he was ready to retire, he didn't have an internal perpetuation plan. That's when the opportunity came along for Zaremba purchase Davis' agency. 

"I think agents start at the wrong place in this conversation" says Zaremba. "Working with the OIA, I was aware of their valuation efforts so I suggested we get an objective third-party to inform us on this decision." 

"The process was very easy" states Davis. "I put together a large amount of information...which I would expect to put out for a valuable and accurate valuation. OIA was very quick to ask questions, put together the paperwork, and return a nice report." 

OIA gave Zaremba and Davis the tools they needed to provide an unbiased guidance and make an informed business decisions. Our Full Valuation Services are available for those who are considering perpetuating internally, selling their agency to a third party, or even purchasing another. 

Davis got his valuation at the right time for him so he could easily transition Michael L Davis Insurance to Zinc Insurance with no issues and no rush -- don't wait until it's too late for your agency! 

Check out the video above for the full testimonial!

GAIN AN UNBIASED UNDERSTANDING OF YOUR AGENCY'S VALUE

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Behind the Scenes of Selling Your Agency

You're sitting on the beach, an umbrella drink in your hand, feeling the ocean breeze on your face. You finally did it, you sold your insurance agency and now it’s time to relax and enjoy the retirement phase of your life.

As you’re sipping that drink and relishing in the retirement glow you start to have a nagging feeling that you forgot something. You look down and reassure yourself that you’ve slathered on the sunscreen, check. You look over at your significant other, check. You have your beach bag with towels, wallet, and book- check, check. What did you forget? 

WHAT HAPPENS TO YOUR E&O DURING A SALE?

Whether it’s called “change of control,” “mergers and consolidations” or simply “sale, transfer or assignment,” there is a provision in the conditions section of your insurance policy that requires notification to the insurance carrier when you sell/ merge your agency, or you have a majority change in ownership. In some policies, the coverage available under your E&O policy ceases on the date of the sale or majority ownership change, while other policies allow you 60 days to 120 days to report the change. 

In the majority of agency sales, we aren’t notified until after the sale or worse - not until renewal time.  When we know beforehand that you’re selling your agency, we can advise you and help you understand your E&O policy and the notification requirements. 

We can provide guidance in the purchase of “tail coverage” also known as extended reporting period, especially the cost of the coverage which can range from 100% to 300% of the annual premium depending on the amount of years you would like to extend the reporting period.

WHAT DOES THIS ALL MEAN?

In an asset only purchase any alleged wrongful acts that occur prior to the sale of your agency will be your responsibility and will need to be reported to your insurer.  Therefore, it’s essential that you are aware of the provision in your policy and the amount of time that you must notify the carrier of the sale as well as your ability to purchase tail coverage. Once we are aware of the potential sale of your agency we can help you understand your options.

Unlike occurrence-based policies, E&O insurance is written on a claims-made basis. This means you must have a policy in force on the date the claim is made against you to trigger coverage. Of course, coverage is subject to the retro date and other policy terms and conditions.   

Professional liability policies have an automatic extended reporting period of typically 30 to 60 days (depending on the policy form) in which you can still file claims for wrongful acts that occurred prior to the cancellation of your policy and after your retro date. However, you must understand, this extends only the reporting time and not the policy period. 

Once your automatic extended reporting period begins, the clock starts ticking off the days that are left for you to purchase the optional extended reporting period or “tail coverage.” If you don’t purchase this tail coverage, you could be left uninsured.
 

WHAT HAPPENS WHEN COVERAGE ENDS?

Here’s how this works if your E&O policy has a provision that coverage ceases on the day you have a majority change in ownership.

If you sell your agency effective June 1, the policy coverage terminates. You now have 60 days (approximately August 1) to report any wrongful acts that occurred prior to June 1 but after the retro date on your policy.

If you wish to extend the reporting time (and typically you are required by contract with the buyer to purchase tail coverage) you only have until August 1 to purchase the optional extended reporting period. Your options for reporting time period extension ranges from 1 to 10 years depending on the carrier.

Once the 60 days are exhausted, you no longer have the option to purchase tail coverage and you will not have any coverage for wrongful acts that are alleged to have occurred prior to the termination date.

Without coverage, you are now personally responsible for defense and any settlement or judgements that occur. In addition, you are in breach of contract with the buyer.
 

TAKE ACTION NOW!

If you’re selling your agency or thinking of selling, please call your E&O representative to discuss your policy.

Already sold your agency? Contact OIA's E&O team immediately if you’re unsure of the next steps -- we’ll help you navigate through the E&O process!

Contact OIA


Selling your agency and online dating

Business partner match puzzle pieces

What in the world can selling your agency and online dating possibly have in common?

Everything, actually.

You have worked your entire life building a relationship-based business.

The business may have been in your family for several generations. Or maybe, your family works with you, and even if your staff is not related by blood, they are family in every sense of the word too.

And your customers are your friends – some could even be lifelong friends.

You’ve helped them through so many milestones in their lives: weddings, first homes, children, new drivers, building their businesses, and of course at their darkest times when they are facing a loss.

They have depended on you to protect them, their families, their businesses and their assets -- and their relationships mean everything to you.

Don’t leave it up to chance

Relationships mean everything in our industry. That’s why I know that these relationships mean everything to you and your agency.

I have no question that the future of these people that you have touched through owning your agency is incredibly important to you.

When considering the sale of your agency, how can you make sure the future owners will value your clients and their lives as much as you do?

Selling your agency shouldn’t feel like a random blind date or be left up to chance.

It’s unlikely that you’ll find the best results when the process starts with an out-of-the-blue phone call, unsolicited LinkedIn request or the squeaky wheel up the street whom you never quite trusted. These are all the equivalent of a blind date.

It just doesn’t seem quite right to trust your valued client relationships to deals like that, does it?

Don’t get me wrong, I often hear from agents that they know exactly who they will sell to because they’ve met another agent sometime throughout their career and built a relationship with them.

Over time, they have come to know that their beliefs, culture and attitudes are aligned. Their likelihood for a successful transition is high because they are ahead of the game! 

But what if that’s not your situation?

If you don’t have that relationship already built, please don’t make one of the biggest decisions of your career based on a chance encounter.

Help is here

I’d like you to consider that there may be many other agents that are aligned in the same way, have created a similar culture in their agency, have the same or similar carrier mix and use the same software -- you just haven’t had the opportunity to cross paths.

It’s not only possible, it’s probable.

Heck, we know that there are over 1,300 independent agencies in the state of Ohio, so it’s impossible to think that you have had the opportunity to meet and get to know all of them.

Wouldn’t you want to know that there are several great options to consider when it comes time to sell your agency?

OIA can show you those options.

If you do not have an agency in mind, we can help you find the right match if you decide to sell your agency.

We can help you make a decision based on data, not chance – which is how this is exactly like online dating.

Online dating uses the information, interests, hobbies, etc. that people share about themselves to determine matches.

Then their algorithms match those with the highest probability of compatibility based on the data that was shared.

OIA’s Agency Link program is based on the same premise.

How does it work?

As a buyer or a seller, here’s how it works:

  • Fill out the Agency Link Form to let us know if you are interested in buying or selling.
     

  • You will be asked to describe the type of agency that you are interested in connecting with, including, location, size, mix of business, carrier mix, agency management system and niches.
     

  • Until a matching buyer or seller contacts us, you can expect OIA to reach out to you quarterly to update your profile because we know that things can change.
     

Prior to making a match, OIA will complete a valuation of the selling agency and that agency will pay a fee to OIA to complete a search for agencies that match their profile.

If we make a match between two agencies, we will share the potential buyer’s information with the seller.

At that point, the seller has the option to “swipe left” to decline the deal or they can choose to move forward and receive a proposal from the buyer.

(For those of you who are like me and have never used the online dating app Tinder, “swipe left” means that the seller can pass on any agency that they do not wish to work with.)

After the selling agency selects a buyer, OIA will then refer both parties to separate legal counsel to negotiate and finalize the transaction.

A happy ending for all

We believe that matching agencies that are well aligned will result in higher prices for the sellers, better transactions for buyers and a healthier IA channel as a whole.

We want you to be well informed when making the decision to sell your agency, and we know having the right advisor through that process can make all the difference.

Choose someone who understands that and is ready to be your advocate.

We are prepared to leverage the data we have to help you every step of the way, ensure that you know all of your options and achieve the goals that are most important to you.

We want to see agency owners selling their agency with the right information to make the best decisions for themselves, their families, their staff, their agency and ultimately, the IA channel as a whole. 

Ready to "Get Linked"?

Fill out the Agency Link form to receive a proposal!
 

Get Linked Today

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