Factors that negatively affect independent insurance agency value: Part one

Upside down piggy bank with money on table

There are many factors that affect the value of an insurance agency, both positively and negatively.

It's important to look beyond just the numbers and the quick multiple-of-revenue valuation rule of thumb in order to assess the ability of the agency to maintain and grow the business going forward.

Below are some of the factors that negatively affect agency value.

Carrier Concentration

If an agency has an inordinate amount of business with one carrier, or with a poorly rated carrier, their value will be impacted negatively.

Some agencies will argue that they maximize their contingency payments by giving the bulk of their business to one carrier. And while that may be true, there still is increased risk in their book of business because of the exposure that would occur if the carrier had a change in appetite or changed its payment structure.

When risk goes up, value goes down.

Client Concentration

If a single client or a handful of clients account for an unusually large percentage of total commissions and fees, the value of the agency will decrease.

Agencies often become complacent while relying on these few key accounts to make up the bulk of the commissions and profits. However, if one of these key accounts leaves, the agency would be in serious jeopardy.

It is essential to spread the risk by writing more new, large accounts.

Producer Risk

In many agencies, large portions of the overall agency book of business are controlled by one producer.

There is inherent risk in this because if that producer leaves the agency, retires, or gets hit by the proverbial bus (we prefer “wins the lottery”), all of those accounts will be at risk of leaving the agency.

It is important to ensure that multiple employees have relationships with these key accounts in an effort to reduce the attrition that will likely occur if the producer leaves.


Overall, agency value tends to diminish when an agency has a few large accounts that comprise the bulk of the book, or when accounts are highly concentrated with one carrier or one producer.

To improve the value of your agency, continue to write new larger accounts and try to spread your accounts to more carriers and more producers.

Ready to value your agency?

OIA’s Full Valuation Services, exclusively developed for independent agencies, are now available for those who are considering perpetuating internally, selling their agency to a third party, or even purchasing another.

Let us be your trusted advisor. We’re here to ensure small- to mid-sized agencies are empowered with the right tools to plan their agency’s success.

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