Is this a question you have found yourself asking? If so, we will explore what to do next.

First, let’s start with the evaluation process of determining whether your agency value has peaked.

For me, this question arose when I was meeting with an agency owner that was sharing that they had made the decision to sell their agency. As we went through their thought process and reasons why the owner decided to sell, I was struck by how thoughtful and diligent the owner was in assessing the upside of their agency value outside of the valuation process.

This owner believed that the value of the agency under their leadership had peaked. The owner reviewed five primary metrics to make this determination, including – generational health of their staff, organic growth, record high agency valuations, completion of the book of business, and PL/CL split.

Let’s explore the reasoning about what led the owner to the conclusion that their value had peaked, and it was time to sell.

First, the owner is in retirement age (upwards of 60), as is many of the staff. It is a midsized agency where the staff aged together and are all in the window of retirement. While it made for a cohesive and experienced team while serving their clients in the past and present, it does not make for a great operation in the future. Bottom line, the generational health of the agency was badly out of balance and the owner recognized that in order to grow the agency, it was going to require him to make additional investments of time, energy, and resources that they did not want to make at this stage in their life and career.

In addition, the owner also saw their energy and focus waning a bit. The fire in the belly was flickering, the hunger for another sale had dissipated, the stress of keeping up with carrier changes had increased, and the desire to adopt additional technology was absent. Upon much self-reflection, the owner realized that it was time to transition ownership of the agency.

Second, while the agency experienced continual single-digit growth primarily from word-of-mouth referrals, in order to achieve double-digit growth to significantly enhance the value of their agency, it was going to require additional investment the owner did not want to make.

They recognized that they would have to change their approach to marketing and selling. In addition to recruiting, hiring, onboarding, and training new producers, the agency owner would have to risk significant personal capital at a late stage in their career to make the investments necessary to enhance agency value past its current mark.

The owner would have to change the agency to a growth mindset, implement a proactive sales strategy, and establish goals and accountability, which would be contrary to how they have operated the agency for the past 10 years. The owner had climbed that mountain earlier in their career and was not interested in doing it again, especially at this late stage in the game.

Third, agency valuations are at all-time highs, and it is unknown whether they will continue to climb, flatten out, or decline. The owner wanted to sell while the market, agency, and economy was at its peak. The owner did not want to delay the sale to see what was going to happen next with the private equity infusion of capital in the IA system and what effect rising interest rates would have on agency sales and values. The owner did not want to worry about whether we were heading into a recession and have to wait another 1, 3, or 5 years to sell the agency at peak value.

Fourth, the agency’s clients were of the same generation as the owner and staff. While retention at the agency has been in the mid-90s for many years, new business has been single-digits during the same time period. Their clients and referral sources are ageing and likely to be insuring less risk, not necessarily more, over the next 5 – 10 years.

Finally, the Personal Lines (PL)/Commercial Lines (CL) was a 70/30 split. The owner expressed a growing concern over the commoditization of the PL marketplace and risk that the agency could start to see some pullback in the auto and homeowners’ book of business.

The owner did not want to see how their business would be impacted by embedded insurance, autonomous vehicles, and increasing competition from insurtech digital carriers. The owner did not see a meaningful change in the PL/CL split and wanted to sell the agency while PL still has maximum value and interest from buyers.

Conclusion

While many of these assessments are personal and subjective, many are data driven and factor directly into the value of your agency. The owner started with a fair market valuation 3 years ago when these thoughts started to become more prevalent. They updated the valuation this year when it became apparent that a sale may be on the more immediate horizon. Over those 3 years, the agency’s value increased by 36%, but the risk factors increased significantly due to all the areas previously identified.

If you find yourself in a similar situation, we encourage you to go through the same self-reflective process that this agency owner did and reach out to Jeff Smith, JD, CIC at jeff@iavaluations.com so we can have a conversation and assess whether your agency value has peaked.

About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 200 valuations to independent insurance agencies across the U.S. Our advisors have 25+ years of experience guiding agency owners on maximizing their agency value, planning, and legal needs for ownership transition. In addition, IA Valuations has provided perpetuation planning, financial modeling and business planning for independent insurance agencies. Finally, IA Valuations has advised dozens of agency owners on selling their agencies through our Agency Link process. Agency Link is a platform that connects buyers and sellers together to further the growth and strength of the IA system. To learn more about IA Valuations, please visit IAValuations.com or contact@iavaluations.com.

The information provided in these documents is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Please contact@iavaluations.com to discuss your personal situation.

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