As we begin the new year, most agencies are focusing on growth and retention, which are two of the biggest drivers of agency value. Additionally, as the value of an insurance agency is largely tied to intangible assets like customer lists and relationships, we encourage the agencies we value and visit to also consider implementing a few additional changes that are small, but will impact value over time with the additional benefit of peace of mind.
Contingency Buy-Sell Agreements
We receive several calls each year from widowed spouses of agency owners who were not involved in the day-to-day operations of the agency, most without knowledge of the insurance industry at all. What often results is a fire-sale of the agency, where the estate does not realize the full value of the agency. Selling the agency in a panic places undue stress on the family and robs them of the financial rewards built up over time.
We encourage all our agents to put in place a contingency buy-sell agreement that will provide guidance for the sale of the agency assets should the unexpected happen. A contingency buy-sell agreement with key employees, a friend in the business, or a friendly competitor, will outline how the agency assets will transfer, what will be paid to the estate, the timing of the payments, and the funding mechanisms.
Agents that don’t take the time to put these agreements in place are putting their life’s work at risk and potentially short-changing their families.
Along with contingency buy-sell agreements, we encourage our agencies to ensure they have producer agreements in place. Producer agreements contain specific language that establishes non-competition, non-solicitation, non-piracy, and non-disclosure parameters. Entering into these agreements provides two benefits: first, it tethers the producer to the agency, and second, it protects the agency’s book of business should the producer seek employment elsewhere.
Employment agreements are similar to producer agreements, but for staff in non-production roles in the agency. Employment agreements are designed to protect the agency’s confidential information such as customer lists, trade secrets, and any proprietary information that gives the agency an advantage in the marketplace.
We recommend that you work with a business attorney that is not only familiar with the insurance industry, but also with your state’s laws related to restraints on trade and commerce.
As you begin 2024, we encourage you to get these agreements in place. Executing these documents will ensure that you are protecting your agency and your estate and give you peace of mind as you work to drive revenue and retention in the new year. For any questions, to discuss your specific situation, or to receive sample agreement documents please reach out to firstname.lastname@example.org.
About IA Valuations and Agency Link – Founded in 2017, the IA Valuations team has performed over 220 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 co nnects 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 email@example.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 firstname.lastname@example.org to discuss your personal situation.
Copyright ©2024 by IA Valuations and Ohio Insurance Agents Association (OIA). All rights reserved. No portion of this document may be reproduced in any manner without the prior written consent of IA Valuations or OIA. In addition, this document may not be posted as a link on any public or private website without the prior written consent of IA Valuations or OIA.