Insurance agency acquisitions and mergers are on the rise, and analysts are looking for reasons for this trend. The answer is complicated, but easy to define. In today's market, insurance agency sales are more influenced by a number of factors than they used to be. These changes have caused many questions, including why agencies are choosing to buy out their insurance department. To help understand the factors influencing insurance agency sales, I've categorized them into five buckets: Be sure to click here for more.
Directly related to the reasons insurance agencies decide to buy out their departments is the need to retain key employees. As most employees know, one of the most important parts of working at an agency is learning the business and gaining experience to become an expert in a specific insurance agency area. Potential buyers must ensure that an agency-employed employee has the right experience and expertise to succeed within the new business. Whether the agency needs to retain its agent or outsource some of its functions is an important question for potential buyers to answer.
Another consideration for agencies to determine whether to buy out an insurance company is the strength of the insurance company's balance sheet. Insurance companies must maintain healthy credit lines to be able to meet financial obligations. In addition, insurance company assets must be liquidated in order to service debts and guarantee dividend payments. This could have a major effect on an insurance agency's ability to absorb a financial loss. Buyout of an insurance agency usually has to be approved by a combination of board members, stockholders and creditors.
Finally, there is the opportunity for an insurance agency to increase its client base. In many cases, buyers must look for agencies that are expanding their business coverage beyond the traditional auto, homeowners and flood insurance markets. The sales force often makes this easier, but it also requires diligence. Insurers often must look into the background of each applicant and verify that the applicants meet company requirements. In addition, there must be a good measure of risk involved in purchasing surplus lines. Insurance companies are usually loath to undertake such large transactions without knowing all of the facts about the new clients.
Many insurance agencies choose not to buyout insurance agencies when they do not believe the business will make money. Such policies are not written with an eye toward profitability. Buyout of an insurance agency is a gamble that every insurance buyer must take.
Buyouts of these types of agencies are usually supported by the insurance agents that sell the policies. Most agencies purchase their existing business from existing agents. To a large degree, it is up to the agent selling the policies to determine how much of a cut the agency will get and what types of services the buyer will get. In most cases, however, the sale of agencies like this is supported by the larger agencies because the extra business is worth more to them. Check out this related post: https://simple.wikipedia.org/wiki/Insurance to get more enlightened on the topic.