under-managed insurance agency

7 Signs of an Under-managed Insurance Agency – Buyer Beware or Buyer Behold?

Frequently, insurance agencies are a lifestyle business, yet managed at a level to grow modestly and run efficiently. Then, the owner begins to drift away from the day-to-day operations. Maybe he or she has a second home in another state; perhaps there’s a family health issue. Eventually, the owner may be so removed from the business that there is no true management or leadership. Even the best employees may not recognize areas to drive agency performance, or may not feel empowered to make changes.

Eventually, the owner determines it is time to sell and many times expects the same purchase-price multiple as a well-performing agency. Really? The core book of business is certainly of value, but top-dollar deals are for top-performing agencies.

Evidence of an Under-managed Agency (revenue under +/- $2,000,000):

  • Fragmented Revenue by Carrier. A quick tell is analysis of Revenue by Carrier. Are there four to five top carriers and then the rest? Or pages and pages of carriers, each with a smattering of business? Note – it can be tough to get the carrier contract to stay in place with minimal business from an agency they forgot about.

  • No systemic and simple production activities. A strong agency frequently quotes and re-quotes the next year on those accounts they didn’t win. Renewals are robotic. Pre-renewal calls to update information and provide a personal touch is a foreign concept. Note – the current staff may not welcome the additional work and higher expectation, or they may embrace the ideas.

  • Minimal marketing. It’s amazing how many small insurance agencies simply do nothing. A lackluster website and a sign on the building may be the only marketing efforts. Income may be inflated by the lack of marketing spend. Note – it will take more money initially to develop marketing resources.

  • Contingency history. No effort is made to direct and monitor business to contracts with favorable contingency terms. Note – it takes a while to consolidate the book and then a year or more to result in contingency payouts.

  • Agency statistics are poor. Renewal retention, new business and loss ratios will eventually show signs of neglect. Note – new processes and re-underwriting the book won’t move the needle overnight, but results will manifest in year two or three of ownership.

  • Technology. Upload, download, integrate are not priorities, nor considered. Income is overstated by the lack of technology spend. Note – there are many good technology solutions that don’t break the bank.

  • Overpaid employees. It’s easier to overpay a long-tenured, trustworthy employee, than go to the office. Note – employee disruption may be necessary and a long-term gain, but it’s not fun.

For buyers of these destressed agencies, you have some real negotiating power. It’s going to take elbow grease, but you can turn around an under-managed agency with leadership, experience and hard work. Buy it right and your efforts will be rewarded. 

Kelly Drouillard is the general manager of insurance lending at Live Oak Bank. Reach her at Kelly.Drouillard@LiveOakBank or 913-980-7773.