agency valuation

Carrier Relationships and Agency Valuations

Sure, it’s common sense that the carriers you do business with can impact the value of your agency, but let’s examine how they impact the value of your agency.

More carriers aren’t the answer.

Some insurance companies manage their appointments closely while others are relatively open in appointing agents. In most cases, it is valuable to have a market in your agency that no one else has. A hard-to-get insurance carrier can offer a competitive advantage and attract potential buyers for a variety of reasons including geographical growth and new products. The length of your relationship is important, and a long one can signify stability that will likely continue.

A “healthy” agency-carrier relationship is one that is growing with a shared focus and a profitable book of business. It’s common to see the 80/20 rule in agencies – 80% of revenue is with 20% of their appointed carriers. In most cases, more carriers aren’t the answer to running a successful insurance agency. Having a good grip on your target market and the carriers you need to dominate that area will bring you more success with less frictional costs. It is unproductive to have insurance carrier reps and underwriters lined up outside your office if they don’t fit your needs. Planning and executing with a smaller, more focused group of insurance carriers is the most efficient use of time. Focusing your carrier relationships will greatly reduce the frustration experienced by carriers who aren’t a fit and deepen the relationships with those who are.

Rock solid carrier partnerships are valuable.

While the numbers are always important, there are intangibles to carrier relationships. Some carriers seem to “get it,” and there’s an appropriate “give and take” from both sides that allows the trust level to soar. These carriers feel like a true partner. The best definition I could find that captures this feeling is from Wikipedia: “A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests.” The more your carriers feel like you are working for a mutual benefit, the deeper relationship you’ll develop, enabling you to navigate the inevitable difficulties of this business. Rock solid carrier partnerships are valuable. These carriers know you, your team, and your customers.  You know the local representatives, and you also typically know people in the home offices including senior management.  This can be very important in getting your voice heard and potentially influencing decisions.

“Who do you represent?”

When someone is looking to put a value on your agency, your insurance carrier relationships will be a big consideration. Typically, one of the first questions someone will ask once they know how much revenue your agency generates is “Who do you represent?” Having a recognizable list of carriers that you’ve represented for a long time is important.  At some point, a potential buyer will have the need and authority to approach your carriers to determine if they will appoint them post-acquisition. The carriers’ responses will tell the buyer a lot about the relationships and value of that book of business. A long and prosperous relationship is a great story for a buyer to hear.  The more of these stories, the better. Complex tales of starts and stops with unprofitable endings is a completely different story – one that could break a deal.

Mike Strakhov is the Executive Director of Insurance lending at Live Oak Bank, Wilmington, NC. Reach him at michael.strakhov@liveoak.bank or 910.550.2884.